The Limited Liability Company under German Law (the GmbH). Dr Alexander Schröder-Frerkes
in time, the GmbH is finally registered, the rights and obligations created by the Vorgründungsgesellschaft are not transferred automatically by law to the GmbH; the obligations arising during this phase remain unaffected and must be fulfilled by the still existing Vorgründungsgesellschaft or its shareholders respectively. However, the liabilities may be transferred to the GmbH with the consent of the creditors. The same applies to the rights created by the Vorgründungsgesellschaft, wherein third-party consent may be required here too.
8. Pre-registration phase (Vor-GmbH)
The so-called Vor-GmbH or GmbH in Gründung (iGr) exists as an individual legal entity in the period of time between the notarisation of the articles of association and the registration of the company in the commercial register. The Vor-GmbH is already governed by the Act on Limited Liability Companies (GmbHG) and the articles of association in so far as they do not call for a registration of the company. The relationship between the managing directors and the shareholders’ meeting is thus determined by the articles of association and, in addition, the Act on Limited Liability Companies. The managing directors are entitled to represent the Vor-GmbH vis-à-vis third parties. However, their powers of representation are limited to purposes relating to the formation of the company and do not extend beyond these purposes. Typical activities pertaining to the company formation are, for example, the opening of bank accounts, the acquisition of real property, the leasing of office space, etc. If the parties wish to contribute (einbringen) a company to the GmbH by way of a contribution in kind, the scope of authority of the managing directors also includes the right to continue to run such a company, since it may not be left unmanaged whilst waiting for the registration of the GmbH to finally be concluded.
The most important difference compared with a fully registered GmbH, however, is in terms of liability towards third parties. Since a Vor-GmbH is not yet registered in the commercial register and the GmbH is thus not yet fully founded, liability towards third parties cannot be limited to the assets of the GmbH. According to s11, para. 2 of the Act on Limited Liability Companies, all persons acting on behalf of the GmbH prior to its registration are jointly and severally liable for any obligations resulting therefrom. Such a person is typically the (designated) managing director, but may also be a shareholder or a third person acting in the capacity of a managing director when representing the company externally. Additionally, all shareholders are personally liable without limitation towards the GmbH itself in the event that, at the time of the entry into the commercial register, the value of the assets of the GmbH fails to match the amount of the stated share capital.3 A use of the assets (Verkehrsgeschäft) is, however, permitted, for instance if the cash contributions are used to buy office equipment. In other words, the contributions must exist in terms of their value but the contributions themselves do not have to exist. This shareholder liability continues to apply after the registration, in the event that negative equity is still present.
The GmbH is fully established at the point of its registration in the commercial register. By law, all rights and obligations of the Vor-GmbH are transferred to the GmbH. The Vor-GmbH and the GmbH are identical legal entities, with the GmbH being the legal successor of the Vor-GmbH. In addition, the liability of the persons acting on behalf of the company prior to its registration ceases according to section 11, paragraph 2 of the Act on Limited Liability Companies.
9. Formation by contributions in cash
Typically, a GmbH is established by way of a contribution of the share capital in cash. In a regular GmbH, the stated share capital required to establish the company amounts to €25,000. In the case of the Unternehmergesellschaft, the stated share capital may be lower, with a minimum stated share capital of €1.00 being required. In both cases, the entry in the commercial register may only be successfully filed if at least one quarter of each subscribed share has been contributed and the total of all contributed shares amounts to a minimum of half of the stated share capital.4 Since the Act to Modernise the Law Governing GmbHs and Combat Abuses came into force, the same rules apply if the GmbH is only established by one individual shareholder. The provision of collateral is no longer required. If there are any funds outstanding with regard to the stated share capital, the managing director is responsible for demanding that these amounts are paid.
10. Formation by contributions in kind
In the articles of association, the shareholders of a GmbH may also agree to raise the stated share capital not by contributions in cash but by contributions in kind.5 An Unternehmergersellschaft, however, may not be established by contributions in kind. The object of the contribution and the amount of the share capital to be raised by a contribution in kind are to be determined in the articles of association. Furthermore, in a special report (Sachgründungsbericht), the shareholders must outline the relevant circumstances which explain why the value of the contribution in kind matches at least the value of the subscribed share capital.6 If an entire company or enterprise is to be contributed to the GmbH as a contribution in kind, the financial statements for the last two business years must also be submitted.
The contribution in kind may consist of any assets which have a determinable economic value. The assets may be tangible or intangible, movable or immovable. They may also include claims, intellectual property rights and real estate. The mere provision of services by a shareholder, however, is not acceptable as a contribution. The uncertainty surrounding the value of the services in question and the matter of whether or not they are provided is deemed to disqualify them as an appropriate means of raising the subscribed capital.
Prior to filing of the registration for the GmbH, the contribution in kind must be effected in full and the asset must be transferred to the GmbH.7
If the value of the contribution in kind does not amount to the value of the assumed share capital when the GmbH registration is filed, the shareholder must pay the difference in cash. Such a claim on the part of the company will be barred by the statute of limitations after a ten-year period following the entry of the company into the commercial register.8 Only when all of these requirements are satisfied is the contribution in kind considered duly fulfilled and the respective share capital fully contributed.
11. Combined contributions
Combined contributions to raise the share capital are generally allowed and may take two different forms. A shareholder may effect the contribution in kind by transferring assets to the company whose value exceeds the amount of the share capital he or she has subscribed in the articles of association. In this context, the law refers to a ‘gemischte Sacheinlage’ (mixed contribution in kind). The shareholder is entitled to receive compensation for the value of the transferred asset which exceeds the share capital he or she has undertaken to contribute. This compensation may take various forms, for example, the granting of a corresponding loan or the provision of services by the GmbH. Such forms of contribution in kind must also be in compliance with the rules as set out in Section 10.
A combined contribution may also refer to the obligation to contribute the share capital being partly satisfied by a contribution in cash and partly by a contribution in kind. In such cases, the respective requirements regarding contributions in cash and in kind as set out in the previous sections must be satisfied in order for the share capital to be fully and duly contributed. Aside from this, there are no special regulations which must be observed.