The"FitUpNess GmbH" was founded 29 years ago by Fritz Ness
(56) and is today a Europe-wide provider of products and services around the topic of "fitness". Last year, the company employed around 300 people and generated sales of € 39 million
with good profitability. Three years ago, Ness transformed his
company into a corporation, a limited liability company (GmbH),
whose shares he currently owns alone. The decision at the time
was as follows:
Circumstance
Fritz Ness had never been particularly interested in the legal
form of his company. This was neither an exciting product question for him, nor did a discussion about it bring any immediate
customer benefit. And everything else was hardly a priority for
him. When he founded at that time, he went to the trade office,
registered his trade and obtained a trade license, entered his
company in the commercial register, and off he went. Initially,
Ness was not even aware of the fact that his company now had
the legal form of a "sole proprietorship".
Only later, in the course of the company's growth, was he also
confronted with these legal questions. Quite early on, his lawyer
had drawn his attention to the risk of unlimited liability, which
he entered into with his legal form. "You stick with everything
you have – including your house, your weekend house, right
down to the lastlamp". Ness was only a bit defensive at first – "I
have no intention of going bankrupt" – but quickly accepted his
lawyer's argument: "Just think about the nutritional supplements you sell, for example. They are not even manufactured by
your company. Imagine a mistake with their supplier, and customers get sick. The claims for damages will ruin you, even if you
feel innocent."
But when Ness then told his tax advisor that his lawyer had recommended that he be converted into a limited liability company, he protested: "No, you still drive worse with a corporation
for tax purposes. If so, we should think about a GmbH & Co. KG."
Later, Ness began to worry about the continued existence of his
company if he, the bachelor, would no longer work for the company. His lawyer then suggested the AG to him in order to later
take the company public.
In order to bring structure to these thoughts and to come to a
long-term sustainable solution, Ness asked his lawyer and tax
advisor to come to him three years ago. Also present was Harry
Netzer, who was to succeed him in the management. At that
time, he was still a sole proprietor. "So, let's try to systematize
that," said Harry Netzer, after everyone involved had listed all
the criteria a bit unstructured for a while. "What are the priorities?"
"So, first of all – limitation of liability. The company is now so
large that personal liability is associated with far too great a
risk," said Fritz Ness. "Well, we agree on this point. So that's a
knock-out criterion. There is no possible structure that would
give you unlimited liability, Mr Ness."
As a result, e.g., the pure limited partnership (KG) was eliminated. "Second," Harry Netzer continued, "my understanding is
that we need a corporate structure that ensures the continued
existence of the company regardless of the person of the shareholders. "And thirdly, we need a design model for tax optimization," the tax consultant intervened. "Yes, the third criterion is:
save taxes, or, as your tax advisor puts it, a corresponding 'design model'." The lawyer says: "We are looking for a model that
best meets criteria two and three, under the framework of liability limitation. What alternatives do we have?"
• "I propose the GmbH & Co. KG, especially from a tax point of
view," said the tax consultant. "A KG with 'Ness VerwaltungsGmbH' as personally liable partner." "But from the point of view
of the continued existence of the company rather the wrong
thing," replied the lawyer. "Of course, both the shares of Ness
Verwaltungs-GmbH and the limited partnership shares can be
transferred. But this is relatively cumbersome, so it will be difficult to find suitable buyers. If you, Mr Ness, which is intended,
want to bring your company later on the capital market, I mean
on the stock exchange, then that is a bad solution." "Then we
need an AG," Ness turned on again. "But there is also a lot to be
said against the AG?"
• "Only the statutory provisions speak against the AG. The leap
from a sole proprietorship to an AG is quite large. For example,
we would have to establish a board of directors and a supervisory board (AR). And you, Mr. Ness, cannot, by law, be on the
board and AR at the same time. So you either have to go into the
AR, and thus hand over the operational business to the Executive Board; or they go to the board, but then have to appoint an
AR to control you in your own company." "Well, in fact, hardly
anyone will oppose Mr. Ness" - "That may be true, Mr. Netzer,
but as a lawyer I have to draw attention to it".
• "And what would be the alternative?" "The alternative would
be to first choose a GmbH. This is easier than the AG. Mr. Ness
could also work as a managing director, & possibly other employees from the management. And a conversion from a GmbH
into an AG is relatively little time-consuming." "Well, I can't say
that I like to pay more taxes than necessary. How big would be
the tax advantages of GmbH & Co. KG over GmbH or AG?" It
turned out that the differences were not very large.
Question:
• Which legal forms are discussed? Put together the advantages and disadvantages of these.
• What advice would you give to Mr. Ness?