The transformation process follows a strict timeline and requires several key legal documents. The central document is the Transformation Plan, which must detail all participating companies, the exchange ratio of shares where applicable, the legal and economic consequences for employees and other essential information. The transformation must be approved by the general meeting, which for both limited liability companies (GmbH) and joint-stock companies (AG) requires the approval of at least 75% of the share capital represented. The final registration of the transformation cannot occur until the statutory period for creditor protection has expired, which is a key timing consideration in the process.

Each country has implemented the underlying EU regulations into national law. This may lead to deviations. In some EU countries, it is sufficient for the merger plan to be drawn up by a lawyer, whereas in Germany, for example, it must be notarized.

In the German legal system, the Registration Court (Registergericht) plays a crucial gatekeeping role in the cross-border transformation process. Before a transformation can be registered in the destination country, the German court must issue a pre-transformation certificate (outbound transformations). To do this, the court conducts a thorough verification to confirm that all requirements under German law have been met. This includes examining the transformation plan, confirming that stakeholder protection rules have been followed and ensuring the general meeting’s approval was validly obtained. A critical part of this review is a substantive “abuse control” test, where the court is obligated to refuse the certificate if it determines the transformation is for abusive, fraudulent, or criminal purposes, such as circumventing national or EU law. Without this court-issued certificate, the foreign commercial register will not complete the transformation, effectively halting the entire procedure.

German law provides significant safeguards for stakeholders who may be affected by a transformation. Creditors can demand adequate security for their claims within three months of the transformation plan’s publication. Crucially, the transformation cannot be registered until security is granted or the request is finally rejected by a court. Companies must provide employees with expanded information and specific rules trigger negotiations on co-determination rights if the company employs at least 80% of the relevant national headcount thresholds. Shareholders who dissent from the transformation have a statutory right to exit the company in exchange for adequate cash compensation. For stock corporations, this compensation may be offered in the form of new shares to help the company preserve liquidity.

Failing to adhere to the strict procedural requirements can lead to severe consequences. The primary sanction is the refusal of the Registration Court to issue the pre-transformation certificate, which blocks the entire transaction. Furthermore, failure to notify the transaction under commercial law can lead to the transformation being declared void and result in significant fines. Managing directors must make various sworn statements, for example that the protective provisions for creditors and employees have been complied with and that the company involved is not insolvent. False statements can lead to personal liability and constitute a criminal offense. Procedural errors can also lead to the transformation being declared invalid even after registration, creating significant legal and financial disruption and underscoring the importance of precise legal execution from the outset.

Also very important is to involve tax consultants in both countries to avoid unplanned taxes, especially if different legal forms (corporations and partnerships) are involved, but not only then. Tax neutrality and retroactive effect do not have to apply to every type of tax. For example, a cross-border merger may be income tax neutral but trigger real estate transfer tax.

Correctly navigating a cross-border transformation is a critical legal, tax and administrative challenge. Our team of experts provides a comprehensive service that covers everything from drafting the Transformation Plan to representing you before courts and authorities, ensuring your compliance with both German and EU regulations. By entrusting this task to us, you can be confident that your cross-border restructuring will be managed efficiently, correctly and without costly errors. Contact our team for personalized advice.