OASIS

                        ORGANIZATION OF ADVOCATES SPECIALISING IN INTERNATIONAL SERVICES

GERMAN DEVELOPMENTS 2008/2009 

 Gundo Kroh, FINGERHUT RECHTSANWÄLTE

•  Developments in company law: The new GmbH

1.      Introduction

          Last year in Bucharest I reported that the German legislator was reforming the Law of the German limited liability company (“Gesellschaft mit beschränkter Haftung”, GmbH), the most often type of companies in Germany. In Germany there are about 250.000 foundations of enterprises per year, many of them are GmbHs.
 

         The old GmbH-law dated from 1892, i.e. in 2008 was 116 years old. A first draft for the new law was made in May 2006. Since then several times it was announced that the new law would come. But it did not come, our experts were still discussing and quarreling about the details; last year I reported about. Finally the job was done: On November 1^st, 2008 the new law came into force. It has brought changes and amendments in the following four fields: 

         (1)   Make the foundation of a GmbH more easier.

         (2)   Changes for existing GmbHs.

         (3)   Fight against abuse of legal right (creditors protection).

         (4)   Changes during a bankruptcy proceedings.

2.      Changes and amendments in detail 

         a)     Make foundation of a GmbH more easier 

                 (1)    In spite of a big discussion during the development of the new GmbH-law you still need a notary if you would like to found a GmbH. Unchanged the whole text of the statutes has to be recorded by a notary. 

                 (2)    Unchanged the minimum original share capital is EUR 25.000,-. It was discussed to reduce it for example to EUR 10.000,-. But you still have to invest EUR 25.000,- (exception see below, No. (6)). 

                 (3)    Unchanged you have to pay half of it immediately, i.e. at least EUR 12.500,-. Otherwise the commercial register does not execute the registration. This now also applies for those GmbHs, which are having only one shareholder (single person-GmbH). According to the former law by a foundation of a single person-GmbH you had to pay the whole sum immediately. 

                 (4)    According to the former law the value of each share had to be at least EUR 100,- and had to be divisible through 50. For example shares were made out of EUR 100,-, 150,- 200,- etc. Now every amount is possible; it only has to be made out of full Euro-amounts, for example: EUR 1,-, EUR 2,-, EUR 3,- etc. 

                 (5)    Unchanged not only contribution in cash is allowed but also non-cash capital contribution, i.e. contribution in kind – for example a car, a machine, tools or furniture and fixtures. Unchanged the devices have to be evaluated. If the evaluation is obviously wrong the commercial register is not allowed to execute the registration of the GmbH. 

                 (6)    A GmbH with a minimum share capital of at least EUR 25.000,- is the standard type. I already mentioned that there is an exception: The so called “Unternehmergesellschaft”, i.e. “company of an entrepreneur”. This exception is a solution for beginners, for example for young entrepreneurs, who do not have own capital or who do not need many capital, for example companies which perform online services or project companies, which do not need worth mentioning fixed assets. 

                         The Unternehmergesellschaft needs a minimum share capital of only EUR 1,-. As long as the minimum share capital is less than EUR 25.000,-, at the end of the running business year maximally 75% of the made profit are allowed to paid out to the shareholders. I.e. at least 25% of the profit don’t have to be paid out but to be retained in the company. This obligation runs until a minimum share capital of EUR 25.000,- is reached. As far as EUR 25.000,- are reached, the “Unternehmergesellschaft” automatically amends to the standard type of a GmbH. 

                         The German name “Unternehmergesellschaft” is not very wise, because every person, who manages a GmbH, is an entrepreneur, not only the beginners. Anyway there was a discussion whether the Unternehmergesellschaft would be successful in the practice. Critical people feared that the market would not take their company very seriously, if they sign their firm’s name as Unternehmergesellschaft. But actual – after the new GmbH-law is into force for about half a year now – we have about 5.500 registered Unternehmergesellschaften in Germany; this is not a bad start. 

                         The foundation of a Unternehmgesellschaft with a minimum share capital of EUR 1,- costs about EUR 590,-. 

                 (7)    Some GmbHs need a business license, for example companies which perform financial services, real estate broker, security services or restaurants. According to the former law such companies at first had to obtain the business license. Without business license the commercial register was not allowed to execute the registration. This has changed; now the commercial register does not check any more whether the business license was granted. The idea is to speed up the registration of the GmbH. 

                 (8)    According to the new law now it is admissible to choose the registered office of the GmbH (seat of a corporation) within Germany without any restriction. Earlier the registered office had to be in that place, where the company had its working activities, for example its production, its administration or where the board of directors was located. 

                 (9)    Additionally – of course according to the adjudication of the European Law Court – now it is admissible to move the working activities or administration into a foreign country and to keep only the registered office in Germany. The place of working activities or administration has to be organized as foreign branch of the GmbH then. 

         b)    Changes for existing GmbHs 

                 These topics are rather difficult to explain in English, i.e. not in my mother tongue, because the corresponding amendments all above are dogmatically. Anyway let us try: 

                 (1)    The commercial register not only executes the registration of new GmbHs, but also leads a list of the shareholders of every registered GmbH. In the past this list was not very important and was handled and updated not very precisely. Often shareholders did not announce to the commercial register, that they had sold their shares. So the list became wrong and the new owner was not entered on that list. Now it is important to care for that list. For example only such shareholders are entitled to participate in the profit of the GmbH, who are entered on that list. 

