If you’ve done any business in Europe, you probably already know that the Aktiengesellschaft or AG (stock company) enjoys a stellar reputation in the German-speaking markets. But, what is not so stellar, is the amount of red tape a founder has to deal with to start and operate this type of company.
Luckily, there is a way to avoid some of the bureaucratic burden. If you go with a “non-listed AG”, otherwise known as a “kleine AG”, things get much simpler.
As there can be advantages to forming a kleine AG instead of, for example, a GmbH, it’s worth taking a closer look if works for your business.
- What is a “kleine AG”?
- Why found a kleine AG?
- Simplified convening procedure
- Simplified decision-making
- Limited requirement to certify resolutions
- Appropriation of profits and reserve requirements
- Limited co-determination on the supervisory board
In 1994, amendments to the German Stock Corporation Act (AktG) went a long way to relaxing some of the formalities of setting up an AG. Consequently, this has become an attractive alternative to the GmbH (limited liability company), even for small and medium-sized enterprises.
A founder who sets up non-listed AGs using simplified conditions has a business commonly known as a “kleine AG” (small AGs).
The financial and legal hurdles in setting up a Klein AG are still higher than in setting up a GmbH but much easier than a standard AG.
Also, a comparison of the AG and GmbH legal forms, shows that there are advantages that spring from the organisational structure of the company and its day-to-day operations.
Usually, the number of founders required to set up an Aktiengesellschaft (AG) is no longer five. But, with a “kleine AG”, all you need is one person to set it up.
The advantage for the founder is obvious: the group of shareholders can be kept manageable. The founder can own all the shares personally and become the managing director as well.
For many founders, two aspects act as a deterrent: the high capital contributions and the costs of setting up the company.
The legally prescribed minimum Grundkapital (capital contribution or share capital) is €50,000 for both the standard and the kleine AG. This is twice as much as you have to pay for the GmbH.
What is more, due to the strict AG regulations, the formation costs are significantly higher than the GmbH’s. The difference is because several steps must be notarised when forming an AG and not just one, as is the case with a GmbH. Yet, despite this, the legal form of an AG also has many advantages.
In the articles of association of every AG, including those of the kleine AG, the right to individual securitisation can be excluded. It is then no longer possible to obtain a certificate for each individual share. Instead, all shares are combined in a so-called “Globalurkunde” (“global certificate”), which is then deposited with a central depository. For a kleine AG, this arrangement means massive savings in printing costs.
When an AG holds its Hauptversammlung (general meeting), it is required by law to publish the invitation in the Gesellschaftsblätter (company gazettes). Additionally, a publication must be made in the electronic Federal Gazette.
Following the amendment of the AktG, a written invitation to the general meeting is now also sufficient for non-listed or kleine AGs. The condition for this is that all shareholders are known to the company by name and that the invitation is sent by registered mail. In the case of kleine AGs, different deadlines for convening the general meeting apply than for normal AGs.
If all shareholders are present or represented at the general meeting of an AG without exception, the so-called Vollversammlungsprivileg (full meeting privilege) applies. All resolutions can then be passed without having to comply with the relevant provisions of the AktG. This option considerably speeds up the decision-making process. But, it does require the consent of all those present.
The AktG requires that all resolutions passed at a general meeting be notarised by a notary public. The background is that this notarial certification has an evidentiary function. It is intended to establish or prove that the resolution reflects the will of the shareholders. Because of the notary’s work, however, the resolution procedure is subject to certain requirements and also generates additional costs.
With the amendment of the law, only those resolutions that require a 3/4 majority according to the German Stock Corporation Act (AktG) must now be notarised, e.g. increase or reduction of the Grundkapital (share capital), amendments to the articles of association or the dissolution of the AG.
The regulations on the distribution of profits in the AktG provide for different options for a small AG than for standard commercial AGs. For example, the Vorstand (executive board) and the Aufsichtsrat (supervisory board) can be obliged to allocate a smaller portion than the 5% of the remaining net profit for the year to the other revenue reserves. On top of that, both AG bodies can be authorised to allocate more than 5% – up to a maximum of 50% – of the share capital. These procedures for the appropriation of profits must, of course, be written into the articles of association as a clause.
According to the German Stock Corporation Act (AktG), an AG must make one-third of the Aufsichtsratsposten (seats on the supervisory board) available to employee representatives. Whereas before the amendment of the Act this obligation applied to all AGs except family share companies with fewer than 500 employees, today all AGs with fewer than 500 employees are exempt from a Mitbestimmungsverpflichtung (co-determination obligation).