Public Limited Company (Aktiengesellschaft-AG)
I. Definition of term and basic features of a public limited company („Aktiengesellschaft“ Abbr.: AG)
I. A. Definition of term
A public limited company (AG) is a company with its own legal personality. Only the corporate assets are liable to creditors for debts incurred. It has share capital divided up in the form of shares. (§ 1 Companies Law (Aktiengesetz)).
The law governing public limited companies is codified in Companies Law of 06.09.1965 (Aktiengesetz) (as amended subsequently).
A decision to opt for a public limited company (AG) allows a business the chance to acquire substantial sums of capital as a modern large company requires. Since shareholders when they buy the shares do not undertake any other obligations a public limited company (AG) can attract the general public on the capital markets. It is also important that shares can be transferred easily, via the stock market in the case of quoted companies. A public limited company (AG) is the preferred corporate option for large businesses.
There is no special law in Germany with particular conditions governing a small public limited company. Following an amendment to Companies Law in 1994 some formal regulations were simplified for public limited companies with known named shareholders (e.g. family companies). Even a one-person formation has now become admissible. This made the form of a public limited company (AG) attractive to small and medium-sized businesses too (which explains the term small public limited company).
The German legislator has tried to limit the risks and disadvantages of the legal form of public limited company (AG) for creditors and for the shareholders too by means of a strictly formal legal structure. These formalities which are highly complicated in detail make the public limited company (AG) quite a ponderous entity.
I. B. Basic features
Capital
Typical for a public limited company (AG) is a particular share capital broken down into shares . In principle these shares can be transferred freely. There is no question of a number of shareholders or their personal features. A public limited company (AG) is a pure capital-based company. The minimum capital sum is at least 50,000.-- EURO .
Structure, organs
A public limited company (AG) is an autonomous legal entity . It is organised on corporate lines. It does not depend on any membership and has its own organisation with autonomous organs . The law prescribes three organs: board, supervisory board and general meeting. The relationship between these various organs is largely laid down in terms of the mandatory division of competence between them.
Legal status of shareholders, liability
Shareholders are not registered traders. Liability to creditors is limited to the corporate assets of a public limited company.
I. A. Definition of term
A public limited company (AG) is a company with its own legal personality. Only the corporate assets are liable to creditors for debts incurred. It has share capital divided up in the form of shares. (§ 1 Companies Law (Aktiengesetz)).
The law governing public limited companies is codified in Companies Law of 06.09.1965 (Aktiengesetz) (as amended subsequently).
A decision to opt for a public limited company (AG) allows a business the chance to acquire substantial sums of capital as a modern large company requires. Since shareholders when they buy the shares do not undertake any other obligations a public limited company (AG) can attract the general public on the capital markets. It is also important that shares can be transferred easily, via the stock market in the case of quoted companies. A public limited company (AG) is the preferred corporate option for large businesses.
There is no special law in Germany with particular conditions governing a small public limited company. Following an amendment to Companies Law in 1994 some formal regulations were simplified for public limited companies with known named shareholders (e.g. family companies). Even a one-person formation has now become admissible. This made the form of a public limited company (AG) attractive to small and medium-sized businesses too (which explains the term small public limited company).
The German legislator has tried to limit the risks and disadvantages of the legal form of public limited company (AG) for creditors and for the shareholders too by means of a strictly formal legal structure. These formalities which are highly complicated in detail make the public limited company (AG) quite a ponderous entity.
I. B. Basic features
Capital
Typical for a public limited company (AG) is a particular share capital broken down into shares . In principle these shares can be transferred freely. There is no question of a number of shareholders or their personal features. A public limited company (AG) is a pure capital-based company. The minimum capital sum is at least 50,000.-- EURO .
Structure, organs
A public limited company (AG) is an autonomous legal entity . It is organised on corporate lines. It does not depend on any membership and has its own organisation with autonomous organs . The law prescribes three organs: board, supervisory board and general meeting. The relationship between these various organs is largely laid down in terms of the mandatory division of competence between them.
