An Aktiengesellschaft (AG) – in English it translates to stock company – is an interesting but complicated legal form. This article explains the basic aspects of this company form: From the definition to the establishment and the bodies and up to the entry in the commercial register and the IPO, here you will learn the basics of stock companies in Germany – including the answer to the question “What is an AG?”.
The legal form of AG: Definition
What is an AG and how exactly is it defined? Just like a GmbH, an AG as a legal form is a capital company. As a corporation, it’s a legal entity and therefore has rights and obligations that exist independently of the owners. The shares of the company are held by shareholders (Gesellschafter). They’re the (co-)owners of the company. Shareholders’ co-determination rights are based on their share in the registered capital.
Forming an AG
The process of forming an AG is subject to strict regulations laid down in the German Stock Corporation Act (Aktiengesetz [AktG]).
The formation process of the AG in detail:
- Preparation and notarisation of the articles of association
- Acquisition of the shares by the founders
- Appointment of the board of directors, the management board and the auditor
- Preparation of the formation report and subsequent formation audit
- Deposit of contributions (cash or transfer of contributions in kind)
- Application for entry in the commercial register
As soon as the company has been entered in the commercial register, it officially exists as an AG.
The registered capital of an AG must amount to at least 50,000 €. The first shares will be issued based on this amount. These can be either nominal shares or individual shares. Nominal shares (Nennbetragsaktien) are denominated at a certain value, whereby the minimum amount must be one euro and only whole amounts are permitted. Individual shares (Stückaktien) are not denominated in a specific amount but represent a fixed portion of the share capital. If 100 shares are issued, one share corresponds to one per cent of the value of the company. Whether these shares are actually issued as paper certificates or whether no individual securitisation takes place is stipulated in the articles of association of the AG.
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Organs of an AG
An AG has three organs (components): the general assembly (Hauptversammlung), the board of directors (Aufsichtsrat) and the management board (Vorstand).
The general assembly (Hauptversammlung)
The general assembly, which represents the shareholders and exercises their rights, is convened once a year – extraordinary general assembly can also be held if necessary for the good of the company.
The decisions taken at the general assembly generally have nothing to do with the day-to-day operations of the company, but rather with organisational issues, such as the appointment of members of the board of directors, capital reductions and increases, as well as the allocation of profits. However, the management board may ask the shareholders to decide on an operational issue in order to safeguard themselves.
The board of directors (Aufsichtsrat)
The board of directors is the controlling body of the AG. In addition to appointing and dismissing the management board, it also appoints the auditor (Abschlussprüfer). The board of directors reviews the annual financial statements and submits them to the board of directors. In addition, the members of the board of directors have access to the company’s books at all times in order to perform their supervisory function.
The management board (Vorstand)
The management board is responsible for the operational business of the AG. It’s self-sufficient and independent of the board of directors and the general assembly. The management board represents the company externally, whereby the power of representation is unlimited, but in principle only effective as a joint power of representation. Individual members can only effectively represent the company if the articles of association state that they have sole power of representation.
(Graph title: Number of stock companies and limited commercial partnerships limited by shares in Germany from 2003 to 2012)
(Graph key: Number of companies)
Accounting and disclosure requirements
For AGs, clear rules apply with regard to the composition of the annual financial statements and their publication. The annual financial statements of an AG include the balance sheet, profit and loss account and notes (§§ 242, 264 HGB), but not the management report. An AG is obliged to publish the annual financial statements, the scope of which depends on the size of the company.
Commercial register (Handelsregister)
Certain transactions and changes in an AG must be registered in the Handelsregister. These include, for example, the formation of the stock corporation, the first management board and the first board of directors, personnel changes in the committees and the respective annual financial statements of the company.
Transfer of shares and initial public offering
If shares are transferred from one holder to another, no special form is required. However, the type of shares must be taken into account. A non-securitized share, for example, can be transferred by assignment. In the case of “restricted” registered shares, however, the general assembly of the AG must give its approval.
In order to trade the shares on one of the international stock exchanges, the AG must first go through the initial public offering process. This requires compliance with certain legal requirements laid down in the Stock Exchange Act (Börsengesetz) and the Stock Exchange Admission Ordinance (Börsenzulassungsverordnung). Being listed on the stock exchange also creates additional disclosure requirements.
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