Foundation of a Stock Corporation (AG) in Germany
Forming a Stock Corporation in Germany - Procedure, Requirements, Costs and Advantages, Checklist
Contrary to popular belief, a stock corporation can be founded by anyone in Germany. It is true that the process of founding an AG is somewhat more bureaucratic and lengthy compared to founding a limited liability company (GmbH). However, the legal form of the AG is available to every founder. The comparatively high costs of founding an AG in Germany are offset by a wealth of advantages. In the following, you will find basic information on the foundation of a stock corporation as well as on the conversion into an AG - from the requirements to the procedure to the costs.
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Legal Expertise for the Formation of a Stock Corporation in Germany
Our highly qualified and specialized team of lawyers and german corporate law specialists at our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne will advise you quickly and competently on all issues relating to the formation of a stock corporation in Germany. Members of our team are also academically involved in the field of german stock corporation law, so that we have special know-how in this area.
The range of advice provided by our stock corporation lawyers on the foundation of a stock corporation in Germany can be described as follows:
- Strategic advice in the run-up to the formation (advantages and disadvantages), special features of the "small AG".
- Preparation of the foundation documents, with special attention to the articles of association and their individual adaptation ("small stock corporation")
- Advice, preparation or review of accompanying shareholder agreements, VC agreements, participation agreements and other side letters
- Preparation of other documents relevant to the foundation of the AG, e.g. management board contracts, rules of procedure for the executive board and supervisory board
- Support for shareholders, management board and supervisory board after the foundation of the AG
The Advantages of a Stock Corporation in Germany at a glance
The somewhat higher costs of founding and operating a stock corporation are offset by a number of advantages:
- simple and inexpensive transfer of shares / participations (without a notary)
- simple possibilities of limiting voting rights (preferred shares)
- simpler possibilities of employee participation
- easier collection of capital
- possibly greater public perception ("prestige")
- "purchase" of know-how through mandatory supervisory/advisory body (supervisory board)
How is an AG founded in Germany?
Basically, there are two ways to establish a stock corporation - either through a classic new foundation or through a conversion.
Classic new foundation of an AG in Germany
A joint-stock company can be established in the same way as a limited liability company (GmbH) by concluding a memorandum and articles of association (statute) and subsequent registration in the german commercial register. With regard to the way in which the capital is raised, a distinction is made between a so-called cash formation (contribution of money) and a so-called non-cash formation (contribution of material assets).
Conversion into a Joint Stock Company
In german practice, stock corporations are not infrequently also created by a conversion process within the framework of the Transformation Act (UmwG). This provides for various possibilities of conversion:
- Change of an existing company into the legal form of an AG (change of legal form)
- Merger of existing companies with the formation of a new AG (merger to form a new company)
- Separation of a part of a company, which is then operated in a newly formed AG (spin-off for new formation).
The most common form of establishing an AG by way of a transformation in Germany is the change of legal form of a GmbH or GmbH & Co. KG into a stock corporation. The following explanations focus on the classic new formation of an AG. For further details on a conversion see here.
How many persons are required to form an AG in Germany?
In principle, only one person is required to form a stock corporation in Germany. Therefore, it is also possible to found a one-man AG or a one-person AG. Whereby founder can be a so-called natural person or a partnership or other corporation (e.g. GmbH).
The number of founders is not limited in Germany. In german practice, however, the number of founders is usually small. The number of shareholders usually grows only with the passage of time.
It should be noted that in addition to the founders, a number of other persons are required to form a joint stock company in Germany. For example, at least three members of the supervisory board and at least one member of the management board must be nominated and appointed at the time of foundation. The founders and members of the supervisory board and executive board can be the same person, but not the members of the supervisory board and management board.
What is the procedure for founding a Stock Corporation in Germany?
The foundation of a stock corporation in Germany takes place - in simplified terms - in three phases: Conclusion / signing of the foundation protocol, examination of the foundation process, german commercial register procedure. In detail, the following declarations / steps are required as part of the foundation process:
1. Conclusion / signing of the foundation protocol
- Notarial establishment of the articles of association
- Declaration of the founders to take over the shares
- Appointment of the first supervisory board
- Appointment of the first auditor, if applicable
- Appointment of the first management board by the first supervisory board
2. Formation audit
- Formation report by the founders
- Foundation audit by the management board and supervisory board
- Formation audit by an external expert
- Payment of the contribution by the founding shareholders
- Confirmation of the account-holding bank about the payment of the cash contribution
3. Commercial register procedure
- Application for registration of the company in the Commercial Register
- Entry in the Commercial Register
In addition, there are notification obligations to be fulfilled by the shareholders and the company after the formation of the company. Finally, share certificates must be issued, which is hardly ever the case in german practice - most AGs decide to exclude the issue of certificates in the articles of association for cost reasons.
How much Capital is needed for the Foundation in Germany? What is the Share Premium?
The share capital of an AG in Germany is at least 50,000 EUR, i.e. twice the minimum capital of a limited liability company.
It is important to note that the entire (promised) cash capital does not necessarily have to be paid in upon incorporation. The founding shareholders may determine that, in accordance with the german law, only a quarter of the lowest issue amount is to be paid in initially. If shares with a nominal value of one euro are issued, only 0.25 EUR must be paid up on each share, i.e. 12,500 EUR on the total share capital.