Legal status of shareholders, liability
Shareholders are not registered traders. Liability to creditors is limited to the corporate assets of a public limited company.
II. Formation of a public limited company (AG)
II. A. Main requirements
Shareholders
Following amendments to Companies Law (Aktiengesetz) in mid 1994 ("small public limited company" (kleine Aktiengesellschaft)) there is no longer a requirement for a minimum number of shareholders even on formation. It is even possible to form a one-person public limited company .
The founders of a public limited company (AG) can be individuals and legal entities, including foreign ones, a commercial partnerships (general commercial partnership (oHG), limited commercial partnership (KG) and EWIV).
Capital
Share capital of a public limited company (AG) must be at least 50,000.--EURO regardless of whether recourse is made to the capital market. Capital can be in the form of cash and non cash contributions. In the case of non cash contributions the nominal value of shares to be allocated in return for the contribution must be specified in the Articles.
Object
A public limited company (AG) can pursue practically any legally admissible aims . However some forms of professional law do not allow the liberal professions to be exercised in the form of a public limited company (AG) (e.g. chemists, notaries and doctors).
A public limited company (AG) is always a commercial trading company by law regardless of its own aims (trader registrable by virtue of legal form).
Company name (style)
The company name (style) (Company name law) is the name in which a public limited company (AG) is entered in the Commercial Register and with which it transacts business. The company name of a public limited company (AG) can include the object of the business (non-personal company name), the name of one or more of the proprietors (personal company name) or freely invented suffixes . Combined versions are also possible, the company name including the subject of the business (non personal company-name) must always contain an individualising suffix. The suffix "Aktiengesellschaft " or the abbreviation AG must always be appended to the company designation. When the courts check that the company name is admissible they take into account how genuine its nature is. A company name cannot have any suffix which is designed to mislead over the nature or scope of the business.
Geographic suffixes are basically allowed if the company has a special connection to the named zone, for example its headquarters or base. Current case law allows prefixed geographical suffixes followed by the branch of business, only when the company enjoys a prominent position in its sector and geographical area. In those cases, the company should demonstrate its corresponding size. If the request cannot be fulfilled, a further individualising suffix will have to be used preceding the company name (for example a combination of letters).
Opinion of the Chamber of Industry and Commerce:
In cases of doubt the relevant Chamber of Industry and Commerce will provide the district court with an opinion on the admissibility of the company name. It is recommended to contact the relevant Chamber in order to exclude at an early stage any risk of confusion or possible doubts about the companys real status and clarity of purpose.
II. B. Formal and publicity regulations
A distinction must be made between simple and qualified formation. The latter applies if agreements are made involving particular financial risks (e.g. the provision of non cash contributions). In the case of a qualified formation additional provisions must be incorporated in the Memorandum and Articles.
Formation of a public limited company (AG) (simple formation) takes place in the following stages:
- Determination of Articles (Memorandum & Articles)
- Contribution of share capital
- Appointment of organs
- Part-payment of capital
- Provision of formation report
- Formation scrutiny
- Notification and Entry in the Commercial Register.
Determination of Articles
Determination of the Articles (Memorandum & Articles) is a legal process in which the founders agree on the content of their agreement. It must be certified by a notary . From the date it is certified by a notary until it is registered a public limited company (AG) exists in the form of a provisional public limited company without legal powers. A public limited company (AG) does not exist as an autonomous legal entity until it has been registered.
The Articles must include the following details:
Company name, registered office, object of business, amount of share capital, face value of shares, number of shares and class of shares (ordinary shares or preferential shares), method of issue (bearer or registered shares), number of board members and form of public notifications.
In the case of a qualified formation additional provisions covering the following problems must be incorporated in the Articles:
Special benefits for individual shareholders or third parties, cost of formation, non cash capital contributions, acquisitions in kind.
