We have until the end of the year to agree our future relationship with the EU. As the clock keeps ticking, with no definitive view on where we stand, can businesses future-proof their corporate structures?
With so many other commercial considerations, how your business is structured may not jump out as something high on your Brexit review list, but it is definitely worth looking at. In fact it is one of the main areas of change that the European Commission has said will take place in any event. In this article, we pick out key questions you need to ask yourself from a business structuring perspective.
Does my group structure include branches, places of business or central administration in the EU (outside of the UK)?
As of 1 January 2021, UK incorporated companies will be ‘third country’ companies. This means that the legal personality and limited liability of UK companies that have their central administration or place of business in one of the remaining 27 EU Member States, may not be recognised. The position will be determined by that Member State’s national law or international law treaties. Worst case scenario, a UK company’s shareholders may become personally liable for the business’ actions and liabilities abroad.
If you have a place of business, branch, establishment or any similar arrangement in an EU-27 country, it would be prudent to seek local law advice on the legal personality and limited liability status of that arrangement from the end of this year.
You may need to consider other ways of localising that part of your business, for example by setting up an incorporated company in the relevant EU-27 country. This decision is likely to be influenced by many commercial factors ‘ ranging from the protection of EU domain name and trade mark registrations, a need to preserve EU market access, restrictions which may be imposed on cross-border operations (such as additional approvals to operate) and potential loss of access to EU-funded programmes.
And in the reverse? If you have EEA companies with registered establishments/branches in the UK, be aware that additional information will need to be provided to Companies House from the end of this year. Exemptions, such as those relating to the filing of accounts, will no longer be available and additional trading disclosures will need to be made in their business correspondence and on their websites.
Subsidiary companies properly incorporated in an EU-27 country will continue to be covered by all relevant EU law and should not be impacted by the above.
My group includes a Societas Europaea or EEIG, do I need to do anything?
Any existing European Company (also called Societas Europaea) or European Economic Interest Groupings set up in the UK will automatically convert into a new UK corporate entity from 1 January 2021. You can make alternative arrangements if certain conditions are met, for example converting your Societas Europaea into a UK public limited company or moving their seat of registration to another EU Member State, but this must be completed by 1 January 2021.
If you have a Societas Europaea registered in the EU which has a branch or establishment in the UK, you will need to register this at Companies House by 31 March 2021.
It will not be possible to form a Societas Europaea in the UK after 31 December 2020.
Do any of my directors or other officers need to change?
Look at the directorships and other senior manager roles held across your group structure. Have you any companies incorporated in an EU-27 country which require at least one director/officer to be an EU national? If so, make sure that this condition is satisfied. This may involve appointing new officers. Any EU-27 incorporated company with a sole director based in the UK should raise a red flag.
There is no requirement for the officers of UK incorporated companies to be UK nationals. However, EEA companies acting as corporate directors of UK companies will need to file additional information with Companies House from the end of this year.
Will I need to make changes to the way I run the group’s business operations?
If your UK group runs or owns a business operation in an EU-27 country, you are likely to become subject to additional filing obligations (particularly in relation to accounts where exemptions for EEA companies will no longer apply) at corporate registries. It would be wise to check these with local law advisers.
Your business is also likely to become subject to national laws applicable to other non-EU countries. For example, different real estate requirements, greater limitations on ownership by non-nationals and approvals to operate. Again, this would be worth clarifying with local experts.
Will I need to make changes to the way we prepare our accounts and financial audits?
Very likely, yes. If you operate any branch or subsidiary in an EU-27 country you will need to comply with the specific accounting and reporting requirements for such businesses in the EU-27 country in which they operate. Companies Act 2006 compliance may no longer be sufficient.
Where you have parent companies or subsidiaries incorporated in an EU-27 country, certain exemptions relating to the preparation of individual accounts will no longer able available. You will need to find out if you need to prepare group accounts.
All UK incorporated companies which report under EU IAS will need to report under the UK equivalent for financial years beginning after 1 January 2021.
UK public companies with a UK listing or EEA listing will need to comply with some very specific rules.
You will need to check that your auditor’s qualification will continue to be recognised in EEA countries from 1 January 2021.
While this may seem a daunting list of questions to add to an already long Brexit ‘to-do’ list, there are legal and financial advisors out there who can help guide you through the process.
The key thing is to ensure your business operations can continue unhindered after 31 December 2020. Run through the above to assess what is relevant to your group, and don’t ignore any dormant entities – much of the above applies to them as much as to your trading entities.
Make it a priority to identify directors of EU operations who are not nationals in the relevant EU-27 country to ensure this won’t cause management issues going forwards. And, most importantly, check the legal status of any EU branch or place of business outside the UK. It may be that your shareholders become personally responsible for the company’s liabilities and actions.
Although the future is somewhat uncertain, careful planning and consideration of how any changes might affect you will give you the best chance of future-proofing your business, whatever lies ahead.