Stock corporation lawyer advises

Stock corporation law lawyer – The lawyers of the Herfurtner law firm advise clients nationwide. Therefore, our clients include investors, stock corporations, management boards and supervisory board members.

Table of contents

1. Stock corporation law lawyer – advice
2. Changes in company law
3. Definition of a public limited company
4. Forming a public limited company
5. Dissolution of a public limited company
6. Tax obligations of a public limited company
7. Sale of shares and initial public offering (IPO)
8. Shareholder definition – all information at a glance

In Germany, stock corporation law is regulated by the German Stock Corporation Act. There, the construction of the public limited company as well as the handling of issued shares is defined and regulated. Read all about the topic of stock corporation law in this text.

Topics in our legal advice

Stock Corporation Law Lawyer

The public limited company (AG), as a corporation capable of being listed on the stock exchange, is in principle capital market-oriented. It is a corporation whose share capital is divided into shares.

As a commercial company with its own legal personality (legal person), it is liable for debts only with the company’s assets (§ 1 AktG). The partners (shareholders) participate in the share capital with contributions.

Our lawyers advise in particular in the following areas of company law:

• Formation of a public limited company
• filing and registration in the commercial register
• the drafting of contracts and articles of association
• advising and representing executive and supervisory board members in stock corporation law (rights, duties, liability)
• preparation and conduct of general meetings
• Shareholder lawsuits
• assistance in connection with the acquisition of shares and other securities

The German Stock Corporation Act is supplemented by the following regulations, among others:

• Act on the Implementation of the Shareholders’ Rights Directive (ARUG).
• Act on the Appropriateness of Executive Board Remuneration (VorstAG)
• Accounting Law Modernisation Act (BilMoG)
• Act to Modernise the Law on Private Limited Companies and Combat Abuses (MoMiG)
• Corporate Tax Reform
• German Corporate Governance Code Supplementary provisions to the Stock Corporation Act can also be found in the German Commercial Code (HGB) and the German Civil Code (BGB).

Stock corporation law to be amended

The German government’s draft law amending the German Stock Corporation Act is intended to enable companies to strengthen their equity capital and thus better survive crises. Preference shares without voting rights are to be included in the core capital.

Companies are to be allowed to convert convertible bonds into share capital. The transparency of the ownership structure of public limited companies that are not listed on the stock exchange is also to be increased.

What does Aktiengesellschaft AG mean? A definition

A public limited company (AG) is a business enterprise with its own legal personality (legal entity). Only the company’s assets are liable to creditors for its debts ( 1 AktG). Through contributions, the partners (shareholders) usually also participate in the company’s share capital.

The AG plays an important role in today’s corporate landscape, especially for large companies.

Explanation of the term public limited company with the meaning corporate finance: a company to which the shareholders contribute equity capital. Corporations are particularly well suited to raising large sums of money from many small investors.

To achieve this goal, the company offers its owners attractive trading opportunities, limits the responsibility of shareholders to their contributions and separates the management (by the board) from the provision of funds (by the shareholders).

Legal Form Public Limited Company – Explanation & Characteristics

How is an AG defined and what does it stand for? The legal form of the AG is the same as that of the GmbH. Corporations are legal entities separate from their owners and as such have both rights and obligations.

Investors or shareholders are owners of the company’s equity (also called stock options). In other words, they hold a share in the company.

The shareholders’ co-determination rights are determined by the amount of share capital they hold.

Legal status of an AG

The AG is a commercial enterprise with its own legal personality (legal entity); only the company’s assets are liable to creditors for the AG’s debts ( § 1 I AktG). The share capital is typically distributed among the partners (shareholders) through contributions. As a business entity, the AG can be regarded as a company without personality.

Often a broader circle of investors raises the share capital of the AG. The advantage for the shareholder is that he can sell the shares on the stock exchange at any time. Banks play an important role in the formation of an AG and the issue of shares.

The law passed on 2 August 1994 made it easier for small and medium-sized enterprises to use the legal form of the AG. In Europe there is a similar company to the AG, the Societas Europaea (SE).