Notarial certification
Formation of a public limited company must take place before a notary. There is no longer the requirement for a minimum number of founders so even one founder can form this type of company. This can be an individual or a corporate body including foreigners. It is possible to have oneself represented for the actual formation procedure.
If the notary does not know the founders they must produce valid identification documents to prove their identities. If the person appearing is acting for someone else and not on own account he or she must have a written power of attorney or must be certified retrospectively in notarially certified form. If the signature below a power of attorney has been certified by a foreign notary then depending on the country of origin legalisation (or confirmation) is required. The former can be obtained from a Federal German Consul.
If the founders include a legal entity the existence of this legal entity must be proven in the form of a certified extract from the commercial register (or the equivalent official registration documents in the case of foreign entities).
The formation deed must also include details of the founders, face value, issue price and class of shares taken by each founder and the amount of share capital paid up.
Registered office
The registered office of a public limited company (AG) will normally be in the location where the company has an operation or where the management or administration is located.
Object of business
The Articles must specify the type of business to be conducted (object). In particular a detailed description must be given of the nature of goods and products being manufactured and traded.
Share capital
The amount of share capital must be given in figures. This must be at least 50,000.--EURO .
The Articles must also specify the face value of shares and the number of shares for each face value and, if there are different categories of share (ordinary or preferential), the category of the shares and the number of shares in each category.
Shares may be issued as shares with (Nennbetragsaktie) or with no (Stückaktie) nominal value
The minimum face value of shares with a nominal value is 1.--EURO .Higher face values up to any figure are admissible as long as the figure increases in steps of 1 EURO at a time.
Share certificates are normally issued for the shares. These are securities which document members rights in a public limited company.
The Articles must specify whether shares are issued to bearer or to registered holders. Bearer shares are more common in practice, being transferable like all movable items by agreement and assignment. Registered shares can be transferred by endorsement. Ordinary shares and preference shares can be issued. Preference shares are those which include preferential treatment when profits are distributed. Preference shares can be issued with or without voting rights.
When founders take over their shares this has to be certified by a notary. Once all shares have been subscriped by the founders the Company is established .
Payment of capital contributions
Payments in return for the allocation of shares must be fully at the disposal of the board. In the case of cash contributions the amount payable must be at least 1/4 of the face value.
Non cash capital contributions must be paid in full.
Appointment of organs
First the founders have to appoint the supervisory board and the auditors for the first financial year. This must be certified by a notary.
The supervisory board then appoints the first board (simple written document suffices). Members of the board and supervisory board do not need to the shareholders.
Compliance with publicity regulations
Entry in the Commercial Register
A public limited company (AG) must be entered in the Commercial Register. It does not exist as an autonomous legal entity until it is so entered .
Notification to the Commercial Register. Entry in the Commercial Register must be notified in writing to the relevant District Court by all the founders, members of the board and the supervisory board. The company's powers of signature and style must be duly certified by a notary. This cannot take place until the due amount of payment for every share has been properly subscribed and is fully available to the board for disbursement as it sees fit.
Content of notification and supporting documents:
Determination of the Articles (Memorandum & Articles) is a legal process in which the founders agree on the content of their agreement. It must be certified by a notary . From the date it is certified by a notary until it is registered a public limited company (AG) exists in the form of a provisional public limited company without legal powers. A public limited company (AG) does not exist as an autonomous legal entity until it has been registered.
The Articles must include the following details:
Company name, registered office, object of business, amount of share capital, face value of shares, number of shares and class of shares (ordinary shares or preferential shares), method of issue (bearer or registered shares), number of board members and form of public notifications.
In the case of a qualified formation additional provisions covering the following problems must be incorporated in the Articles:
Special benefits for individual shareholders or third parties, cost of formation, non cash capital contributions, acquisitions in kind.
