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HSF brings German offices into UK LLP to mitigate Brexit concerns

Herbert Smith Freehills (HSF) has finalised a move to absorb its German partnership into its UK LLP, as firms enter the final stages of preparations ahead of a 31 January Brexit.

The move was implemented in December last year as the firm faced a complex regulatory environment in Germany due to the UK’s imminent departure from the European Union. Without the change, HSF would have been incapable of existing as an English company domiciled in Germany.

Legal Business reported in September last year that HSF was considering the move, having obtained tax clearance on the matter.

Previously, HSF had operated as locally-managed, profit-sharing German LLPs for tax reasons. However, German corporate law only allows for the use of a UK LLP following Brexit under the condition it operates as a branch of a firm managed out of London.

UK firms in Germany are left with two options in light of Brexit: absorbing the German LLP as HSF has done or switching to a German partnership with a different liability provision. However, UK firms have historically preferred the UK LLP, with the model particularly attractive due to limiting members’ liability.

The firm has also made other preparatory moves due to Brexit, such as re-registering its Seoul office to become a branch of the Australian partnership, under the Australia-Korea free trade agreement (FTA). Previously the firm’s licence to operate in South Korea had relied upon the EU-Korea FTA. Meanwhile, lawyers in HSF’s EU jurisdictions have taken steps to obtain EU qualification if they have not already acquired it.

Last year HSF took the decision to close its Berlin office, with the firm’s associates, trainees and business services staff all being given the option to transfer to its other German offices in Frankfurt and Düsseldorf. Since launching in the country in 2013, HSF’s German headcount has grown to 140 employees.

Regarding the decision to absorb its German offices into the UK LLP, a spokesperson said the move was: ‘purely operational, and is to ensure the seamless operation of our business when the UK leaves the EU.’

For more on how firms have prepared for Brexit, read ‘Dealing with no deal – Can top law firms cope with a chaotic Brexit?