Legal basis

Shareholders’ Rights Act (BGBl. I 1089) of 6 September 1965: Employee co-determination is provided for in the (public) limited company through a Co-Determination Act (MitbestG, MontanMitbestG) and a One-Third Participation Act (DrittelbG).

As a result of the Corona crisis in spring 2020, legal changes were made temporarily (until 31 December 2021), such as the board’s decision to convene a virtual general meeting without shareholders being present.

The Pandemic Mitigation Act has regulated this.

Incorporate a public limited company

Par value shares (also called nominal value shares) and no-par value shares are both options for incorporating shares. Shares with a par value of at least one euro must be accepted as an investment. Both contribute equally to the share capital.

A share must have a share of at least one euro in the share capital.Investors must contribute at least 25 % of the lowest issue price of their shares, plus the difference if their shares are issued at a higher price. Contributions in kind must be made in full (§ 36a II 1 AktG).

Occasionally, the articles of association may impose obligations on shareholders, such as supplying sugar factories with beet for a fee (Nebenleistungsaktiengesellschaft). If the company offers such services, the transferability of the shares must be restricted.

The German Stock Corporation Act (AktG) regulates the formation of an AG, and the procedure must be followed precisely.

Forming an AG – step by step

1. Preparation and notarisation of the articles of association
2. Formation by the founding shareholders
3. The selection of the auditor of the audit committee is an important step in the development of any company.
4. Preparation of the formation audit and preparation of the formation report
5. Deposit of the contribution funds (cash payment or transfer of contributions in kind)
6. Submission of an application for registration in the commercial register

As soon as the company is registered in the commercial register, it is a legally recognised public limited company. Holding structures in which AGs are established are common.

Stock corporation law: Public limited company – necessary share capital

To form an AG, the share capital must be at least EUR 50,000.

Based on this amount, the first shares are issued. No-par shares are sometimes called par value shares because they do not have a fixed price. Only whole amounts are authorised for par value shares denominated in at least one euro. A certain percentage of the company’s share capital is represented by no-par shares.

One share represents one per cent of the value of the company if 100 were issued. Individual share certificates are prohibited by the AG Articles of Association, regardless of how the shares are actually issued.

The company name, registered office, object of the company, share capital, nominal value of the shares or number of no-par value shares, type of board membership and form of announcement of the AG must be included in the articles of association.

A company name that does not include the suffix “Aktiengesellschaft” is not permissible.

Organs of the public limited company

The Executive Board manages the business of the company and acts on its own responsibility without instructions from the Supervisory Board or the shareholders. The members of the executive board are elected by the supervisory board for a maximum term of 5 years.

The law on shares requires that the supervisory board, executive board and shareholders meet at least once a year for the general meeting. At these meetings, the shareholders are informed and company-related events are discussed. As a rule, the actions of the executive board are ratified and the annual financial statements are approved.

Accounting and disclosure requirements

In each financial year, the annual balance sheet with profit and loss account (P&L) and notes (annual financial statements) must be prepared by the executive board, usually audited by certified public accountants (annual audit), generally published after approval (§ 172 of the Companies Act) and presented to the general meeting (AGM).

The AGM decides how the net income is allocated.

Unique features of financial reporting: Special regulations for listed companies apply to the content of the annual financial statements and their publication.

However, only the balance sheet, the profit and loss account and the notes ( §§ 242, 264 HGB) belong in the annual financial statements of a joint-stock company. The scope of the annual financial statement of an AG depends on the size of the company. An AG must publish them.

Dissolution of an AG – Reasons

There are essentially 3 possible reasons or times or initial situations for the dissolution of a public limited company (AG):

1. after expiry of the statutory period (in rather rare cases),
2. by resolution of the general meeting, if three quarters of the company’s shareholders agree,
3. by the opening of insolvency proceedings. Liquidation is the last consequence.

Company law: General information on tax obligations

With regard to the taxation of the AG, a distinction must be made between the taxation of the profit of the AG itself (at company level) and the taxation of the profit of the shareholders (at shareholder level) after distribution of the dividend to the shareholders.

