Change of Legal Form in Business Succession

Change of Legal Form as an Option in Business Succession

Entrepreneurs face a variety of challenges during business succession. In addition to finding a suitable successor and arranging the transfer modalities, the question of the optimal legal form also arises. In many cases, a change of legal form can be beneficial to set the course for a successful future of the company. In particular, the transition from a limited liability company (GmbH) to a stock corporation (AG) offers numerous advantages that should be considered in succession planning.

Advantages of Changing the Legal Form to an AG

A key advantage of the AG over the GmbH lies in the easier transferability of shares. While GmbH shares can only be transferred through notarized deeds, shares in an AG can be transferred informally. This not only simplifies succession arrangements but also increases the liquidity of shares and thus their attractiveness to potential investors. Furthermore, the AG offers flexible capital-raising options through the issuance of preferred shares or convertible bonds.

There are also differences regarding liability: while GmbH shareholders can be held personally liable for the company’s obligations, liability in an AG is generally limited to the company’s assets. This can be particularly advantageous in risk-prone business activities or planned international expansion.

Tax Considerations in Changing the Legal Form

Tax implications must also be taken into account when changing the legal form. In principle, the conversion from a GmbH to an AG can be tax-neutral if the requirements of the Transformation Tax Act are met. This primarily includes the continuation of book values and the avoidance of revealing hidden reserves.

However, switching to an AG also entails new tax obligations. The AG is subject to corporate income tax and trade tax, whereas in a GmbH, taxation occurs at the shareholder level. The taxation of distributions also differs: in a GmbH, distributions are taxed as capital income at a flat rate of 25% plus solidarity surcharge and, if applicable, church tax; in an AG, distributions are taxed at 60% of the individual’s personal income tax rate.

Therefore, it is advisable to seek individualized tax advice before changing the legal form to weigh the advantages and disadvantages in the specific case and to find an optimal structure.

Procedure and Formalities of Changing the Legal Form

Changing the legal form from a GmbH to an AG requires a multi-step process and compliance with numerous formalities. First, a notarized resolution on the transformation must be passed by the shareholders’ meeting with a majority of at least 75% of the represented share capital. Subsequently, the shares of the new AG must be subscribed and the share capital contributed.

A crucial step is the preparation of a transformation report by the GmbH’s management board, which legally and economically explains and justifies the change of legal form. Additionally, a transformation balance sheet must be prepared and audited by an independent auditor. After registration with the commercial register and entry of the AG, the change of legal form is complete.

Conclusion

Changing the legal form from a GmbH to an AG can be an attractive option in business succession to facilitate the transferability of shares, limit liability risks, and open up new capital-raising opportunities. However, numerous legal and tax aspects must be considered, requiring careful planning and execution.

Support from experienced legal and tax advisors is essential to ensure the change of legal form is legally secure and tax-optimized. With proper preparation and guidance, the transition to an AG can succeed and open up new prospects for a successful future of the company.