Everything is changing: when and how change of name and conversion make sense

No company stands still for long – this old rule also applies to the logistics sector. Both when successes shine and when persistent failures are recorded, or when there have been or are about to be significant changes, appropriate tribute can and should sometimes even be paid to this fact.

Many believe that the way a company works and its pricing policy are the only relevant factors for its perception and success. However, this is not true. Although these two points are indeed very important, they are not the only decisive factors. The name of the company on the one hand and its legal form on the other play a similarly important role. And just as there are many changes in logistics as a whole, it can also make sense, even be necessary, to make adjustments to both in the course of a company’s life.

Change of name = conversion? No!

First of all, the detailed meaning of the terms should be pointed out:

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  • Change of name refers exclusively to the change of the trade name of a (transport) company without any adjustments beyond that.
  • Conversion, on the other hand, concerns the change of the previous legal form of the company. This is changed for various reasons. It does not require any further adjustments either.

Behind both forms of change are reasons as well as effects. Knowing both and carefully weighing them up in the decision-making process should be the top priority. After all, both a change of name and, even more so, a change of corporate form are accompanied by extensive and sometimes costly tasks that need to be mastered. In addition, both steps can have a great impact – if not applied correctly, however, also to the detriment of the company.

Change of name: reasons for and effects of the name change

Why should a logistics company, which has perhaps been operating under an established name for decades, make a change to this important instrument of external perception? In fact, there are several good reasons. The most important are:

  • Company names are also always somewhat subject to the spirit of the times. And just as this can lead to countless other factors being perceived as outdated, it can also happen with the name. The change of name therefore ensures that the name is more in line with today’s customs and also that connections that may be perceived as traditional are removed with the old name.
  • The old name may have proved disadvantageous. An important reason for this may be expansion into other language areas. This is when the old name could cause confusion there for linguistic reasons – something that definitely does not only occur frequently in the world of car names. Equally, however, there may be more obvious practical considerations here: Confusion with other company names or a complicated spelling and/or pronunciation that only became apparent with the old name in practical operation.

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  • There was a major change in the company. Perhaps the management changed, perhaps the orientation changed – for example, a general forwarding company became a transport company with a focus on the transport of dangerous goods. A change of name makes this change clearly visible to the outside world.
  • The company experienced negative times under its previous name. Perhaps it made losses known in the industry, had to deal with negative headlines or acquired a bad reputation for completely different reasons. Under such circumstances, a change of name can sometimes even be vital in order to be able to celebrate success (again) in the future – since the old name will continue to have a stigma attached to it for a long time, making any efforts less effective than drawing a “line in the sand” and starting fresh with a new name and a neutral image.

However, managers should always be aware that the name change will have profound implications for their logistics operation. The most important one: everything that was associated with the old name will be “cut off”, so to speak. This affects not only negatives, but also positives; the company is almost starting from scratch again, as if it had just been founded. In addition, the change of name is also associated with high costs and workload – everything from the e-mail signature to the company sign and truck lettering to marketing must be changed.

For this reason, it is also a step that a) should not be decided on gut instinct and for which b) a company should seek the help of naming or marketing specialists.

Conversion: When to change the legal form and what the effects are

There are nine different legal forms in Germany between the sole proprietorship and the public limited company. No matter which of these was used to found and operate a logistics company, there were good reasons for doing so. However, there are also good reasons for a change – because each legal form has its own strengths and weaknesses, so there is no such thing as “the” optimal form. Typical reasons for a change are, for example:

  • The previous legal form ensures that an unbearably high tax burden is imposed on the company – perhaps only in conjunction with other changes, such as growth. In fact, tax reasons are numerically the most frequent trigger for conversions.
  • The company wants to strengthen its equity reserves by taking on new financiers, but at the same time wants to reduce the liability risks for these persons to a possible minimum. This scenario would be conceivable, for example, in the case of an existing limited liability company. In this case, a sensible form for the conversion would be that into a GmbH & Co. KG – the GmbH is made the general partner, reducing liability to the company’s assets. All investors, on the other hand, become limited partners in the KG and are therefore only liable with their contribution. Moreover, this step would have the advantage that new investors could be admitted with a simple amendment to the articles of association of the KG; without the necessary notarial certification.
  • The intention is to expand, resulting in greater liability risks overall. Perhaps a forwarding company was founded as a sole proprietorship or limited partnership, which means that in both cases at least the managing director is subject to major liability risks (in the case of the UG, of course, because he is the general partner). In that case it would be safer to convert, for example, into a GmbH or a haftungsbeschränkte Unternehmergesellschaft – two variants that are very similar in nature.
  • Two previously independent companies merge. However, one company wants to remain in charge – perhaps only this company makes a profit. In this case it would sometimes be appropriate to turn it into a parent company-subsidiary. This variant would also make sense if a previously monostructural logistics company wanted to focus on several areas of activity. For example, a subsidiary focussing on heavy transport, one concentrating on warehousing, a third as a classic transport company – all three under a common umbrella of the parent company.
  • There are serious personnel changes at the top management. Be it a successor or the departure of previous partners. Conversion can also make sense if disputes among heirs are to be feared after a death.
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It should also be borne in mind here that some legal forms are also accompanied by a form of reputation, which is not dissimilar in its effect to that of the name. This means that there are certainly great differences with regard to the perceived value, the “image” of a legal form – where the said GmbH & Co. KG, for example, typically enjoys a very good reputation, the sole proprietorship is at the other end of the reputation scale – with an image often perceived as less reputable.

Even more than with a change of name, however, logistics entrepreneurs need to be aware of how serious the effects of a conversion can be. The individual changes that occur naturally depend on both the previous and the future legal form and also on the type of personnel changes that are involved. Overall, however, it can be said that almost everything can change, from accounting and tax aspects to the rights and obligations of all persons involved and also processes.

Therefore, it should also be emphatically pointed out at this point that:

  1. conversions should only be initiated in a well-considered manner,
  2. entrepreneurs should always seek expert advice on the right form and preferably be accompanied throughout the entire process, and
  3. all legal forms should always be considered and evaluated in their entirety, not just in terms of their advantages.

In addition, in the case of such a comprehensive intervention, a look should always be taken at the previous company name – a change of the company name does not necessarily entail an obligation to change the legal form. Conversely, however, it should also be thoroughly investigated whether, and if so, in what form the change of legal form should be coupled with a change of name. This applies not only to mergers, but in almost every case.

 

Daniel Mahnken
Daniel Mahnken is a Senior Corporate Communications Manager at Saloodo!. As a qualified journalist, writing is practically in his blood. After studying sports journalism, he wanted to become Germany’s Next Sports Commentator, but then he discovered logistics and has been stuck with it ever since.

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