The consequences of Brexit on company law

19th November 2020 Corporate

On 31 January 2020, having ratified the Withdrawal Agreement, the UK departed the EU and entered into a transition period, which is due to end on 31 December 2020.

During this transition period, EU law (together with Treaties and the rights of free movement) will continue to apply as it does now in, and in relation to, the UK. Businesses need to consider the implications of Brexit and make plans for the post-transition circumstances. .

Among the many consequences of Brexit, some attention has to be paid to the consequences on company law of leaving the EU, more specifically on the legal position of companies both in the UK and in the EU countries. Although it is still far from clear according to which conditions the UK will leave the European Union, several scenarios are being discussed; this note is based on the hypothesis that the UK will leave the Union without specific agreement.

Looking at impediments to access to the UK market by EU companies and to access by UK companies to EU countries in which they may wish to develop activities, these may be dictated not by company law in the respective jurisdictions but more by the level and type of business activity in which they wish to engage. There will still be regulated sectors and in the financial sector it is likely there will be significant hurdles to EU companies wanting to engage in business in the UK, and vice-versa; from a company law perspective the first issue relates to the conditions under which companies originating from another jurisdiction will in future be recognised as full legal entities. Simplistically, there will no longer be a right of establishment: after the adoption of the Brexit agreement, UK companies will become “third country companies”, losing the protections provided by the Treaty.

The likely practical implication is that the legal personality and limited liability status of UK incorporated entities will not automatically be recognised by EU member states any longer. The issue has to be addressed on a state-by-state basis; the UK entities affected need to consider how it may be possible to make their operations more “local” to the relevant jurisdiction, though that will be more difficult as the EU–specific cross-border merger reorganisation will not be available.

Similarly, a UK entity with a branch in another EU Member State will become subject to the rules that apply to third country companies; they may have to supply more information and make additional filings, not least in relation to accounts. The corollary is that EU companies with registered UK establishments will be subject to similar constraints and additional onus in relation to information.

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Martin John is a Partner located in Londonin our Corporate and Commercial department

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