Notarial certification
Formation of a public limited company must take place before a notary. There is no longer the requirement for a minimum number of founders so even one founder can form this type of company. This can be an individual or a corporate body including foreigners. It is possible to have oneself represented for the actual formation procedure.
If the notary does not know the founders they must produce valid identification documents to prove their identities. If the person appearing is acting for someone else and not on own account he or she must have a written power of attorney or must be certified retrospectively in notarially certified form. If the signature below a power of attorney has been certified by a foreign notary then depending on the country of origin legalisation (or confirmation) is required. The former can be obtained from a Federal German Consul.
If the founders include a legal entity the existence of this legal entity must be proven in the form of a certified extract from the commercial register (or the equivalent official registration documents in the case of foreign entities).
The formation deed must also include details of the founders, face value, issue price and class of shares taken by each founder and the amount of share capital paid up.
Registered office
The registered office of a public limited company (AG) will normally be in the location where the company has an operation or where the management or administration is located.
Object of business
The Articles must specify the type of business to be conducted (object). In particular a detailed description must be given of the nature of goods and products being manufactured and traded.
Share capital
The amount of share capital must be given in figures. This must be at least 50,000.--EURO .
The Articles must also specify the face value of shares and the number of shares for each face value and, if there are different categories of share (ordinary or preferential), the category of the shares and the number of shares in each category.
Shares may be issued as shares with (Nennbetragsaktie) or with no (Stückaktie) nominal value
The minimum face value of shares with a nominal value is 1.--EURO .Higher face values up to any figure are admissible as long as the figure increases in steps of 1 EURO at a time.
Share certificates are normally issued for the shares. These are securities which document members rights in a public limited company.
The Articles must specify whether shares are issued to bearer or to registered holders. Bearer shares are more common in practice, being transferable like all movable items by agreement and assignment. Registered shares can be transferred by endorsement. Ordinary shares and preference shares can be issued. Preference shares are those which include preferential treatment when profits are distributed. Preference shares can be issued with or without voting rights.
When founders take over their shares this has to be certified by a notary. Once all shares have been subscriped by the founders the Company is established .
Payment of capital contributions
Payments in return for the allocation of shares must be fully at the disposal of the board. In the case of cash contributions the amount payable must be at least 1/4 of the face value.
Non cash capital contributions must be paid in full.
Appointment of organs
First the founders have to appoint the supervisory board and the auditors for the first financial year. This must be certified by a notary.
The supervisory board then appoints the first board (simple written document suffices). Members of the board and supervisory board do not need to the shareholders.
Compliance with publicity regulations
Entry in the Commercial Register
A public limited company (AG) must be entered in the Commercial Register. It does not exist as an autonomous legal entity until it is so entered .
Notification to the Commercial Register. Entry in the Commercial Register must be notified in writing to the relevant District Court by all the founders, members of the board and the supervisory board. The company's powers of signature and style must be duly certified by a notary. This cannot take place until the due amount of payment for every share has been properly subscribed and is fully available to the board for disbursement as it sees fit.
Content of notification and supporting documents:
- Proper signature of all board members
- Capital subscription statement with supporting evidence (in the case of a non cash capital contribution: submission of all relevant agreements)
- Statement of formation costs
- Minutes of formation and Memorandum and Articles
- Minutes on appointment of the board and the supervisory board
- Formation report and scrutiny reports by the board and the supervisory board as well as the scrutineer
- Approval certificate (if official approval is required)
Scrutiny by the District Court and entry in the Commercial Register: the court checks whether or not the company has been properly established and registered. Entries in the Commercial Register are publicised by means of publication in the Federal Gazette and in at least one other paper.
Formation report and formation scrutiny
Formation report and formation scrutiny
Founders must report in writing on the formation process. This is then scrutinied by members of the board and the supervisory board. If any member of the board or supervisory board is one of the founders or has acquired shares on formation of the company on behalf of a member of the board or the supervisory board, or if any member of the board or the supervisory board has secured special benefits, or the formation is a qualified one (with non cash capital contributions or acquisitions in kind), the services of an external scrutineer must be secured.