The tax structure of a company determines whether and to what extent the additional burden (economic double burden) resulting from double taxation of the same profit is an issue.

Taxes at company level

The AG must pay corporation tax on its taxable income. All profits are subject to trade tax ( § 2 II GewStG), since they must be determined by accounting and are purely commercial. The trade tax thus represents an additional burden for the AG, since it cannot be offset against the corporation tax.

Taxation of shareholders

1) Dividends and hidden profit distributions to shareholders are generally subject to income tax (usually as income from capital assets). When the AG distributes the dividend, it is obliged to withhold capital gains tax.

2) For natural shareholders, these are the special features: Private investors are no longer subject to assessment according to the individual tax rate as a result of the introduction of the final withholding tax (uniform tax rate of 25% with solidarity surcharge and, if applicable, church tax, where income tax is deemed to have been paid).

The capital gains tax is completed with the withholding of the final withholding tax, as the previous possibility of crediting the capital gains tax for private investors no longer applies. Capital gains accruing to sole proprietorships and partnerships in business assets will continue to be taxed as usual.

Under the partial income procedure, these are taxed at a rate of 60 percent. The partial income procedure also applies to capital gains, whereas the taxation of dividends therefrom in the case of significant shareholdings pursuant to § 17 EStG (from a shareholding of 1 per cent in the capital of the company within five years) is generally deemed to be settled by the final withholding tax.

3) Information for legal entities that are shareholders: For companies, dividends and capital gains from shares in corporations are fully tax-exempt (§ 8b KStG) if the shareholding is at least 10% at the beginning of the calendar year.

This also means that instead of deducting the actual participation expenses, a lump sum amounting to 5 per cent of the tax-exempt dividend income earned is treated annually as non-deductible participation management costs. This means that only about 95 per cent of the income is tax-exempt, but the expenses can be deducted in full.

However, capital losses and partial write-offs are exempt from this rule. The dividend (not the capital gain) is fully taxable if the participation is less than 10% at the beginning of the calendar year (section 8b (4) KStG).

The Commercial Register

Certain changes and transactions in the books of a corporation must be reported to the commercial register so that they can be registered.

These include the formation of the corporation, the first executive board and the first supervisory board, personnel changes in the management bodies and the company’s annual financial statements.

The sale of shares and the initial public offering (IPO)

Generally, no special formalities are required when shares are transferred from one owner to another. In the case of non-securitised shares, the type of shares must be taken into account, as an assignment could transfer the shares. However, in the case of a registered share with restricted transferability, the AG’s general meeting must give its approval.

Before a company’s shares can be traded on a global stock exchange, an initial public offering (IPO) is required.

This requires compliance with the Stock Exchange Act and the Stock Exchange Admission Ordinance, both of which specify certain legal criteria. Additional disclosure obligations are associated with the stock exchange listing.

Shareholder definition – all facts summarised

A shareholder is the holder of shares in a partnership limited by shares, Societas Europea or – in most cases – a public limited company. The lawyers of the Herfurtner law firm advise and represent shareholders. We support you in the defence or enforcement of claims.

Likewise, our lawyers take on the mandate for executive boards, supervisory boards as well as AGs – public limited companies.

Are you thinking of becoming a shareholder? Read all about the rights and obligations of a shareholder in the following text section.

Shareholder legitimation

If you own a bearer share certificate, you are legally entitled to keep it; with registered shares you had to identify yourself by name to be a shareholder.

Since listed companies no longer have physical shares, but only global certificates, the concept of the share as a security has largely disappeared.

Therefore, the shareholder can no longer prove his legitimacy just by displaying the company’s share.

When a share is purchased, a worldwide certificate booking is made. According to current practice, proof in text form by the custodian bank is sufficient for bearer shareholders to be entitled to participate in the general meeting, section 123 (3) sentence 2 AktG. In the case of registered shares, the shareholder must be entered in the share register.

