A public limited company is a type of corporation. It can be founded by one or more persons. Like the limited liability company (Gesellschaft mit beschränkter Haftung (GmbH)), it is a company with its own legal personality and has a share capital divided into shares. The formation process is subject to strict formal requirements and is complex and cost intensive. The articles of association of a public limited company must be notarized and cannot be freely drafted. Stock corporation law is largely mandatory.

The statutory minimum capital of a public limited company is 50,000 Euro. In addition to shares with a nominal value, no-par value shares are also permitted. The share capital of a public limited company must be divided into one of these two types of shares. If the company opts for no-par value shares, their nominal value must be at least 1 Euro.

The rights arising from the shares can in turn be structured differently. The shareholders of the public limited company are called shareholders. The bodies of a public limited company are the Annual General Meeting, the Board of Directors and the Supervisory Board.

The German Stock Corporation Act contains various simplifications for smaller companies. However, the so-called “kleine Aktiengesellschaft” (small public limited company) is not a new type of public limited company, but rather companies with a smaller number of shareholders are offered regulations comparable to those of the GmbH. This gives SMEs in particular easier access to the public limited company and thus to the direct raising of equity capital

1. Terminology

A public limited company is a company with its own legal personality. Only the company's assets are liable to creditors for its liabilities. It has a share capital divided into shares.

The law governing public limited companies is codified in the German Stock Corporation Act (AktG).

By choosing the public limited company form, a company can procure the large amounts of capital required by a modern large company. As the shareholders do not enter into any further obligations when purchasing shares, the public limited company can address a wide audience on the general capital market. The easy transferability of the shares, in the case of listed companies via the stock exchange, is also important. The public limited company is the preferred corporate form for large companies.

Following an amendment to the German Stock Corporation Act (AktG), some formal requirements have been simplified for public limited companies with a small group of shareholders (e.g. family companies). It is now also possible to form a one-man company. As a result, the form of the public limited company under the name “kleine Aktiengesellschaft” or “kleine AG” has also become attractive for smaller medium-sized companies.

The legislator is attempting to limit the risks and disadvantages of the public limited company legal form for its creditors, but also for the shareholders, by a legal set-up with stringent form. The rather complicated formalities entail a certain cumbersomeness of the public limited company.

2. Key features

Capital

Constitution, executive bodies

As a legal entity, the public limited company is organized as a corporation. It is independent of the number of members and has an independent organization with autonomous bodies. The law stipulates three bodies: Board of Directors, Supervisory Board and General Meeting. The relationship between the bodies is determined by a largely mandatory allocation of powers.

Legal relationship of the shareholders, liability

The shareholders are not merchants. Liability towards creditors is limited to the company assets of the public limited company.

Shareholders

Following the amendment to the German Stock Corporation Act (“kleine AG”), a minimum number of shareholders is no longer required for the formation of a public limited company. It is possible to form a one-man public limited company. Founders of a public limited company can be natural and legal persons, including foreign ones, and commercial partnerships (OHG, KG and EWIV) as well as the Außen-GbR.

Capital

The share capital of a public limited company is at least 50,000 Euro, regardless of whether the capital market is used. The capital can be provided in the form of cash or contributions in kind. Contributions in kind must be specified in the articles of association.

Object

A public limited company can pursue almost any purpose that is permitted by law. However, according to the relevant professional code of conduct, some liberal professions may not be operated in the form of a public limited company (e.g. pharmacies, notaries and doctors).

By law, the public limited company is always considered a commercial company regardless of the actual purpose pursued (formal merchant).

Company name

The company name is the name under which the public limited company is entered in the commercial register and under which it appears in business transactions.

The company name of the public limited company can either be borrowed from the activity of the company (factual designation), contain the name of one or more shareholders (designation by name) or an imaginary name. Combinations of these elements are also possible; in any case, the company name must contain an individualizing addition. The addition “Aktiengesellschaft” or the abbreviation “AG” must be added to the company name in all cases.

When examining the admissibility of the company name by the court, the principles of identity of the company must be taken into account. No addition may be added to the company name that is likely to mislead as to the nature or scope of the business.

Geographical additions are generally permissible if the company name has a special connection to the named area, e.g. its registered office.