The formation report can be inspected by anyone at the court.
Re-formation
The regulations governing re-formation are designed to prevent any evasion of the protective regulations in force for a qualified formation. Every contract concluded by the company in the first two years following its entry in the Commercial Register which covers the acquisition of assets and which involves the company paying out more than 10% of its share capital is regarded as re-formation. The supervisory board must scrutinise this and must produce a written re-formation report. In addition once the Chamber of Industry and Commerce has heard the matter, a formation scrutineer must be involved.
Company stationery
The following details must appear on company stationery: company name, legal status, registered offices of the company, District Court for the Commercial Register, Commercial Register number, members of the board as well as chairman of the board and of the supervisory board (with at least one forename written out in full).
III. Functioning of a public limited company (AG)
III. A. Management of a public limited company (AG)
Board
Members of the board do not need to be shareholders (collective third party). Composition of the board is in line with the Articles. It can consist of one or a number of people. Appointment is by the supervisory board for a maximum of five years . Reappointment is allowed.
Appointment of the board
An appointment contract for members of the board of a public limited company (AG) is normally a service agreement for a self-employed person (not an employment contract). Self employed persons in Germany are not normally bound to subscribe to a social insurance scheme (pension insurance, health insurance and unemployment insurance). Former salaried employees can take out voluntary ongoing cover in the statutory health insurance scheme. It is also possible to apply for compulsory or voluntary membership of the statutory pension insurance scheme. Board members can also voluntarily join the statutory accident insurance scheme (Trade Associations).
You will find the general regulations for residential right questions especially in "The law for entry and stay of foreigners in Germany (Foreign Law - AusländerGesetz)".
Management internally
Actual management is solely the responsibility of the board. The latter has autonomous responsibility. Management authority is basically unlimited (unless there are provisions which call for approval by the supervisory board).
Representation externally
The board represents a public limited company (AG) externally. Basically representative powers are unlimited .
Liability of members of the board
Members of the board of a public limited company (AG) conduct business on behalf of the company. They themselves are not entrepreneurs . They are therefore not liable to third parties for the debts of the company nor do they have to recompense the company internally for losses arising during their stewardship. It is only the company which takes entrepreneurial risk. However members of the board are under a statutory obligation to transact business with proper care and diligence as befits a professional businessman. If a member of the board is in breach of this obligation to the company, the company can bring a claim for compensation. There is no liability to members of the board nor to third parties. The only time there is liability to third parties is when members of the board acting as individuals engage in an unauthorised transaction (e.g. an infringement of the relevant provisions of the Civil Code (BGB)).
III. B. Scrutiny of a public limited company (AG) and annual accounts
General meeting
The general meeting is the shareholders organ at which they exercise their rights in respect of a public limited company. The board has to convene a general meeting. There are a number of formalities to be observed when conducting a general meeting. A general meeting can only decide management issues if the board so desires. The general meeting cannot instruct the board. The general meeting does have some influence on management in that it elects shareholder representatives on the supervisory board . The general meeting also elects the auditors and votes on allocation of balance sheet profits. It discharges members of the board and the supervisory board.
Supervisory board
The main task of the supervisory board is to supervise the way the board performs (scrutiny function) . That apart its most important task is to appoint and dismiss members of the board. It is responsible for convening a general meeting if the well-being of the company so requires, scrutiny of the annual accounts, the annual report and proposals for allocating profits.
A supervisory board has at least three members . The Articles may specify more members than this but the total must be divisible by three. In principle any individual can be elected. Members of a supervisory board are published in the Commercial Register.
A supervisory board cannot undertake management tasks nor instruct the board on what to do. Its general task is to monitor constantly the way that the board manages the company.
Appointment of the supervisory board
A contract of appointment for a member of a supervisory board is a service agreement for a business transaction. It can be paid or unpaid. A member of a supervisory board does not have to subscribe to a social insurance scheme.