The rights of the shareholder

The shareholder is entitled to a share in the net profit of the company (dividend) and in the liquidation proceeds of the company in the event of the dissolution of the AG.

Voting rights and access to information at the AGM, as well as special rights to protect their interests, including the right:

• Challenge resolutions of the AGM and, in certain circumstances and with the help of a quorum of shareholders, minority rights that a quorum can also use to force the calling of an extraordinary general meeting.

In most cases, shareholders have the right to acquire new shares or convertible bonds.

Responsibilities of the shareholders

Unless otherwise provided in the articles of association, a shareholder is only obliged to pay to the AG the nominal value or a higher issue amount of a share or the contributions in kind, if any, specified in the articles of association. The shareholder is not liable for the company’s obligations until he has received back his contributions.

In some cases, additional obligations and rights may exist for shareholders.

Shareholder: voting rights, information rights, claims for damages

The shareholder owns the company. He entrusts the company with the money it needs to run the business. Indirectly and proportionately, he owns the assets of the public limited company.

Stock corporation law, especially the Stock Corporation Act, therefore grants shareholders a variety of rights and duties. These are all different.

• inside or outside the general meeting, depending on when they are asserted
• whether they are management or ownership rights, and
• how much control a shareholder has – individual, minority or majority rights.

For a non-binding enquiry, please contact one of our lawyers at the Herfurtner law firm directly by telephone or e-mail.

The defence or enforcement of a claim

Company law covers the following areas of advice and representation of shareholders, companies, boards of directors and other supervisory bodies:

1. in enforcing and defending claims arising from shareholders’ rights, in particular the right to access information
2. in drafting and reviewing resolutions of shareholders’ meetings
3. proceedings to challenge and revoke general meeting resolutions and defending against such actions
4. advice on insider trading and reportable securities transactions
5. the exercise of minority rights, in particular in connection with the assertion of claims against the board of directors or the supervisory body of a company (special audit, special representative, admissibility action)
6. Information on the “squeeze-out
7. Means of interim relief, such as injunctions, in connection with shareholder resolutions.

Shareholders have a wide range of rights at their disposal, mainly relating to general meeting, information and minority rights, as well as liability claims against the executive board and supervisory board. Despite this broad spectrum, the practice of company law focuses primarily on these topics:

Annual general meeting – what rights does a shareholder have?

In connection with the Annual General Meeting, shareholders have certain defined rights. These are summarised below.

The right to vote

As a rule, one vote per share at the Annual General Meeting is proportionate to the shareholding. The only exceptions are non-voting preference shares and “maximum voting rights”.

Holders of non-voting preference shares receive a preferential share in the company’s profits but have no voting rights. If an unlisted company has maximum voting rights, shareholders who exceed a certain level of shareholding are restricted in their voting rights.

There is no longer a legal basis for a company to have numerous voting shares.

According to section 136 of the German Stock Corporation Act (AktG), a shareholder’s voting rights are limited. A shareholder may lose his or her voting right if he or she has an interest that conflicts with the interests of other shareholders.

The right to be heard

All general meetings of the company are open to individual shareholders from the outset. This also applies to preference shareholders. The prerequisite for participation is that all shareholders are invited by the board to all general meetings.

The regulations of the Stock Corporation Act for the invitation to the general meeting are quite detailed and formal. Errors, as they often occur in practice, usually lead to the invalidity of all resolutions of the general meeting.

The right to information

According to the German Stock Corporation Act, a shareholder is only one of many financial investors. There are strict rules ensuring that the shareholder has only limited access to information about “his” public limited company. The most important right of the shareholder is the right to information, which he has every year at the general meeting.

At the general meeting, the shareholder can request information from the board members about the company’s business if he considers it important for the proper assessment of an item on the agenda.

Legal and business relations between the company and an affiliated company, i.e. subsidiaries, are covered by the duty to provide information.

The importance of the right to information lies in the fact that an AGM resolution can be challenged and thus declared illegal in court if the company does not provide its shareholders with accurate and complete information.

