For changing the name (Umfirmierung) or structure/legal form (Umwandlung) of your company in Germany, seemingly similar terms are being used, but they apply completely differently. In changing name “as it seems so” you only change the name of your firm however the scope of changes when you apply them to the legal form is quite different . In this short article, we try to explain both as follows:
Changing your company name (Umfirmierung)
As mentioned earlier, by just changing the name of a company, the legal format will not change. This change should be initially voted and approved by shareholders, then the article of association (AoA) (aka. Gesellschaftsvertrag in Germany) will be accordingly modified and notarized. This will be followed by a new application for the commercial register too. Therefore changing the name has seemingly no significant consequences on the business operation and shareholders as the legal format will still remain unchanged.
The reasons for changing your company name in Germany
- Your company has changed its business direction and focus and the initial name is not appropriate anymore.
- Your initial company name is very complicated or not chosen properly.
- Another company in Germany has claimed the ownership of your business name.
- Your company with its initial name is too local or specific while your business operation might nowadays cover a wider range of customers in different areas. Or your company Intends to be more international in the near future and its initial name is not appropriate for the new market (negative or improper meaning).
The special case of changing name from UG to GmbH
As you might have already researched about it, limited liability companies in Germany can start with no initial capital or the minimum capital of 25,000 €. The former is called UG and the latter is GmbH. But the Germany allows many startup companies with lower initial capital to convert to GmbH as soon as they raise their nominal capital to the minimum of 12,500 € (half of the GmbH liability). Although this process is actually changing the business structure but it operates as changing the business name and will not undergo a complicated paperwork as other legal form conversions.
The reason is that the AoA of UG and GmbH have both the same legal foundation. In other words, UG is actually a potential GmbH which can be turned to de facto as soon as the initial capital is provided. In this process, you, as a company owner, can simultaneously change the name to whatever you want without any extra bureaucracy and complication. For example Schmitz UG can change to Carlson GmbH with the same procedure as Schmitz UG to Carlson UG.
The risks of changing your company name in Germany
Changing company names in Germany can have some cons too which we will review them shortly as follows:
- Domains, websites, and in general all your marketing channels should be adjusted accordingly: This could be very time consuming and be the reason for losing your business SEO visibility.
- Losing your customer trust and consequently her/him: your current company name as an established brand can be the basis of your customers trust on your product/service quality losing which can lead to violating this trust.
- The created awareness around your company name and brand could be destroyed: In this regard, extensive communication is needed to inform existing and potential clients.
- Changing your business name can cause you some administration or consultancy costs: for example arrangement and preparation of the updated documents, costs related to the notary and the district court, and finally most probably costs related to changing logo, domain, etc.
Fixed costs for changing your company name in Germany
The charges regarding name change are not just for preparation of documents (for which you might require some professional assistance) rather the notary (Notar) and court (Amtsgericht) costs which are both dependent on the type of your legal form (AG, UG, GmbH, ..), the number of shareholders and even the goodwill (Geschäftswert). For basic administration costs such as notary 300-400 €, district court, 50-70 € and the issuance of the updated business license (Gewerbe) you should consider 30-40 €.
Changing your company structure/legal format (Umwandlung)
Contrary to changing your company name, changing its legal format is more complicated and more costly in Germany. In general your company structure should be rearranged again. This conversion can also be conducted under several laws such as the general rules of conversion “UmwG” or other laws such as “HGB”, “GmbHG” or “GmbHG” depending on your company’s legal form.
Almost all legal entities in Germany can be converted to one another. The only exception is conversion from GbR to oHG. The relevant law for this act is HGB based on which if the transaction volume and the scope of the economic activity of the GbR exceeds a given amount, the company will be automatically converted to oHG and calls for no complication.
The motivation and reasons for changing the company legal form in Germany
- Limiting the liability of your company to your desired amount: for example by converting from GbR to a limited company such as UG in Germany, your reliability in business will be limited to your company’s asset.
- Finding new financial sources: Usually by changing your company structure, you may be able to find new investors. For example by changing your capital company (Kapitalgesellschaft) to some sort of partnership (Personengesellschaft) the business credibility can be improved through the credit of the new investor which can finally lead to a better situation for obtaining more loans from banks.
- Delaying the bankruptcy: companies can delay the bankruptcy process by changing the legal format to partnership under special circumstances.
- Better image or public relation: for example, converting to an SE company is only reasonable for you when the business is active in the whole Europe and intends to extend his image and brand in the continent.
- Preparing for succession: For example if a sole self-employed person in Germany wants to sell his license and business to you, it is sometimes recommended that he converts his business to a corporation as this facilitates selling shares partially or totally and transferring them under your name. (especially for the ones who want to get the Germany residency too).
- Tax benefits in the desired legal form: For example, the corporate tax (tax on company net profit) will be eliminated in conversion from limited company to the partnership. However, income tax could naturally increase as the business income will all be under the name of the business owner. That’s why this strategy calls for more calculations but there is always one optimum type of legal form in terms of tax costs for each business in Germany.
Different types of conversion (company structure change)
Any conversion in Germany will be done in one of the following forms:
- Structure change through changing the legal form (§ 190 UmwG): by changing your legal format in Germany, the legal identity of your company will not change and your previous shareholders will remain and also no share or asset will be transferred from the company to another one. (Only the legal form will change).
- Structure change through integration (§2 UmbG): In this situation, two or more companies can merge into each other. This itself can be done in two forms; Either the whole capital of the first company will be transferred to the second company and the first company will be dissolved, while the second company will continue to operate. Or the whole capital of the first and the second company will transfer to a newly born company and the two former companies will be dissolved.
- Structure change through split: conversion is also possible through split or as Germans call (Splatung). In this scenario, individual divisions of a company can convert to separate and independent firms. Another scenario is that a whole company can be split into several firms.
Fixed costs of the structure change in Germany
The conversion costs cannot be easily calculated as it is highly dependent on the legal form of the former and newly converted company and thus very much case-oriented. In addition, depending on the complexity of the process, you might need a professional legal or business consultancy whose costs cannot be easily overlooked in Germany. However in order for you to have an initial estimate, we have provided you with an example for the fixed costs of the conversion from GmbH (limited liability company) and AG (public limited company) in Germany in the following:
- Notary costs: these exist for issuing and authentication of the company documents such as the article of association and the list of shareholders. The costs will be determined by notary and will be calculated based upon company assets. Obviously a UG company with small asset undergoes less bureaucratic costs at notay and court when compared with an AG with 50,000 € initial capital or more.
- Business registration costs: the amount of 30-40 € will be charged for issuing the business license by the local trade office.
- Court costs: which vary depending on the number of shareholders, the amount, and the type of asset, roughly between 150 and 240 € in Germany.
- Foundation audit: by converting from GmbH to AG, several formalities should be conducted and finalized which will be usually done by an auditor in Germany. The cost of these audits usually starts from 100 € per hour. The more your company documents in Germany are transparent, the lesser costs will be imposed to you due to the faster audit process.
Both changing the name and the structure of your company in Germany can provide you with some benefits; however, before proceeding to make any change, it is highly recommended to equip yourself with some professional consultancy, as changing name can cause difficulties with contractors. Changing the structure is more complicated and can cause you more consequences if done without proper studies in advance. Contact us if you need any info in the field of company formation in Germany.