Co-determination
The Co-determination Law of 04.05.1976 (Mitbestimmungsgesetz), applies to all public limited companies which normally employ more than 2.000 employees and which are not subject to ECSC co-determination rules (Montan-Mitbestimmungsgesetz).. The Co-determination Law rules that supervisory boards have to be staffed by shareholders and employees in equal measure. Half are shareholder representatives and half employee representatives. The ECSC Co-determination Law of 21.05.1951 (Montan-Mitbestimmungsgesetz)., which applies to mining and coal and steel producers, also prescribes equal numbers of representatives from both sides on supervisory boards. If the particular preconditions for these laws are not met, co-determination is subject to the 1952 Law on the Constitution of Enterprises (Betriebsverfassungsgesetz). This states that one third of a supervisory board must consist of employee representatives. This does not apply if a public limited company (AG) has less than 500 employees and has been registered after 10.08.1994 or is a family company (= small public limited company).
Scrutiny and annual accounts
The Memorandum & Articles specify the duration of the financial year. However it may not exceed 12 months. The first financial year may be shorter.
A public limited company (AG) must keep proper written accounts like any commercial trading company. A balance sheet (annual balance sheet) and profit and loss account must be drawn up at the end of every financial year (in the German language). For the financial years ending after the 31st December 1998, the annual accounts can be drawn up in DM or in Euro. For the financial years ending after the 31st December 2001, the annual accounts must be drawn up in Euro. The annual accounts must have an enclosure with comments.
Audit of the annual accounts is mandatory for large and medium-sized public limited companies .
Small public limited companies must submit to the Commercial Register summary balance sheets (§ 266 par. 1 Commercial Code) plus abridged annex (§ 288 Commercial Code (HGB)). Medium sized companies must submit to the Commercial Register summary balance sheets, a summary profit and loss account (§ 276 Commercial Code), an abridged annex (§ 288 Commercial Code) and situation report plus a note of scrutiny and a report by the supervisory board. Large companies must submit to the Commercial Register their entire annual accounts without abridgement plus a scrutiny note and report by the supervisory board: publication in the Federal Gazette.
Small capital-based companies are those which do not exceed at least two of the following three features:
- 4.015.000 Euro Balance sheet total; 8.030.000 Euro annual net sales, annual average of 50 employees.
Medium-sized capital based companies are those which exceed at least two of the above features and do not exceed at least two of the following three features:
- 16.060.000 Euro Balance sheet total; 32.120.000 Euro annual net sales, 250 employees.
Large capital based companies are those which exceed at least two of the above three features.
Auditors and accountant companies must conduct annual audits although sworn book-keepers and book-keeping firms can audit the annual accounts and reports of medium-sized companies.
An auditors seal of approval gives the company and its shareholders as well as the outside world an overall assessment of the companys accounts and annual results. It certifies that accounting procedures have been in accordance with statutory regulations.
Auditors have extensive powers to obtain information and inspect books, cash position, stocks of securities and goods etc. They are bound by absolute confidentiality. They must write an objective written account of their audit. If there are no objections to raise, auditors must approve the accounts with their seal of approval.
Auditors and accountant companies must conduct annual audits although sworn book-keepers and book-keeping firms can audit the annual accounts and reports of medium-sized companies.
An auditors seal of approval gives the company and its shareholders as well as the outside world an overall assessment of the companys accounts and annual results. It certifies that accounting procedures have been in accordance with statutory regulations.
Auditors have extensive powers to obtain information and inspect books, cash position, stocks of securities and goods etc. They are bound by absolute confidentiality. They must write an objective written account of their audit. If there are no objections to raise, auditors must approve the accounts with their seal of approval.
IV. Taxes
The following taxes apply in particular to the company: Corporation tax, Capital yield tax, Solidarity supplement, Trade tax, Turnover tax (value added tax).