Deficiencies in resolutions are the subject of further lawsuits: Protests by shareholders against general meeting resolutions

The Right to Convene the General Meeting and Amend the Agenda

The convening of a general meeting must be requested in writing by shareholders holding at least 5% of the company’s share capital, stating the purpose and reasons for the meeting.

In addition, shareholders holding 5% of the share capital or a total of 500,000 euros may demand that the Executive Board put items on the agenda and make them known.

The request must be justified and contain a specific written resolution.

For each item on the agenda, a proposal for a resolution must be made by the executive board and the supervisory board and announced with the agenda (section 124 (3) of the AktG), unlike under the law on stock corporations (general meeting).

The ideas of the executive board and supervisory board often coincide, so the announcement is made jointly. If the executive board and supervisory board cannot agree, each body must submit its own proposal.

The number of shareholders who may submit countermotions to the management’s proposed resolutions is not limited, regardless of the size of their shareholding.

Shareholder: Rights in relation to the resolutions of general meetings

As long as a shareholder owns shares in a company, he or she is entitled to challenge the resolutions of the general meeting. The individual shareholder has the possibility to oppose the majority of the shareholders and at the same time the board of directors and the supervisory board of the company.

For practical purposes, the following factors are most important:

1. Resolution procedures can be prone to error
2. Violations of the law or the articles of association can be grounds for dismissal.
3. Inconsistencies in the content of the resolution.
4. Errors in convening and recording the minutes of the general meeting have occurred
5. Violation of legal or contractual duties to provide information, including the right to information.

Statutory rights when asserting claims against the supervisory board and executive board

The Companies Act provides that the executive board is the most important management body of the company. As long as a catalogue of transactions requiring consent is established, the executive board acts alone.

The executive board cannot receive instructions from the supervisory board or the general meeting.

The executive board and shareholders of a public limited company both have access to the monitoring and control instruments of the Stock Corporation Act.

The procedure for bringing an action

Shareholders holding 1% of the share capital or USD 100,000 in shares have an extended minority right under section 148 of the German Companies Act. These shareholders may apply to the court for authorisation to sue the Executive Board and/or Supervisory Board in their own name.

If the legal requirements are met, the lawsuit is admitted by the court.

In order for a shareholder to bring an action against a company, it must be proven that the shareholder has acted dishonestly or blatantly violated the law.

What is a special audit?

The shareholders’ meeting may, on its own initiative, appoint an independent special auditor to investigate the management of the company pursuant to section 142 AktG. 142 AktG on its own initiative to appoint an independent special auditor, but only in special circumstances.

This can be done directly by the general meeting. The commissioning must be applied for in court by a minority of the shareholders.

Shareholder: Representation – legal requirements

A special representative may be appointed by the general meeting to pursue claims for damages against the executive board and/or supervisory board. This person then files a claim with the court on behalf of the company.

Minority shareholders may also appoint a special representative through the court to pursue claims for damages if their shares amount to 10% of the share capital or one million euros.

Execution of the Act of Responsibility of the Executive Board & Supervisory Board

The general meeting may, by a simple majority of votes, oblige the executive board and the supervisory board to enforce the rights of the company arising from its formation or management against the members of these bodies if they refuse to do so (cf. section 147 (1) AktG).

The competent body shall file an application for compensation within six months.

Rights from the pecuniary advantage

Among the many benefits of share ownership, shareholders are also entitled to some property rights. These include, for example, the following:

1. Art. 304, 305 AktG – the right to compensation and settlement
2. in the event of a takeover, a claim to monetary compensation (§ 327 a, b, AktG; § 39 a para. 1, 3 WpÜG; §§ 30, 207 f. UmwG)
3. claim to balance sheet profit/dividend § 58 section 4 AktG
4. according to § 186 para. 1 of the German Stock Corporation Act, the subscription right in the case of capital increases
5. For most shareholders, their property rights are limited by the amount of their contribution.

Shareholder and public limited companies – lawyer offers legal advice

Please contact us if you would like legal advice or representation from one of our lawyers. We support shareholders, supervisory boards, management boards and public limited companies throughout German-speaking countries.