Soon multi-voting shares in Germany!

Important innovations in the German Future Financing Act

The German Future Financing Act (Zukunftsfinanzierungsgesetz) provides for innovations for start-ups - including the introduction of the significant multi-voting shares.

Published on: 11.10.2022
Qualification: Attorney in Hamburg and Berlin
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The German Future Financing Act (Zukunftsfinanzierungsgesetz), planned by the traffic light party, is to reintroduce so-called "multi-voting shares" in Germany. Representatives of the government in Berlin recently explained to the legal profession what is behind this and which points still require discussion.

Important points in the German Future Financing Act

The information brochure of the German Federal Ministry of Finance on the so-called Future Financing Act is long and the planned changes and improvements are ambitious. The changes envisaged in the german coalition agreement include:

  • Digitalisation of the capital market
  • Facilitation & regulation of the transfer of cryptocurrencies
  • Facilitation of capital increases & to exclude subscription rights
  • Facilitation of listing requirements and post-admission obligations on the stock market
  • Legalisation or introduction of multi-voting shares

While the ideas on the first four points are still rather vague, the discussion on the introduction of multiple-voting shares is already quite advanced in Germany. Multi-voting shares are probably the most eagerly awaited innovation of the german law by the capital market.

Shares with Multiple Voting Rights in Germany - Term & Prohibition

In Germany, the term "dual class shares" refers to shares that certify several voting rights for one share. This makes it a so-called preference share. In Germany, the multiple-voting share is currently prohibited by law. This is regulated in § 12 II of the German Stock Corporation Act (AktG).

Although, historically, it used to be permissible in this country, the issue of new multiple-voting shares was first banned in 1998, and finally they were banned altogether in 2003. The reason given was that multiple-vote shares would weaken the owners' control over the german joint-stock company.

Dissemination & Competition in the Capital Market

In many other countries of the world, however, the multiple-vote share is permitted and also widely used: In addition to Nordic European countries such as Sweden, the issue is also allowed in the European Company (SE).

In fact, many large and globally active corporations have issued dual class shares, including for example H&M, Volvo, Apple, Google and Facebook. Overall, about 40% of IPOs worldwide issue such preferred shares.

Worldwide, a trend is currently emerging to (re)allow multi-voting shares. Belgium, Great Britain and Portugal, among others, have recently set out on the path to legalisation - because the ban is seen as a competitive disadvantage on the capital market.

Advantages for start-ups, investors & tech in Germany

This is because dual class shares fulfil the need of many market participants for more far-reaching control over their company even after an IPO. For example, founders of start-ups in particular want to be able to make the groundbreaking decisions for their company, at least in the medium term, even if their company goes public as a public limited company in Germany. This need is particularly noticeable in the tech sector, where decision-makers should also have technical know-how.

Even if some investors criticise the german federal government's move, the introduction of multiple-voting shares would probably - so the assumption - make it possible for many entrepreneurs to go public in the first place. According to the German Federal Ministry, surveys show that many companies currently shy away from going public for fear of losing control.

In other company forms, such as the GmbH, multiple voting rights for certain shares can be agreed upon in the articles of association. For this reason, the GmbH is (still) the preferred corporate form for many start-ups in Germany.

Regulation and requirements under german law

There is no doubt in the german government's mind that investors must nevertheless be protected and abuse prevented. And so, in the context of the discussion about the draft legislation, there is much discussion about what possible restrictions on multiple-voting shares in Germany could look like. Currently, the following five mechanisms are being considered in particular:

  • Introduction of a so-called voting rights cap: only a maximum number of votes should be granted per share, e.g. a maximum of 10 votes per share.
  • Restriction of permission to so-called growth companies (start-ups).
  • Time limit on multiple voting shares.
  • Application of a so-called sunset clause: after transfer of the favoured share to another person, the privilege should cease.
  • Transparency: Creation of legal provisions so that the distribution of voting rights can be viewed.

Whether all or only some of these restrictions will make it into the german draft law is currently unknown.

Conclusion: Significance for the german capital market

For investors and shareholders in Germany, the entry of multiple-voting shares into the german capital market will most likely bring a breath of fresh air. For many founders, the new law is likely to call into question the choice of their previous legal form - after all, issuing shares offers an attractive way to finance start-ups in Germany.

Unfortunately, for many other promised innovations of the German Future Financing Act, it is not possible to dare to hope for such changes in the near future - especially with regard to cryptocurrencies and the envisaged facilitation of capital increases, there have been hardly any concrete proposals for the draft law so far.