Requirements for a Stock Corporation in Germany (“AG”)

The formation of a stock corporation in Germany takes place in stages and requires the fulfilment of various prerequisites. The first decisive steps are the action of at least one shareholder and the existence of the necessary share capital. Both private individuals and corporations or partnerships are free to form a stock corporation. In addition to the founder or shareholder (see Section 28 of the German Stock Corporation Act, AktG), other persons are decisive in forming a stock corporation: the supervisory board, which consists of at least three persons, and the management board. These are also active during the formation phase of the stock corporation in that the members of the bodies mentioned above examine the processes required for the formation.

In addition to the persons involved in the formation, it is essential in Germany to draw up the articles of association. Among other things, these specify the name of the company, its purpose, the amount of authorised capital, the number and type of shares (ordinary shares or preference shares), the way they are used (bearer or registered shares) and the number of members of the management board. The share capital required to form a stock corporation in Germany is at least EUR 50,000, a quarter of which must be provided upon registration.

In the final formation phase, the company must be registered with the tax office, commercial register and trade office in Germany. Our legal team accompanies founders through the entire process up to registration and subsequent entry. We support you with the formation protocols, including drafting the articles of association and subsequent notarisation, the formation audit, the registration procedure and the procurement of all necessary documents and certificates.

Within the AG in Germany, the following three bodies are of the utmost importance to the company: the management board, the supervisory board and the general assembly. Each of these bodies has different tasks within the company and different legal responsibilities and roles.

The managing board is responsible for decision-making, corporate policy, and company management. It represents the company externally when dealing with third parties and acts independently of the other two bodies unless otherwise stipulated in the articles of association. The supervisory board appoints the members of the managing board for a term of office of five years. Although it is common practice for the managing board to consist of several members, it can also consist of just one person who does not have to be a shareholder of the company.

Directors can be appointed within the board for different aspects of the company. The articles of association can provide guidelines and mechanisms for the board members to follow.

The supervisory board consists of members the company’s shareholders elect to represent their interests. They achieve this goal by appointing the managing board and overseeing the company’s management. This body can appoint and dismiss directors and CEOs based on its personnel competence. Although the general assembly has a significant say in the appointment of the members of the supervisory board, in large companies the employees also have an influential voice regarding the supervisory board. Members of the supervisory board have access to the company’s financial documents and can, therefore, monitor the management.

The general assembly of shareholders is usually held once a year in conjunction with the annual general assembly. This meeting generally deals with the appropriation of profits, the discharge of the managing board and supervisory board and the appointment of the auditor. However, an extraordinary general assembly can also be convened under certain circumstances.

While the management board handles day-to-day business, the general assembly deals with issues such as the appointment and dismissal of its representatives on the supervisory board, capital reductions and increases, amendments to the articles of association, and resolutions on a company’s dissolution. Shareholders can exercise their rights at the general assembly.

The AG is a company model in Germany with limited liability. The company itself has its own legal personality, which is distinct from the persons involved in the management of the company. In financial difficulties, creditors can generally only access the company’s assets. However, stock corporations are subject to stricter legal obligations than other types of companies in Germany, including the limited liability company (GmbH). If members of a stock corporation’s management board or supervisory board breach their duty of care or act unlawfully, they can be held liable for business decisions. If members of the managing board violate their duties, they are jointly and severally liable to compensate the AG for the damage incurred.

There is no minimum number of shareholders required to form a stock corporation. Accordingly, an AG can consist of a single shareholder. Small stock corporations have become increasingly common in recent years. However, most medium-sized and large stock corporations in Germany have several shareholders. These have ownership rights, including the right to a dividend, the right to subscribe in the event of a capital increase, the right to repayment in the event of a capital reduction and the right to participate in liquidation.

Shareholders also have rights regarding decisions on the articles of association, the appointment of auditors, special audits (Section 142 AktG), the appointment and dismissal of supervisory board members, the transfer of all company assets (Section 179a AktG) and the dissolution of the company.

Dividends can only consist of the company’s profits as recognised in the company’s annual financial statements. The company’s other assets are not included in the dividend. However, in cases where the company’s directors have misappropriated funds, they may be held personally liable for their actions. In general, the company’s shares are easily transferable. However, there is an exception in the case of registered shares, where the articles of association may contain provisions making the transfer subject to the company’s approval.

The conversion of a company from a limited liability company (GmbH) to a stock corporation (AG) can bring considerable advantages for companies in Germany. Stock corporations offer many advantages, including long-term growth, capital increase, a better reputation, and better access to expertise. The Transformation Act (UmwG) in Germany regulates the provisions for such a change of legal form.

The process of conversion takes place in five steps:

• Create a conversion report: The conversion report must set out the reasons for the conversion, the consequences of the decision and the shareholders’ shares in the AG. In Germany, the shareholders of the limited liability company must receive this report in advance so that those who do not support this step can withdraw from the company if they choose to do so.
• Conversion resolution: The official resolution can be passed at a general meeting, at which those present can discuss the conversion report and its aspects. The transformation of a GmbH into an AG requires the support of the majority of shareholders. Unless the memorandum of association state otherwise, 75% of the shareholders must vote in favour. After approval, the resulting conversion resolution must be notarised.
• The formation report: The company founders must draw up a formation report showing
  • that the required documents have been notarised,
  • the memorandum of association is in order,
  • the required capital increase (if the current share capital of the GmbH is not yet €50,000) – detailed financial reports are required,
  • the appointment of a supervisory board or managing board and their possible shares.
• External auditor: The formation report must be audited by the managing and supervisory boards as soon as it is ready. In addition, the competent registration court in Germany will appoint an external formation auditor. Their task is to check whether the information in the formation report is correct, particularly regarding the distribution of shares.
• The German Commercial Register: Stock corporations must be entered in the commercial register in Germany. Once this has been done, the stock corporation is legally authorised to do business. Upon entry in the commercial register, key documents such as the articles of association and the formation report are submitted to a notary, who notarises them and forwards them to the relevant local court.

To carry out a transformation in a legally compliant manner and avoid costly delays, it is advisable to work with an experienced corporate lawyer. Our team advises clients on the transformation of their company form, supports them in the individual procedural steps and ensures that it is carried out in accordance with the law in Germany. Contact us today to find out more about our services.