Thesituation is likely to be complex if a UK company was to develop itsactivity in a “seat” jurisdiction, the latter acting as the”host”. If that activity can legally be qualified as that of theseat, the UK company will become subject to the host state legalregime. In most cases, it will not have been created according to thehost state’s legal provisions, both in formal terms and insubstantive terms and hence will be disqualified as a valid foreigncompany with its own characteristics. UK companies with factual seatin a jurisdiction would be confronted with severe challenges in jurisdictions resulting in a refusal to recognise the foreign legalentity and requalify it as an unincorporated company, with unlimitedliability for shareholders, and managers. Companiescould also restructure into a more appropriate corporate formavailable.
UK companies could undertake a cross-border change oflegal form into a company governed by the law of another MemberState. Another possible solution would be a cross-border merger witha company governed by the law of another Member State than the UK.Businesses would be well advised to carry on with these restructuringoperations before Brexit in order to take advantage of theirsoon-to-cease freedom of establishment Forexemple, A private limited company under English law can be mergedwith another limited liability company, on a cross-border basis.Partnerships, which are not covered by the statutory scope ofapplication of cross-border mergers, can still at least enter via across-border conversion. They will most likely be forced to establishsubsidiary companies in order to conduct business in EU. Moreover,it should be noted that some countriesdo not currently provide for a possibility of cross-borderre-incorporation as transformation of foreign companies. ForBritish companies, this may means the necessity to change the legalform by liquidating limited companies and incorporating newcompanies in EU (preserving all the formal requirements). Thisprocess would be time consuming but it would not result in therecognition of continued existence and legal succession.
Since 2003,they can also create a European cooperative society and transfer theheadquarters to another EU country. Consequently,it seems that the safest option for companies incorporated in the UKfor legal arbitrage purposes, which have their administration inreal seat countries, is to convert into a company form of anotherMember State prior to the implementation of Brexit. At the same time,if UK chooses a hard Brexit it will no longer be bound by the CJEUdecisions on freedom of establishment, and may implement restrictionson corporate mobility, aimed to discourage companies from relocatingin the EU. A relatively simple approach to avoid these consequenceswould be to create sufficient activity at the place of registrationin the home State. This may not be sufficient if the flaw existedfrom the beginning, in pre-Brexit times,while it is doubtful that theabsence of legal personality can be healed by later correctiveaction. This analysis makes it clear that the definition of whatconstitutes the seat will be of central importance. Ahard Brexit will also require UK companies that have significantbusiness relations with the rest of the EU to reassess their riskmanagement and oversight systems, and to communicate to theirrelevant stakeholders the nature and extent of the impact of Brexiton their business. TheEuropean Commission is preparing a legislative proposal, which couldestablish a harmonised EU framework for the cross-border transfer ofcompany seats including unity ofseat principle, companiesshould be able to effectively exercise their right to freedom ofestablishment.