The Berlin Court of Appeal (Kammergericht, KG) has decided: The registration of an association from another EU state in Germany by way of a cross-border change of legal form cannot be ruled out ex ante. For a long time, this question had been unresolved with regard to associations, but now the Court of Appeal has determined the conditions under which such a move from abroad is possible.
Austrian association wants to move headquarters to Germany
The KG Berlin expressed its opinion in a case concerning an Austrian nonprofit association engaged in commercial activities. The association wanted to move its registered office from Graz to Berlin. At the same time, the association applied for entry in the register of associations at the responsible registry court in order to obtain legal capacity in Germany.
No way to avoid German formal requirements
The Registry Court refused the registration based on the fact that the necessary formal requirements had not been complied with. This was because the signature on the application had not been notarized, with the result that registration could not take place. However, the court said the association could operate in Germany as an unregistered association and thus as an association without legal capacity.
The association appealed this ruling to the KG Berlin. However, the association was unsuccessful once again: the court confirmed that the signatures on the application must be notarized in order for the association to be entered in the registry of associations.
Cross-border change of legal form to German Idealverein (nonprofit association)
What is interesting about the decision of the KG Berlin, however, is that it does comment on the legal requirements that must be met in order for a cross-border change of legal form of an association under Austrian law into a German nonprofit association to be successful.
First, the KG discusses whether such a change of legal form could be permissible by applying the German Transformation Act (Umwandlungsgesetz), but dismisses the idea. This is because, strictly according to the national legal situation, the change of legal form of a German company into a registered association on the basis of the German Transformation Act would not be possible. Result: If such a change of legal form is impossible for a German company, it cannot be possible for a foreign organization either.
But the court goes on to say that the cross-border change of legal form into a German registered association could also be legally implemented without applying the German Transformation Act (Umwandlungsgesetz). This is due to the fact that if German associations can acquire legal capacity by registration in the register of associations, this possibility must also be open to associations from other EU countries. The reason for this is the freedom of establishment in the European Union, which does not allow foreign companies to be discriminated against as compared to domestic companies. As a result, the Austrian association may also be entered in the register of associations after transferring its registered office to Germany and, through such a cross-border change of legal form, change its legal form to that of a registered association under German law.
What requirements must be met?
At the same time, the KG Berlin makes it clear that associations from other EU countries that wish to transfer their registered office to Germany by way of such a cross-border change of legal form must nevertheless meet the general requirements, such as the minimum number of seven members or notarized signatures for successful entry in the register of associations. This does not contradict the freedom of establishment, as these rules apply to both domestic and foreign companies.
In addition, it is necessary that the country of departure also permits such a change of legal form. Thus, both the law of the country of departure and the German law must be observed.
We consider the decision of the KG Berlin to be correct and very important for NPOs. Since in the case at hand the formalities of a proper application for entry in the register of associations were not fulfilled, the court had to reject the application of the Austrian association, but with its complimentary statements it has opened the door wide for future cross-border changes of form of associations to Germany.
Also applicable for NPOs moving away from Germany
Incidentally, the statements of the KG are also relevant to a move away from Germany, i.e. to cases in which a German registered association wishes to transfer its registered office to another EU country (e.g. to Brussels) by way of a cross-border change of legal form. In our opinion, this too must be permissible under the principles set out by the Berlin Court of Appeal.
By the way, the KG has left open the question whether the EU freedom of establishment is actually applicable to nonprofit associations in general or whether they can only invoke the guarantee of freedom of movement. Since the Austrian association did also have an economic (secondary) purpose and was able to invoke the freedom of establishment, the KG did not need to pursue this question further.
Avoid pitfalls through legal advice
The case shows that in practice there are many pitfalls to be considered in a cross-border change of legal form. In the case at hand, the transformation of legal form failed simply because the mandatory German formal requirements were disregarded. We at WINHELLER will be pleased to advise you on all questions relating to a cross-border change of legal form. Our many years of expertise in association law and tax law make us a reliable partner at your side.
Incorporation of Nonprofit Organizations in Germany