However, if the shares are issued for an amount higher than 1 EUR (i.e. with my a premium / agio), this higher amount must be paid up in full.
Example: Thus, if a share with a par value of 1 EUR is issued for 2 EUR, it is mandatory that at least 1.25 EUR be paid up on these shares.
Foundation of a small AG (non-listed AG) in Germany
The colloquially known small AG is, in simplified terms, a non-listed AG. For stock corporations that are not listed on a stock exchange, simplified regulations apply in various directions in Germany.
Classes of Shares and Employee Participation in Germany
Already at the time of the foundation of the stock corporation in Germany, the shareholders can provide for different classes of shares. The basis for this is the German Stock Corporation Act (AktG), which provides that shares can be endowed with different rights and obligations.
In accordance with the provisions of the AktG, different classes of shares are encountered in german practice in the form of so-called ordinary shares and preference shares. The latter have no voting rights, which are compensated by law with a "preference" - usually a better position with regard to profit / profit distribution. In principle, other differentiations in the obligations and rights under shareholder law are also conceivable.
The possibility of different classes of shares may be of interest, for example, in the context of an employee stock option plan (ESOP). It would be conceivable, for example, to make the shares issued to employees ("employee shares") non-voting and to give them a (small) preference in profits in return.
Types of shares I - bearer Shares vs. registered Shares
When the AG is founded in Germany, the founding shareholders must also decide whether the shares as securities are to be issued in bearer form or in registered form (bearer shares vs. registered shares). The distinction is initially relevant with regard to the type of transfer/relationship to the AG.
Bearer shares are made out to the respective bearer and are transferred and traded by simply handing over the share (security): Whoever has the share in their custody / in their hand is a shareholder and share owner in Germany. Registered shares, on the other hand, are made out in the name. In relation to the AG, only the person whose name appears in the share register kept by the company is a shareholder in Germany. Unlike bearer shares, registered shares, which have almost completely replaced bearer shares in recent years, are usually transferred by assignment of rights only.
Registered shares give the stock corporation in Germany the opportunity to obtain/keep an overview of the shareholders and their composition and to maintain direct communication with the shareholders. The latter aspect in particular makes registered actions interesting even for companies with a small group of shareholders and is a major advantage.
Types of shares II - par Value Shares vs. no-par Value Shares
The founders have to make a further decision as to whether the shares are denominated in a specific nominal amount - e.g. 1 EUR or 100 EUR - or whether the shares have no nominal value and are therefore only an expression of a quota in the share capital (hence the synonymous term "quota shares"). In contrast to par value shares, the share in the capital stock in Germany is always the same for each no-par value share. In geman practice, no-par shares have gained the upper hand, precisely because this type of share is known worldwide.
How long does it take to form a Stock Corporation in Germany?
The foundation of a joint stock company in Germany takes more time than the foundation of a limited liability company. This is due to the fact that the formation documents which have to be prepared are much more extensive. Added to this is the time required for the internal and external formation audit. For example, the external formation auditor in Germany must first be appointed by the court, unless - which is more often the case than expected with many foundations - an exemption applies. The bank confirmation required for paying in the share capital in Germany also requires time, as a simple deposit slip or bank statement is not considered sufficient by the AktG. Experience shows that careful incorporations usually take 4-8 weeks.
What does it cost to establish a Stock Corporation in Germany?
The costs of founding a stock corporation in Germany depend on the amount of share capital and the individual consulting expenses. They usually consist of the costs for legal advice, the costs for the notary public and the court costs for the german commercial register procedure. For the formation of an AG in Germany, notary fees of at least 1,000 EUR and court costs of at least 300 EUR are to be expected.
In addition to the above-mentioned costs, there are, of course, the contributions to be made by the shareholders to the shares. However, as shown above, only a quarter of these contributions may have to be made immediately upon formation.
Checklist for the (new) Formation of an AG in Germany
The bureaucratic effort required for the new formation of a stock corporation in Germany is not small. However, with experience, this effort can easily be circumvented within a reasonable period of time. It is advisable for the persons directly involved in the formation of an AG, in particular the founders, to think about the following aspects in advance and to use the aspects as a personal checklist.
- at least one founding shareholder
- at least one member for the management board (can also be the founder, cannot be a member of the supervisory board)
- at least three members for the supervisory board (can also be the founder, cannot be a member of the management board)
- name of the company ("company")
- registered office, business address of the AG
- object of the company ("What should the AG do?", official permission required, e.g. BaFin license?)
- minimum capital 50,000 EUR, of which at least 25% + agio to be paid in
- which of the founders takes over how many shares
- cash foundation or foundation in kind
- registered shares or bearer shares
- no-par shares or par value shares
- securitization of the shares (yes/no)
- preferred shares, classes of shares (yes/no)
- possibility of selling shares ("Vinkulierung" yes/no)
- binding provision for further capital increases ("authorized capital")
- power of representation of the management board (always individually or jointly)
- internal approval catalog for management board in favor of supervisory board
- special majority requirements for special resolutions (yes/no)
- regulations for resignation, severance pay (especially compulsory redemption of shares, amount/due date of severance pay)
The checklist does not claim to be complete. It is, however, a helpful guide, especially for founders, management board and supervisory board in Germany.