Corporations established under a foreign legal system are generally not recognized as such by German law when they relocate their effective head office to Germany. Lacking recognition as a corporation, German law treats the relocated entity as a mere partnership – resulting in the personal liability of the shareholders.
With a cascade of decisions the European Court of Justice has overruled this German “real seat” rule in favour of the free movement of corporations within the EU. Once a corporation has been established under the law of a member state, it can relocate its head office outside the jurisdiction of its establishment without the consequences laid out above. At the height of the boom of the “German Limited” (and before the ensuing reform of the German law), over 40,000 companies made use of this EU-exception, operating their German business by means of a British (usually English or Welsh) Ltd. or PLC with its registered office in the UK and a branch office in Germany – the effective head office.
Depending on the shape and form any Brexit will take, this practice would be shut off.