However, prefixed geographical designations are often still regarded by the courts as boasting of size. This applies in particular if the geographical name is followed by a general generic name. In these cases, companies should provide evidence of a corresponding order of magnitude or, if the requirements cannot be met, precede it with another individualizing designation (possibly a combination of letters).

Comment by the Chamber of Industry and Commerce:

In cases of doubt, the competent Chamber of Industry and Commerce will issue an opinion to the local court on the admissibility of the company name. In order to rule out any risk of confusion or possible concerns regarding the identity and clarity of the company name at an early stage, it is advisable to contact the relevant Chamber of Industry and Commerce.

However, only the risk of confusion with companies registered in the same place is checked as part of the commercial register entry. However, as companies and trademarks registered elsewhere also grant the entitled party a right to injunctive relief against new founders, it is advisable to also include company and brand names registered nationwide in the review.

Simple formation is to be distinguished from qualified formation. The latter exists if agreements connected with specific financial risks are made (e.g. provision of contributions in kind). In qualified formation, additional directives are to be included in the Articles of Association.

Formation of the AG (simple formation) is done in the following steps:

Approval of the Articles of Association (Shareholders’ Agreement)
Provision of the authorised capital
Appointment of the executive organs
Payment of a part of the capital
Production of the formation report
Formation report
Application to and entry into the Register of Commerce

Approval of the Articles of Association

The approval of the Articles of Association is a legal act by which the founders agree on the contents of the contract. They must be certified by a Notary Public. From the notarial certification until the entry of the AG, a preliminary stock corporation not capable of legal action exists. It only originates as an individual legal subject upon entry.

The Articles of Association must contain the following information:

Corporate name, headquarters, object of the enterprise, amount of authorised capital, par values of the shares, quantity of shares and nature of shares (common shares or preferential shares), nature of their use (bearer or registered shares), number of members of the board and form of publication of notices.

In a qualified formation, directives on the following problems are additionally to be included in the Articles of Association:

Special benefits for individual shareholders or third parties, formation expenditure, contributions in kind, acquisition of assets.


Notarial recording

Founders not known to the Notary Public must prove their identity by valid identity papers. In the event of a person appearing not acting on his own, but on a third party’s behalf: written power of attorney or a subsequent approval in a notarially certified form is necessary. If the signature under a power of attorney is certified by a foreign Notary Public, a legalisation (or apostille) is necessary, depending on the country of origin. The former can be granted by a Consul of the Federal Republic of Germany.

If a legal entity is one of the founders, its existence must be proven by a certified extract from the Register of Commerce (for foreign enterprises: corresponding official registration documents).

The formation deed is also to state the founders, the par value and the issue amount and nature of the shares assumed by each founder and the amount of authorised capital paid in.


Headquarters

As the headquarters of the AG, the place at which the company has operations or where the management or administration can be found is to be stated.


Object of the enterprise

In the Articles of Association, the nature of transactions to be undertaken (object) is to be stated. In particular, the nature of the products and goods manufactured and traded is to be stated in more detail.


Authorised capital

A figure is to be put on the amount of the authorised capital. It is at least 50,000 Euro.

In addition, the Articles of Association must state the par values of the shares and the number of shares of each par value and, if a number of kinds (common or preferential) of stock exist, the kind of shares and the number of shares in each kind.

The shares can be substantiated as par value shares or as no-par shares.

The minimum par value of the par value shares is 1.-- EURO. Higher share par values are admissible without limitation as long as they are in EURO.

No-par shares do not have a par value. They participate in the authorised capital to the same extent. The pro rata amount accruing to each share may not fall below 1.-- EURO.

Normally, share certificates are produced for the shares. These are securities which securitize the membership right to the AG.

The Articles of Association must state whether the shares are issued as bearer or registered shares. In practice, bearer shares dominate and can be assigned like mobile objects by agreement and transfer. Registered shares can be assigned by endorsement. Common shares (= normal shares) and preferential shares can be issued. Preferential shares are shares equipped with a priority in the distribution of the profits. Preferential shares with or without voting rights can be issued.

Take-over of shares by the founders must be notarially certified. The company is set up when all the shares have been taken over by the founders.


