Online formation of startups and group subsidiaries in Germany
Founding a German GmbH online
With its "Company Law Package", the EU is driving forward the digitalization of company law in Germany as well. The long-awaited online formation of the GmbH and UG is now being implemented. Startup founders, in-house counsel in corporate groups and investors based abroad will be spared the need to go to a notary. The digitization initiative will finally reduce the time, costs and administrative work involved in setting up companies. By enabling the online formation of limited liability companies, Germany wants to catch up with countries such as Estonia, which are far ahead in the digitization of public administration.
For a long time, politicians saw the security of the commercial register as being threatened by online company formations. The resistance against online incorporation has now been abandoned by the German legislator due to the requirements of the EU.
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Forming a GmbH in Germany using the online procedure
The online procedure is intended to facilitate the formation of limited liability companies (GmbH) and the opening of branches of foreign companies. In addition to the establishment of a limited liability company, it will also be possible to establish an entrepreneurial company (UG) by means of a video conference with a notary. The GmbH formation act as well as the german commercial register entry will be possible without the personal visit to the notary. However, the new legislative package further relies on the fact that the existing principles in german corporate and commercial law will not be significantly changed. This means that notaries and commercial registers will continue to play a decisive role in company formation.
An online video conferencing system will be made available at notaries' offices for the formation of limited liability companies in Germany. Within the framework of an online video conference between founders and managing directors on the one hand and the notary on the other, it will be possible to notarize the act of formation. The corporate resolutions, declarations and the tailored GmbH articles of association required for the formation will be notarized and certified by the notary public by means of an online video conference. This applies to the declarations of the shareholders and managing directors in Germany. The face-to-face meeting at the notary's office will no longer be necessary. However, it will still be possible to go to the notary.
A major hurdle has always been ensuring the identity and legal capacity of the parties involved. The legislator is now in favor of the identification of founders and managing directors being carried out by means of video conferencing with the notary, with photographs of the parties involved being read from the chip of the identification documents. The new digitization initiative will therefore not abolish the notary as a supervisory and advisory body and will ensure the legal security of the german commercial register even in the new online world. The notary will continue to effectively ensure that foundation abuse and corporate identity theft are prevented in the future. In the future, the notary will perform this gatekeeper function not only in the context of physical notarization appointments, but also in the context of online notarization via the Internet.
Online formation of a GmbH in Germany: What remains, what changes?
The new digitization step will relieve the burden on small and medium-sized enterprises (SMEs) in particular, as well as on groups of companies when establishing group companies, and reduce the bureaucratic effort involved in forming a GmbH.
The requirements for the formation of a GmbH in Germany, such as the raising of share capital in the amount of EUR 25,000.00 and the insurance of the newly appointed managing directors, are not softened. It also remains possible by way of online formation that initially only half of the share capital is paid in.
However, restrictions also apply to the online formation of a GmbH in Germany: only so-called cash foundations are possible via the Internet. This applies to the formation of the GmbH and UG. In the case of online formation, the share capital must be paid in cash, by transfer to a business account of the GmbH. Incorporation in kind is excluded in the online procedure. This means that anyone wishing to raise the share capital by contributing real estate or a current business (formation in kind) can still only do so by way of a physical notarial appointment.
The GmbH can also be formed online by way of the simplified procedure using the model protocol in Germany. The legislator provides a special model protocol designed for online formation. The formation of a GmbH by means of the notarized model protocol enables a particularly fast and inexpensive formation of the company. The shortened formation procedure will now also be possible online, which is increasingly used in particular for one-man formations and in the start-up sector. All standard capital maintenance and organizational rules apply to the GmbH founded in the online procedure. In particular, there is no change in the liability of managing directors and the obligation to file for insolvency in the GmbH.
Capital increases and other capital measures outside the formation process are not possible by means of the online procedure. Outside the formation procedure, shareholders' meetings and shareholders' resolutions, for example in the case of planned conversion measures, must continue to take place on site at the notary's office.
From when does the new GmbH online formation apply?
The draft law of the Federal Ministry of Justice is based on EU requirements. According to the relevant EU directive, the member states have until 01.08.2021 to implement online formation. However, there is an extension option for the member states, which extends the implementation period by one year. The draft of the Federal Cabinet has been approved on 12.02.2021. The german government has already declared to the EU Commission that it will make use of the extension option. As a result, online GmbH formation will be implemented in Germany by August 1, 2022. From August 2022, the first company formations will be possible via the Internet.
Practical hurdles for fast online formation
The online incorporation procedure in Germany, which continues to give high priority to the notary and commercial register, is to be welcomed. This will limit corporate identity theft and other company-related fraud, such as that seen at the English Companies House.
However, it remains unclear how the promised rapid online formation of a GmbH is to be made possible if the opening of an account for a GmbH in formation is not made more flexible in german practice. Particularly in the case of shareholders domiciled abroad, the opening of the account in banking practice is protracted and could slow down the planned rapid online formation.
If you require advice on the formation of a company from experienced specialist lawyers in german corporate law, please contact our lawyers in our offices in Hamburg, Berlin, Munich, Frankfurt a.M. or Cologne. Our team of lawyers will provide you with information on all formation-specific and german conversion law issues in GmbH law and stock corporation law.