Contents
Got questions about setting up a business in Germany?
- Startup expert
- 10+ years experience
Hi, I’m Andreas and I’ve been advising businesses in Germany for over a decade. I’d be happy to call you and answer any questions you have in a one-on-one consultation.
Advantages of the AG
Greater transferability of shares
The transfer of shareholder shares (Gesellschafteranteilen) in an AG, i.e. shares (Aktien), is relatively straightforward. No formal requirements such as notarial certification (a mean feature of the GmbH) are necessary. However, the conditions of the transfer depend on the type of shares:
- For “nicht verbriefte Anteile” (“un-certificated shares”) to change hands, all is required is a simple transfer.
- “Namensaktien” (“registered shares”) can be transferred by endorsement, i.e. a written declaration.
- The transfer of registered shares with “restricted transferability” must be approved at the Hauptversammlung (shareholder’s general meeting) before going ahead.
- The transfer of “Inhaberaktien” (“bearer shares”) takes place by handing over the certificates, i.e. the actual paper share.
Continuity independent of ownership
An important advantage is the “Unternehmenskontinuität” (“business continuity”) in the event of a change of shareholders. The existence of a public limited company is independent of who its shareholders are or a change in shareholders, e.g. through death or sale of shares. Since the shareholders cannot intervene, there is also no danger that a new co-partner will want to interfere with the company’s operations. However, shareholders can exercise their rights of control and information individually.
Financial independence through IPO and short-term capital increase
The AG as a legal form offers an alternative to loans from credit institutions. For example, if an AG goes public, financing is done through the sale of shares. Additionally, new capital can be raised at short notice through a capital increase.
The reputable legal form in Germany
The legal form of an AG has a clear advantage for the outside world: it appears respectable and professional, i.e. it enjoys a high reputation. This also has a psychological effect, the so-called “bank director effect”. That is, the title “Vorstand” (“executive board”) on the business card generally makes a good impression on customers.
Permanent influence through shares
Entrepreneurs can secure permanent influence on a company through the ownership of shares and at the same time acquire external capital. For example, this can allow a company to remain in the hands of one family.
Management is not obligated to follow instructions from shareholders
The Hauptversammlung (general meeting) can’t decide operational business matters or how the board of directors should run the company. Thus, the management of an AG doesn’t have to follow the instructions of the owners, i.e. the partners or shareholders. But, rather, the members of the Vorstand (the management or executive board) are accountable to the Aufsichtsrat (supervisory board).
Checks and balances
The AG’s structure means that the functional division between the Aufsichtsrat (supervisory board) and the Vorstand (executive board) acts as a check and balance mechanism. That is, separate and independent bodies are in charge of managing and controlling an AG. For example, only the shareholders can dismiss a member of the Vorstand (executive board). In this case, there is a “vote of no confidence” in the executive board member at the Hauptversammlung (general meeting). If a majority votes in favour of the motion, the executive board must remove the member in question.
Get a personal guide for a fraction of what a lawyer costs.
- Startup expert
- 10+ years experience
Hi, I’m Andreas and I’ve been advising businesses in Germany for over a decade. I’d be happy to call you and answer any questions you have in a one-on-one consultation.
Disadvantages of the AG
Overly bureaucratic formation
One of the biggest disadvantages of an AG is the high financial outlay required to set up the company. A “Grundkapital” (share capital) of €50,000 must be paid in or contributed in kind.
On top of that, the costs of forming an AG are significantly higher than for other legal forms. This difference is due to the formal strictness of the Aktiengesetzes (stock corporation act). Many of the founding procedures and documents involve notary appointments and entry into the Handelsregister (commercial register). Consequently, the fees for all these things start to add up.
Organisational complexity due to multiple corporate bodies
The division of the management of an AG into three bodies (Organe), the Vorstand (executive board), the Hauptversammlung (general meeting) and the Aufsichtsrat (supervisory board), is on the one hand an advantage because there is a clear separation of powers. On the other hand, also has a downside because it significantly increases the organisational complexity. Thus, well-designed coordination and communication processes are a must, otherwise, decision-making is next to impossible.
High administrative burden
Coupled with high organisational complexity is a heavy statutory administrative burden, which is also due to the provisions of the Companies Act. For example, an Aktienbuch (share register) must be kept and the Hauptversammlung (annual general meeting) must be called regularly.
Disclosure requirements
German law requires the company to disclose various information, e.g. the Jahresabschluss (“annual accounts” – the German version of an annual financial statement) or the Lagebericht (management report). This can be seen as a drawback of the AG, as competitors can glean precise information about the company.
Aktiengesetzes (stock corporation act) regulations
An AG is a very complicated corporate form due to the regulations of the Aktiengesetzes (stock corporation act). Strict formalities, deadlines and high administrative and organisational costs are the disadvantages of an AG. There have been some attempts to reform the legislation to offer entrepreneurs a simplified “small” version of the AG, but, even still, it’s a very difficult company type to manage.
Got questions about setting up a business in Germany?
- Startup expert
- 10+ years experience
Hi, I’m Andreas and I’ve been advising businesses in Germany for over a decade. I’d be happy to call you and answer any questions you have in a one-on-one consultation.
Want to know more about the AG?
Our AG (stock company) series:
Master list:
