Simon Hart, lead Brexit partner at RSM, said: ‘Hidden in the detailed no deal technical notice for structuring your business is a seemingly innocuous paragraph which could lead to the limited liability status of UK companies and LLPs not being recognised in some EU jurisdictions in the event of a no deal Brexit.
‘The technical notice states that "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."
‘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 the clock ticking, 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.’