The Reform Of German Company Law
A. Introduction
The German reform schedule of private limited companies was often delayed until finally the Gesetz zur Modernisierung des GmbH-Rechts und zur Bekämpfung von Missbräuchen (MoMiG - Law for the Modernization of the Private Limited Companies Act and to combat its Abuse) entered into force on November 1St, 2008.
Already in 2005, a first draft of the Mindestkapitalgesetz (Law to reduce the minimum capital requirements) was submitted, but due to snap elections of the German parliament and resulting changes in the government, this reform path came to rest.
Two years later, the first draft of the MoMig, introduce by the Bundesjustizministerium (Federal Ministry of Justice), was followed by an official government draft on May 23rd, 2007. This draft was considered by the Bundesrat (Representatives of German state governments in legal proceedings) and delegated by the Bundestag (German parliament) to parliamentary committees in September 2007. A hearing on the reform bill by the committee on legal affairs took place in January 2008 and the bill was finally passed during a plenary discussion and vote in the Bundestag on June 26th, 2008. After that, the Bundesrat discussed the reform bill again and approved it. Signed by the Bundespräsident (Federal President), the MoMiG was published in the Federal Law Gazette on October 28th, 2008 and entered into force on November 1st, 2008 (BMJ).
B. Major Changes
One of the most noteworthy issues of the reform was the introduction of the Unternehmergesellschaft (UG - Entrepreneurial Company), which is especially designed for entrepreneurs and start up firms. Particularly regulated in §5a GmbHG and granting limited liability, the UG is not a new form of a company but a sub-form of the German GmbH (Close corporation with limited liability), meaning that all rules and regulations applicable for the GmbH will also apply for the UG.
§5a (1) GmbHG states that the newly formed company has to do business under the name Unternehmergesellschaft (haftungsbeschränkt) or its abbreviation UG (haftungsbeschränkt), but not merely UG. This special transparency obligation is supposed to serve as a warning to make clear to the public that one is dealing with a company endowed with very little capital.
This was necessary because an UG can be established with a minimum capital requirement of €1 only, whereas the MoMiG retains the minimum capital requirement for establishing a GmbH at €25.000 (Therefore, it was not reduced to €10.000 as proposed by the Mindestkapitalgesetz). Unless the share capital of the UG remains below €25.000, the UG must comply with the special requirements in §5a GmbHG. Although the MoMiG does not contain any time restraints, the UG can be perceived as an “interim solution” on the way to a “genuine” GmbH (Schmidt 2008). Therefore, the UG has to save 25% of its annual profits minus the accumulated deficits of the preceding year, which may not be distributed to its shareholders but will be accumulated until the threshold of €25.000 is reached, §5a (3) GmbHG.
Mentioning the formation of a private company, the requirement of notarization of the constitution still remains in force for both, the GmbH and the UG. However, the new §2 (1a) GmbHG provides for a simplified incorporation method by using a Musterprotokoll (sample statute), which is an absolute novelty for German law. This procedure is only available for uncomplicated standard cases, meaning a formation that includes three shareholders at the most who may only be natural or legal persons, but no partnerships.
Besides the conversion of the Handelsregister (German register of companies) into electronic form, the MoMiG is supposed to reduce the time to set up a company in two additional ways. First, the review of public licenses is not necessary anymore and second, the review of asset provisions by shareholders is limited to cases which appear suspicious to a reasonable person (Beurskens and Noack 2008).
Another simplification concerns the rights of shareholders of a private limited company. Henceforward, shareholders are allowed to hold as many shares as they want and the value of each part can be freely determined, as long as the value multiplies with €1, §5 (2) GmbHG. Contrary to the GmbH, § 5a (2) GmbHG states that an UG can only be established if the share capital was paid up in total. Before that, the shareholders can be held personally liable. Non-cash distributions are not allowed.
Furthermore, as already ruled by the ECJ (namely the Centros triad), the MoMiG opens the GmbH and the UG for off-shore operations and thereby separating their corporate seat from their place of registration. The fact that the corporate seat can be abroad whereas the place of registration may remain in Germany makes the GmbH more attractive and opens the possibility to German corporations to develop their business operations elsewhere.
The MoMiG was also introduced to combat the abuses of the companies act. Therefore, each company has to be registered in the Handelsregister which is meant to accelerate the delivery of appeals and actions. If the UG lost its directors, the shareholders have to file for bankruptcy immediately. In addition, §5a (4) GmbHG states that the general meeting has to be called in case of an imminent inability of the UG to pay its debts.
