Change of legal form

What it means

A change of legal form is the conversion of a company into another form, for example a limited company into a joint-stock company or a simple joint-stock company, or the reverse. The company does not cease or go into liquidation; it continues with the same company ID, assets, liabilities and contracts, only in a different form.

The change requires a shareholders’ decision in the form prescribed by law, new constitutional documents, such as statutes instead of articles of association, compliance with the share capital and governance requirements of the new form, and entry in the commercial register. It takes effect on registration.

A sole trader moving to a limited company is not a change of legal form. The trade licence does not turn into a company: the entrepreneur founds a new company and transfers the business into it by a contribution in kind, a sale of the business or a gradual transfer of activity.

How it works in practice

When considering a change of form we go through the reasons with clients: bringing in investors, issuing different classes of shares, easier share transfers, prestige or customer requirements. For start-ups a common target is the simple joint-stock company, which allows flexible rights.

For accounting and tax, the company continues its books without interruption. In some cases of a change of form, however, extraordinary financial statements are prepared, so we check in advance whether this applies to the specific change and plan the registration date.

When a sole trader moves to a limited company, we work out with the client which route is better. Contributing the business preserves continuity of assets and tax values; setting up a separate company is simpler, but assets must be transferred and customer contracts re-signed.

What to watch out for

A change of form also changes shareholders’ rights, decision-making rules and how shares are transferred. Minority shareholders who disagree may have a statutory right to leave for fair compensation. We therefore prepare the procedure with all shareholders in mind.

After the change, details must be updated with banks, suppliers, customers, in contracts, on the website and on invoices. The business name with the new legal form suffix must appear everywhere, or uncertainty arises over who the contracting party is.