What is an Aktiengesellschaft (AG)?

An Aktiengesellschaft (AG) is a public limited company in Germany that operates as a separate legal entity from its shareholders. This means that the company has its own legal personality and can enter into contracts, own assets, and incur liabilities independently.

Legal Entity and Structure

The AG has its own legal identity which separates it from its shareholders. This separation is fundamental because it protects the personal assets of shareholders from company liabilities.

Share Capital and Shares

To establish an AG, there must be a minimum share capital of €50,000. This capital is divided into shares that can be freely traded on the stock market. This feature makes AGs highly attractive for raising capital through public offerings.

Types of Shares

AGs can issue both nominal value shares and no-par value shares. Nominal value shares have a minimum nominal value of €1. This flexibility in share types allows companies to tailor their capital structure according to their needs.

Formation Process of an AG

Forming an AG involves several steps that are both rigorous and detailed.

Initial Requirements

The formation process begins with at least one shareholder. The articles of association must be drafted and notarized by a notary public. Additionally, there must be at least three natural persons on the supervisory board.

Capital Deposit

At least €12,500 of the minimum €50,000 share capital must be deposited in a bank account at the time of registration. This ensures that the company has sufficient initial funding.

Notarization and Registration

The articles of association must be notarized by a notary public before the company can be registered in the commercial register. This registration is mandatory for the company to gain legal status.

Additional Registrations

Besides registering in the commercial register, an AG must also register with the tax office, Chamber of Commerce, and trade office. These registrations ensure compliance with various regulatory requirements.

Governance and Management Structure

The governance structure of an AG is characterized by a dual board system.

Two-Tier Board Structure

The Management Board (Vorstand) is responsible for the day-to-day operations of the company. The Supervisory Board (Aufsichtsrat) oversees the Management Board and has the power to appoint or remove its members.

Roles and Responsibilities

The Supervisory Board ensures that the Management Board acts in the best interests of the company and its shareholders. It also reviews financial statements and approves major business decisions.

Annual General Meeting

The Annual General Meeting is a critical event where all shareholders, along with members of both boards, are present. This meeting allows shareholders to exercise their voting rights on important matters such as dividend distribution and election of board members.

Liability and Risk

One of the key advantages of an AG is the limited liability it offers to its shareholders.

Limited Liability

Shareholders’ liability is limited to their respective shareholdings. This means that their personal assets are protected in case the company incurs debts or liabilities.

Company Assets

Only the company’s assets are liable to creditors for its liabilities. This separation between personal and corporate assets provides significant financial protection to shareholders.

Taxation and Financial Reporting

AGs are subject to various tax obligations and stringent financial reporting requirements.

Tax Obligations

AGs are liable for corporation tax, solidarity surcharge, trade tax, capital gains tax, VAT, and income taxes. These taxes are part of the broader tax framework in Germany.

Financial Reporting

AGs must adhere to strict financial reporting standards. They must prepare annual financial statements that include balance sheets, profit and loss accounts, and management reports. These reports must be audited by independent auditors to ensure transparency for shareholders and the public.

Advantages of Establishing an AG

There are several compelling reasons why businesses might choose to establish an AG.

Access to Capital Markets

AGs can raise capital through public stock offerings and listing on the stock exchange. This access to capital markets can be crucial for growth and expansion.

Limited Liability and Credibility

The limited liability offered by an AG protects shareholders’ personal assets while also enhancing the company’s credibility with investors and customers.

Succession Planning

Shares in an AG are transferable, making succession planning easier compared to other forms of business entities.

Disadvantages of Establishing an AG

While there are many advantages to forming an AG, there are also some significant drawbacks.

Complex Formation Process

The formation process for an AG is complex and involves multiple steps including notarization and registration. This complexity can be time-consuming and costly.

High Initial Capital Requirement

The minimum share capital requirement of €50,000 can be a significant barrier for many startups or small businesses.

Disclosure Requirements and Market Volatility

AGs are subject to stringent disclosure requirements which can be burdensome. Additionally, being listed on the stock market exposes the company to market volatility which can impact its share price.