Last but not least, the legislator changed the requirements for the transfer of GmbH shares. Whereas there was no exception of the doctrine that a non-owner cannot give a good title before the reform, the new §16 (3) GmbHG introduced a good faith acquisition of GmbH shares itself. The transfer of shares requires the filing of an updated Gesellschafterliste (shareholder list) by the notary to the registration court, which serves as an objective basis for the good faith acquisition. After the transfer, the transferee becomes a member of the company and my exercise shareholder rights. However, there are several limitations for the transfer of shares. In order to acquire GmbH shares in good faith, the shareholder list has to be incorrect for more than three years and the incorrectness has to be attributed to the real shareholder.
C. Conclusion
Faced with foregoing changes and reformations of the company law of European Union member states, even the conservative German legislator decided to participate in the regulatory competition. The legislator's aim with reforming the German company law by introducing the MoMig was to facilitate and accelerate the formation of companies and to increase the international competitiveness of the German Gesellschaft mit beschränkter Haftung in its international environment (BMJ). Eliminating certain formalities, the MoMig also replaces much of the case law that evolved since the implementation of the GmbH in the 19th century with statutory rules. As shown above, the reform brought several groundbreaking changes to the German law of private limited companies. Some of these changes were even new to the German jurisdiction at all. Surprisingly, the German legislator abode the minimum capital requirement of €25.000 as well as the notarization requirement for the GmbH. On the other hand, the reincorporation for existing firms will be much easier. The admission to relocate administrative headquarters means the end of the real seat doctrine for Germany and will improve corporate mobility. By introducing the Unternehmergesellschaft (haftungsbeschränkt), the legislator also made it much easier for small start-up firms to incorporate their own business since the UG grants limited liability and does not require a minimum capital. Furthermore, the costs of starting a business were decreased. Thus, particularly small start up-firms operating in the tertiary sector which do not require a massive capital endowment are easier to establish.
All in all, the German legislator refused to simply replicate the UK template of the English Limited Liability Company and came up with his own solution to make the GmbH more competitive in the international environment. Being in force for already one year, the reform and the introduction of the UG seems to be a success, as several analysis show (Niemeier 2009). Whereas there was no increase in overall registrations of newly incorporated firms, the number of incorporated Unternehmergesellschaften increased significantly. This means that the UG became more and more popular and a preferred choice for certain entrepreneurs compared to the GmbH and especially the Limited. Whereas the number of formations was at the same level for UGs and LLCs in November 2008, the declining quantity of incorporated LLCs in Germany, which is already exceeded by the quantity of liquidations of LLCs, suggest that only few German entrepreneurs resort to this company model any more.
But as a new study already shows, the MoMiG was not able to achieve the legislator's purpose of accelerating the establishment of new companies. Setting up a UG still takes 44 days (or six weeks) in average (Companea 2009).
References
1. Altgen, Christian. 2008. “The Acquisition of GmbH Shares in Good Faith”. German Law Journal 9 (9): 1141-1154.
2. Beurskens, Michael, and Ulrich Noack. 2008. “The Reform of German Private Limited Company: Is the GmbH ready for the 21st Century?”. German Law Journal 9 (9): 1069-1092.
3. Bundesministerium der Justiz. 2008. “Ablauf des Gesetzgebungsverfahren”.
(Available at: http://www.bmj.bund.de/enid/6b288eaeaa29724323464245144a6887,0/Die_
GmbH-Reform/Ablauf_des_Gesetzgebungsverfahrens_1ff.html).
4. Bundesministerium der Justiz. 2008. “Schwerpunkte des MoMiG”.
(Available at: http://www.bmj.bund.de/files/-/3342/Schwerpunkte%20MoMiG%20.pdf).
5. Bundesregierung online. 2008. “Unternehmenssteuerreform und Abgeltungssteuer”
(Available at: http://www.bundesregierung.de).
6. Companea GmbH & Co. KG. 2009. „Untersuchung zur Gründungsdauer von Unternehmergesellschaften (haftungsbeschränkt)“.
(Available at: http://www.companea.de/ug-studie.pdf).
7. Niemeier, Wilhelm. 2009. “Zahlreich, unterkapitalisiert und jeder dritte Gründer vorbelastet: Die Unternehmergesellschaft führt eindrucksvoll im Race to the Bottom”. Der Betrieb 21 (9): 184-185.
8. Schmidt, Jessica. 2008. “The Unternehmergesellschaft (Entrepreneurial Company) and the Limited - A Comparison”. German Law Journal 9 (9): 1093-1108.
9. Statistisches Bundesamt. 2009. “Unternehmen und Arbeitsstätten”.
(Available at: http://www.destatis.de).
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