Provision of the contributions

The payments on the shares taken on are to be done for the free disposal of the Board of Directors. For cash contributions, the required amount must make up no less than ¼ of the par value.
Contributions in kind are to be made completely.


Appointment of the executive organs

To start with, the founders must appoint the first Supervisory Board as well as the auditors for the first fiscal year. This must be certified notarially.

The Supervisory Board appoints the first Board of Directors (simple written form suffices). Members of the Board of Directors and the Supervisory Board need not be stockholders.


Fulfilment of publication directives

Application to and entry in the Register of Commerce

The AG must be entered in the Register of Commerce. It only originates as an independent legal entity upon entry.

Entry in the Register of Commerce is to be applied for at the locally competent Local Court by all founders, members of the Board of Directors and the Supervisory Board. The signature and the signing of the corporate name must be certified by a Notary Public. It may only be done if the required amount has properly been paid in for each share and is finally at the free disposal of the Board of Directors. The Notary Public submits the application to the competent register court in an electronic form.

Contents of the application and enclosures:

Signature of the names of the members of the Board of Directors
Declaration and proof of payment of the capital (contribution in kind: presentation of the relevant contracts)
Calculation of the formation costs
Formation record and Articles of Association
Record of the appointment of the Board of Directors and Supervisory Board
Formation report and audit reports of Board of Directors and Supervisory Board as well as the formation auditors
Approval deed (if state approval is necessary)


Formation report and formation examination

The founders must report in writing on the course of the formation. The course of the formation is then examined by the members of the Board of Directors and the Supervisory Board. If a member of the Board of Directors or the Supervisory Board is one of the founders and shares have been taken over in the formation for the account of a member of the Board of Directors or the Supervisory Board or if a member of the Board of Directors or the Supervisory Board has claimed a specific benefit or a qualified formation (with contributions in kind or acquisition of assets) exists, an external formation auditor is to be involved. Primarily, auditors can be considered as formation auditors. The Chamber of Industry and Commerce makes comments on the person of the formation auditor suggested.

The formation report can be inspected at the Court by all and sundry.


Letterheads

The following information is to be given on the letterheads: corporate name, legal form, company headquarters, Local Court of the Register of Commerce, number in the Register of Commerce, members of the Board of Directors and the Chairman of the Board of Directors and the Supervisory Board (with at least one complete first name).

1. The management of the public limited company

Board of directors

The members of the Board of Directors do not need to be shareholders (outside organisation). The composition of the Board of Directors is determined by the articles of association. It may consist of one or more persons. Appointments are made by the Supervisory Board for a maximum of five years. Reappointment is permitted.

Position of the Board of Directors

The employment contract of the members of the Board of Directors of the public limited company is generally a service contract of a self-employed person (not an employment contract). Self-employed persons are not normally subject to social security contributions in Germany (pension insurance, health insurance and unemployment insurance). Voluntary continued insurance in the statutory health insurance scheme is possible for former salaried employees. It is also possible to apply for compulsory or voluntary insurance in the statutory pension insurance scheme. It is also possible for members of the board of directors to take out voluntary insurance in the statutory accident insurance scheme (employers' liability insurance associations).

Special provisions under immigration law must be observed for the residence of a foreign board member in Germany.

Internal management

The actual management is the sole responsibility of the Board of Directors. It acts on its own responsibility. The management authority is generally unrestricted (unless the approval of the Supervisory Board is required).

External representation

The Board of Directors represents the public limited company externally. The power of representation is generally unlimited.

Liability of the members of the Board of Directors

The members of the Board of Directors of the public limited company manage the business for the company. They are not entrepreneurs themselves. They are therefore not liable to third parties for the company's liabilities, nor do they have to compensate the company internally for losses incurred during their management of the company. The entrepreneurial risk is borne solely by the company. However, the members of the Board of Directors are legally obliged to conduct the business with the care of a prudent businessman. If a member of the Board of Directors breaches this obligation in relation to the company, this may result in claims for damages by the company. However, he is not liable to the members of the Board of Directors or to third parties. Liability towards third parties only comes into question if the members of the Board of Directors have committed a tortious act in their own person (e.g. breach of the relevant provisions of the German Civil Code (BGB)).

