Seat theory or not, that is the question

The Federal Court of Justice (II ZB 25/17) may take the seat theory for the last time with its decision of June 15, 2021

“A entry entry into the Commercial Registry must be submitted electronically in accordance with Section 12 Paragraph 1 Clause 1, Paragraph 2 Paragraph 2 Clause 2 HGB with a simple electronic certificate from a notary in accordance with Section 39a BeurkG. Submission with a qualified electronic signature is not considered by the application issuer pursuant to Section 126a BGB enough”

The content is somewhat trivial to the decision. What was that about?

An English limited company registered a branch in the Commercial Registry with the District Court of Frankfurt am Main in March 2014. By an interim ruling of June 11, 2014, the Registry Court informed the parties concerned that the registration could not be complied with because the electronic certificate required under Section 39A of BeurkG had not been provided concurrently With Section 12(2) of the German Commercial Code (HGB), the publicly approved version of the partnership agreement form between the parties and translation is not attached, the amount of share capital of the parties involved is not specified and it is the responsibility of the director of the parties involved to inform him of his unrestricted obligation to provide information to the court With regard to any obstacles to designation pursuant to Article 13g(2), sentence 2 HGB in conjunction with Section 8 paragraph 3 GmbHG is missing.

The Federal Court of Justice states:

“The Court of Appeal has rightly held that the registration of the parties pursuant to Article 12 Paragraph 1 Sentence 1, Paragraph 2 Sentence 2 Paragraph 2 HGB must be submitted by a simple electronic certificate in accordance with Article 39a BeurkG and transmission with the qualified electronic signature of its principals is not sufficient for the domestic registration procedure and thus also for the entry of A branch of a foreign company in the commercial registry, the German registration procedure law applies.

Unsuccessfully, the party continues to oppose the appellate court’s assumption that, according to Article 13g(1),(2), sentence 1 of the German Commercial Code (HGB), it may not submit the Model Articles it has adopted unchanged as its statute, but whose articles of incorporation are required in General certified copy and certified translation…

The obligation to file the Memorandum of Association in a publicly certified copy with a certified translation does not ultimately violate the requirements of Directive (EU) 2017/1132 (Company Law Directive) regarding disclosure of information and documents from branches… to which the parties belong after the UK leaves the EU The transition period agreed upon in the Withdrawal Agreement no longer applies to companies from other Member States within the meaning of Article 29, but to companies from a third country within the meaning of Article 36 of the Companies Act Directive, the disclosure obligations of which are regulated in Article 37 et seq. From the directive … an impediment to freedom of incorporation pursuant to Article 49, 54 does not apply because the party concerned can no longer invoke freedom of incorporation …

According to the directive, member states are, in principle, free to provide further disclosure procedures to companies from third countries beyond the minimum information specified in Article 37.”

This last sentence in particular can only be resolved through the Federal Court of Justice’s commitment to the so-called seat theory explains. Accordingly, a company may only be registered or incorporated if it has its physical domicile. The foreign company loses your registration and therefore often loses the privilege of no liability on the part of the shareholders when the effective seat in Germany is transferred. In this case, the registration in the Commercial Registry must be made again so that it is not systematically considered a general partnership (OHG) with unlimited liability to the shareholders. In contrast, the Foundation Theory The view that all that matters is whether the company is effectively incorporated into a country. Through effective formation, the company gains its legal capacity which it retains even if it moves its physical headquarters abroad. Thus, the start-up theory enables the seat to be moved across the boundary while maintaining the start-up state.

Otherwise, the Federal Court of Justice had to discuss the franchise of branch registration according to the incorporation theory. Besides European freedom of incorporation, incorporation theory meant recognition of the corporate law of the state in which the company was incorporated.

With the Partnership Law Modernization Act (Partnership Law Modernization Law – Ministry of Planning and International Cooperation) On August 10, 2021, the German legislature abolished the seat theory and opened the door to the start-up theory (BT-Drucksache 19/27635, p. 126 f.). In accordance with the new Article 706 BGB, partnerships can now also move their administrative headquarters abroad, which has been possible for LLCs and Joint Stock Companies for several years (“MoMiG”). Thus the Federal Court of Justice will not be able to uphold its opinion on the seat theory, eg BGH, Judgment of October 27, 2008 – II ZR 158/06. In any case, the justification efforts will be high: only the departure of German companies is preferable, but not the arrival of foreign companies. It’s hard to hear.

The discussion on the interpretation of December 30, 2020 between European Union and the United Kingdom closed Trade and Cooperation Agreements And insofar as British companies are still to be recognized in Germany, it is likely to fade into thin air: incorporation theory already requires such recognition.