                 (2)    Another topic is the so called “Eigenkapitalersatz”, i.e. a substitute for share capital, one of the most complicated subjects in the German corporate law. “Eigenkapital” is that share capital, which was paid into the GmbH. In the crisis the GmbH needs more money. But in the crisis the GmbH perhaps is not credit-worthy and it may be difficult to get a loan from the bank. In this situation a reasonable shareholder increases the share capital. But in Germany it is complicated to increase the share capital, because you have to change the statutes and to go to the notary. So in the practice the shareholder often grants a loan to the GmbH instead of increasing the share capital (shareholder’s loan).

                         In the past we had to differ between usual shareholder’s loan and shareholder’s loan during the crisis. For usual shareholder’s loan there were not any legal problems. But for shareholder’s loan during the crisis the shareholder had to reimburse the money to the trustee in bankruptcy, if the GmbH had paid back to him the shareholder’s loan within one year before starting the bankruptcy proceedings. If the GmbH had not paid back the shareholder’s loan before starting the bankruptcy proceedings the shareholder was treated as creditor with the lowest priority. So in any case the shareholder lost his money. 

                         This legal situation, i.e. the result, has been nearly unchanged. But the reform of the GmbH has made the corresponding provisions easier and has concentrated them into the bankruptcy act. 

                         The problem in the practice was to decide, when the crisis of a GmbH began. The new law has abolished the “Eigenkapitalersatz” in total. So we don’t have to differ any more, whether it is about a usual shareholder’s loan or a shareholder’s loan in the crisis. This is a big practical advantage.

         c)     Fight against abuse of legal right (creditors protection) 

                 (1)    If a creditor has won a financial claim and lawsuit against a GmbH he probably wants to execute his judgement. The execution starts with the delivery/service of the judgement to the GmbH; without service there is no execution. But in the crisis sometimes it is difficult to find a working address for service. Perhaps the GmbH and debtor has moved, because it wants to escape from its creditors. Now every GmbH is obliged to have an official business address, which has to be entered into the commercial register. This address is effective for every service – even if the GmbH actual has moved to another place. 

                 (2)    Apart from that in the past it was nearly impossible to do a successful service, when a GmbH did not have a managing director (i.e. CEO) any more. And during the crisis it is not rare that the managing director has left, for example because he has resigned his position and the shareholders did not find or did not install a new one in time (“GmbH without head”). In the past the service only was possible towards the managing director, because only he was entitled and obliged to represent the corporation. Especially it was not admissible to do the service towards one of the shareholders. This was amended: Now a GmbH is represented by its shareholders, if there is no managing director. So the service now can be done towards one of the shareholders. 

         d)    Changes during a bankruptcy proceedings

                 (1)    First of all the new law brought some formal amendments: Now every provision with regard to a bankruptcy proceedings is located in the bankruptcy act and no more partial in the GmbH-law. 

                 (2)    If a GmbH became insolvent, according to the former law it was the exclusive duty of the managing director to file a bankruptcy petition. But – I mentioned it already – in the crisis sometimes a GmbH has no managing director. In such a situation nobody was obliged to file the bankruptcy petition. Now it is the duty of the shareholders, to file that petition, if the GmbH has no managing director. 

                 (3)    In the past only the managing director incurred a penalty, if he did not file the bankruptcy petition within three weeks after the company had become unable to pay. Now it is logical that also the shareholders incur a penalty, if they omit to file the bankruptcy petition in time. 

                 (4)    Apart from that the liability of the managing director has been increased. According to the former law the managing director was liable to the company, if he had made payments at the expense of the company, after the company had become unable to pay. Now this liability has been increased and starts earlier, i.e. even for those payments, which already cause the inability to pay. 

                 (5)    I mentioned already that the new law does not differ any more between a usual shareholder’s loan and a shareholder’s loan in the crisis. The consequence is that in a bankruptcy proceedings every shareholder, who granted a loan to the company, is treated as creditor with the lowest priority. So in any case the shareholder will loose his money.

3.      Conclusion 

         (1)   The reform of the German GmbH was more than due, it was overdue. Whether it is an excellent and successful reform, is open. Of course the authors of the new law in the Federal Ministry in Berlin are enthusiastic about the reform; they are thinking now, the GmbH would be fit for the next 100 years (you remember, the old law of the GmbH was 116 years old). On the other hand the Unternehmergesellschaft was criticized much. In my point of view the reform is not bad, because of its aforementioned practical advantages. 

         (2)   One aim of the reform was to strengthen the German GmbH in its competition to the companies of other European nations, for example the English Ltd., the Dutch BV, the Spanish S.L. etc. But in the near future all national companies in the European Union will get a new competitor. The commission of the European Union in June 2008 has introduced a draft for the “Europäische Privatgesellschaft”, i.e. the European private company. This is a supranational kind of company with uniform standards, which will apply in the whole European Union. This united type of company should make the international business easier. The European Union plans that that draft will come into force in 2010.

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