The Small Joint Stock Company in Germany
Formation, Features and Advantages of the Small Joint Stock Company in Germany
In terms of its basic legislative type, the german stock corporation is a large listed company with a large number of shareholders. In german practice, however, the situation is usually different. Here, the unlisted AG dominates, with a size that is more similar to a small GmbH than to an SDAX company. The circle of shareholders is correspondingly small. The legislator tries to meet the needs of small stock corporations with a number of regulations.
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How to establish a small AG in Germany?
There are basically two ways to become a small public limited company in Germany: formation and conversion. It is important to know that both ways to become an AG involve a comparatively high formal effort compared to the formation of a GmbH.
First of all, an AG can simply be founded like any other company in Germany by concluding a corresponding shareholder agreement (articles of association) and the compulsory entry in the commercial register. Just as the same applies to a GmbH, an AG can also be founded by only one individual ("1-man AG").
The individual founder can either become a member of the management board or a member of the supervisory board. He cannot be represented on both boards. The management board in Germany can also only consist of one person. The supervisory board, on the other hand, must consist of at least three persons. In this respect, the formation of the AG requires the participation of at least 4 persons.
Finally, an AG can come into being through a so-called conversion process. The relevant german transformation law (UmwG) provides for the following possibilities:
- Change of legal form: change of the legal form of an existing company into an AG
- Merger for the purpose of new formation: merger of two GmbHs to form an AG
- Spin-off for new formation: Separation of a part of a company, which is then operated as an AG.
The most common form of conversion in german practice is the conversion of a GmbH into a joint-stock company.
How much Capital is required for the Formation of a Small Joint-Stock Company in Germany?
When founding the AG, initially only 12,500 EUR must be raised as a minimum amount in Germany. It is true that the share capital is at least 50,000 EUR. However, not all of the capital has to be paid in when the company is founded in cash. Therefore, in principle, only one quarter, i.e. only EUR 0.25, has to be paid in for each share issued at a nominal amount of 1.00 EUR. This is the same as for a GmbH. In this respect, there is no difference to the GmbH, where at least 12,500 EUR must also be paid in upon formation.
Something else applies, among other things, if the founders agree that more than 1.00 EUR must be paid for one share. In this case, at least the amount exceeding one euro (the so-called premium / agio) must be paid in full into the AG (i.e. paid to the AG).
Management Board and Supervisory Board of a Small Stock Corporation in Germany
There are no special features with regard to the management board of a small AG in Germany. This can consist of one person who is subject to the usual duties as a member of the management board of a german stock corporation.
The same applies to the supervisory board of a small AG. The work of the supervisory board has been facilitated by the fact that - insofar as the supervisory board determines this - it is only obliged to meet twice a year.
Selected Provisions for the Small AG in Germany
The AktG does not define the "small AG" as a special form or type of german stock corporation. Rather, the german law provides special regulations for companies whose shares are not listed on the stock exchange. According to the definition in the AktG, a stock corporation is listed if "its shares are admitted to a market that is regulated and supervised by government-recognized bodies, takes place regularly, and is directly or indirectly accessible to the public."
"Special Provisions" include, but are not limited to, the following:
- Admissibility of a single-person incorporation.
- De facto: registered shares (no bearer shares)
- More freedom in structuring the articles of association with regard to information from the share register
- Possibility of exclusion/restriction of the shareholder's right to share certificates
- No transmission of information on corporate events
- Greater scope for regulating the appropriation of profits in the articles of association
- More freedom in structuring management board compensation, e.g. no compensation system
- (In the starting point) no establishment of an internal control system and risk management system
- Shorter limitation periods for management board liability
- More freedom to select the members of the supervisory board (composition of the supervisory board)
- Lower frequency of meetings of the supervisory board
- Possibility to convene the general meeting by registered letter
- Possibility to waive all convening formalities in case of a general meeting and failure to object to it
- No notarization of resolutions of the annual general meeting unless at least a three-quarters majority is required
- No declaration on the Corporate Governance Code
- Lower penalties for breach of confidentiality obligations
Articles of Association (Partnership Agreement) and Drafting of Articles of Association for the small AG
In german practice, the special features of the small (i.e. non-listed) AG are at best reflected in the AG's articles of association. When founding the AG and at later points in time, it should always be checked whether the special features of the non-listed AG provided for by german law - since they usually mean relief and freedom for the parties involved - are suitable for the circumstances of one's own company.
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