2. Control of the public limited company and annual financial statements

Annual General Meeting

The Annual General Meeting is the body in which the shareholders exercise their rights in relation to the public limited company. The Board of Directors is responsible for convening the Annual General Meeting. A number of formalities must be observed when convening and holding the Annual General Meeting. The Annual General Meeting can only decide on management issues if the Board of Directors so requests. It cannot issue instructions. The Annual General Meeting only has an influence on the management to the extent that it elects the shareholder representatives to the Supervisory Board. The Annual General Meeting also elects the auditor and decides on the appropriation of the balance sheet profit. It grants discharge to the Board of Directors and Supervisory Board.

Supervisory Board

The main task of the Supervisory Board is to appoint, dismiss and monitor the Board of Directors in its management of the company (control function). It is responsible for convening the Annual General Meeting, if the interests of the company so require, and for examining the annual financial statements, the management report and the proposal for the distribution of profits.

The Supervisory Board consists of at least three members. The Articles of Association may provide for more members, but the number must be divisible by three. In principle, any natural person may be elected. The members of the Supervisory Board are published in the commercial register. The Supervisory Board may neither undertake management activities itself nor issue instructions to the Board of Directors.

Position of the Supervisory Board

The employment contract with a member of the Supervisory Board is a service contract that involves the provision of business services. It may be for a fee or free of charge. A member of the Supervisory Board is not subject to social security contributions.

Co-determination

The German Co-Determination Act applies to all public limited companies that generally employ more than 2,000 employees and to which the co-determination rules in the coal and steel industry do not apply. The German Co-Determination Act stipulates equal representation on the Supervisory Board. Half of the members are shareholder representatives and half of the members are employee representatives. The German Coal and Steel Co-Determination Act dated May 21, 1951 and the German Coal and Steel Co-Determination Supplementary Act dated August 7, 1956, which apply to mining companies and iron and steel producing industries, also stipulate equal representation on the Supervisory Board. If the special requirements of these laws are not met, the German Third-Party Participation Act (DrittelbG) from 2004 applies, according to which one third of the Supervisory Board must be made up of employee representatives. This does not apply if the public limited company is a family company (= kleine AG).

Audit and annual financial statements

The duration of the financial year is determined by the articles of association. However, it may not exceed 12 months. The first financial year may be shortened (short financial year).

As a trading company, the public limited company is obliged to keep trading books. It is obliged to prepare a balance sheet (annual balance sheet) and a profit and loss account in German language at the end of each financial year. Pursuant to § 27 S. 1 AktG, contributions in kind must be specified in the articles of association. The annual financial statements must be supplemented by notes to the financial statements.

The audit of the annual financial statements is mandatory for large and medium-sized public limited companies.

Small public limited companies are obliged to submit summarized balance sheets (§ 266 S. 1 HGB) together with abridged notes (§ 288 HGB) to the commercial register (disclosure of balance sheets). Medium-sized companies must submit a summarized balance sheet, a summarized profit and loss account (§ 276 HGB), abridged notes (§ 288 HGB) and management report as well as the audit certificate and the report of the supervisory board to the commercial register. Large companies are obliged to submit the entire annual financial statements without abridgements as well as the audit opinion and the report of the Supervisory Board to the commercial register and publish them in the electronic Federal Gazette.

Auditors and auditing firms are responsible for auditing the annual financial statements and management reports of medium-sized companies, as are sworn auditors and auditing firms.

With his audit certificate, the auditor gives his overall opinion on the accounting and annual financial statements of the company to the company and the shareholders as well as to the outside world. They certify that the accounting complies with the statutory provisions.

The auditors have an extensive right to information and inspection of books, cash, stocks of securities and goods, etc. They are bound to absolute confidentiality. They are obliged to maintain absolute confidentiality. They must prepare an impartial written audit report on the audit. If no objections are raised, the auditors must issue the audit certificate.

In particular, corporation tax, capital gains tax, solidarity surcharge, wage tax, trade tax and VAT are incurred. Further information can be found in our brochure Accounting and taxes -Information for People Setting Up a Business.