The stock corporation (Aktiengesellschaft, AG) has always enjoyed great popularity in Germany as a corporate form, as it releases its founders from liability with their private assets, while at the same time enjoying the highest reputation in commercial transactions. However, the formation of a stock corporation is a highly complex process, as the legal requirements and formalities for this type of company are very extensive. This task requires a solid knowledge of the legal regulations in Germany and the company’s organisational structures.
In this context, the German law firm Schlun & Elseven Rechtsanwälte offers skilled and committed legal advice. Our lawyers will inform you about the legal requirements for forming an AG and ensure that it is placed on a solid legal footing. With our expertise, we support you in every phase of the formation process – from drafting legally compliant regulations and customised agreements such as the articles of association, the deed of incorporation and the memorandum of association to the protection of your trademark and your commercial register and business registration. Our clients include stock corporations, their management boards, supervisory boards, and investors. Contact us today to benefit from our expertise. We look forward to working with you.
The Steps involved in Founding an AG in Germany
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.
Drafting and Reviewing the Articles of Association
To register a company with the German commercial register, a stock corporation must prepare certain documents, such as the memorandum of association and articles of association. While the memorandum of association contains the details of the agreement between the shareholders on the formation of a company, the articles of association set out the rules according to which the company is formed. These documents must be notarised to be valid. Our lawyers will check your documents and ensure they meet the prescribed requirements.
For a company’s articles of association to be valid, it must contain specific information about the company’s internal procedures. A company’s internal rules should include elements on changes to share capital, the management of share changes, shareholders’ duties and the procedure for appointing and dismissing directors. Disputes between shareholders often arise when the company’s articles of association and rules are unclear. Carefully drafted articles of association by experienced lawyers can prevent costly legal disputes.
In the memorandum of association, the company determines the object of the company, the scope of the managing director’s power of attorney or the shareholders’ obligation to contribute, the company name and the company’s registered office.
As an interdisciplinary law firm, Schlun & Elseven Rechtsanwälte will outline all aspects of German corporate and contract law when setting up a stock corporation. To ensure that you are legally secure for the future, our German corporate lawyers will advise you in the following areas:
- Drafting the articles of association and memorandum of association,
- reviewing the memorandum of association and individual contractual clauses,
- enforcement of claims arising from the memorandum of association and defence of shareholders during disputes,
- amendment of the memorandum of association in the event of reorganisations, mergers and succession arrangements.
The Administrative Elements of the Stock Corporation in Germany
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
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
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
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.
Liability Issues Concerning the Stock Corporation
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.
Transformation into a Stock Corporation in Germany
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.
Practice Group: German Corporate Law
Practice Group:
German Corporate Law
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