Group structures - are you Brexit ready?

Much continues to be uncertain about Brexit. The form of the UK’s deal with the EU (if any) needs to be agreed by the end of September if there is to be time for parliamentary, technical legal reviews and translations by 31 December 2020.

Can businesses futureproof themselves in such uncertainty? Steps can certainly be taken in readiness and this European Commission Communication - Getting ready for changes highlights the main areas of change that will take place in any event at the end of the year, whether there is an agreement on a future partnership between the EU and the UK or not.

The communication above covers seven key areas (not least trade in goods and services) and the following picks out key questions to ask yourself from a corporate group 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 which 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, the UK company’s shareholders may not benefit from limited liability and will become personally liable for the business' actions and liabilities abroad.

If your corporate structure involves a place of business, branch, establishment or any similar arrangement in an EU-27 country, consider seeking advice on the legal personality and limited liability status of that arrangement from 31 December 2020.

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 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.

If your group structure includes subsidiary companies properly incorporated in an EU-27 country, they 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. Note, however, that EEA companies acting as corporate directors of UK companies will need to file additional information with Companies House from the end of the transition period.

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 will 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. The guidance linked below provides further detail.

You will need to check that your auditor’s qualification will continue to be recognised in EEA countries from 1 January 2021.

Do I need to think about tax?

Yes. This note does not specifically cover tax matters and tax planning often influences group structuring. Our tax team at TLT would be happy to chat this through with you.

Next steps

• Run through the above checklist and assess what is relevant to your group. Don’t ignore any dormant entities within your group, as much of the above applies to them as much as to your trading entities.
• Refer to the additional resources below for extra information, particularly the country guides produced by the UK Government.
• Seek legal, accounting and/or tax advice to understand the full implications of the above for your business. 

The above provides an overview of company law questions to ideally ask yourself now and action before 31 December 2020.  We know, however, this all runs alongside your much wider business considerations from a Brexit perspective. 

If you have any questions about the above or the wider challenges and opportunities that Brexit will bring, please do get in touch. With our network of collaboration law firms and accountancy firms across the EU, we would be happy to work with you to support your navigation through Brexit.

More information

• Structuring your business from 1 January 2021 (published by www.gov.uk)
• Check the country guides (published by www.gov.uk)
• Accounting if there is no Brexit deal (published by www.gov.uk)
• Accounting for EEA organisations from 1 January 2021 (published by www.gov.uk)
• Auditing if there is no Brexit deal (published by www.gov.uk)