In the event of a no deal Brexit, the limited liability status of UK companies and limited liability partnership (LLPs) may not be recognised in some EU jurisdictions, raising substantial business and personal risks, according to analysis of official government advice by RSM, which is urging businesses to ensure they review their structure
The firm is highlighting what it labels a ‘seemingly innocuous paragraph’ in the guidance on structuring a business in the event of the UK failing to agree a withdrawal agreement with the EU.
This technical notice states: ’UK companies and limited liability partnerships that have their central administration or principal place of business in certain EU member states may no longer have their limited liability recognised. This is the case in certain jurisdictions that operate the “real seat” principle of incorporation.’
After Brexit, if any UK incorporated company has its ‘real seat’ of principal management in another member state, there is a possibility that the member state may apply its own company law to the company and choose not to recognise it as an entity because it is not incorporated in the location of its central administration.
Simon Hart, lead Brexit partner at RSM, said: ‘So, if a UK company has its management based in Germany for example, the ‘real seat’ principle would mean UK company law would no longer be recognised – presenting a huge risk for up to 11,000 UK businesses.
‘In particular, a no deal Brexit could open up UK directors or shareholders to potential personal liability claims.
‘The detail may seem obscure but if a UK business or LLP has been bought out by a business based in a jurisdiction that applies the “real seat” principle of incorporation, then a UK business could sleep walk into operational, financial and reputational risk – where the limited liability status of the firm becomes invalid.’
With four weeks to go until Brexit, RSM is advising that UK companies and LLPs that have their central administration base or principal place of business in the EU need to consider whether it needs to restructure to comply with the requirements for incorporation to mitigate any future risk.
Report by Pat Sweet