The Limited Liability Company under German Law (the GmbH). Dr Alexander Schröder-Frerkes
rel="nofollow" href="#ulink_a6104de1-22fe-554e-b6c5-76da5f508a8c">C. Articles of association
12. General remark
The Act on Limited Liability Companies stipulates certain mandatory provisions which must be contained in the articles of association. If the articles fail to satisfy these minimum requirements, the company will not be entered into the commercial register. In practice, the notary would refuse to notarise such articles of association and would instead first ensure that they at least satisfy the legally prescribed minimum in terms of their content. We will explain such mandatory provisions in further detail below. In addition, we shall briefly outline some provisions which can typically be found in the articles of a GmbH.
13. Mandatory provisions
The mandatory provisions pertaining to the articles of association as set out under section 3, paragraph 1 GmbH are explained in the following subsections.
14. Mandatory provisions: company name
The name of the company must contain the designation ‘Gesellschaft mit beschränkter Haftung’ or a generally understandable abbreviation thereof, such as ‘GmbH’.9 Apart from this restriction, the name of the company may be freely chosen. Names can be entirely fictitious.
However, when selecting the name of the company certain limitations which apply to all trading companies must be observed. First, the name must identify the company appropriately and distinguish it from any other company.10 Secondly, the name of the company may not contain any element which might mislead people as to the true business situation involved.11
Finally, the company name must be distinct from other company names which are already registered in the commercial register of the same community.12
15. Mandatory provisions: place of business
The articles must state the company’s place of business.13 The company’s place of business is the domestic location as indicated in the articles of association.14 This means that the business address in Germany may be freely chosen, even if the company does not have any production site or administration in this country. Thus, even when it is only active abroad, the GmbH may have its formal place of business in Germany. Before the Act to Modernise the Law Governing GmbHs and Combat Abuses came into force, a German GmbH could only choose as its place of business the location where it either had its administrative headquarters or maintained business premises.
16. Mandatory provisions: business purpose
The articles must furthermore state the purpose of the business.15 A GmbH may be set up for any legally permissible purpose,16 whether it be economic, political, religious, athletic or otherwise.
Some business activities may require the prior consent of the authorities, examples here are for instance banking and the activities of other credit institutions, insurance companies, weapons manufacturing and similar enterprises. Apart from these few exceptions, general permission or a licence to establish a GmbH and to conduct its business is not required in Germany. The company only needs to be registered with the trade tax office (Gewerbesteueramt) for tax purposes.
17. Mandatory provisions: share capital (Stammkapital)
Unless a GmbH is formed as an Unternehmergesellschaft, its share capital must amount to at least €25,000, which must be set out in the articles of association.17
18. Mandatory provisions: shares
The articles must state the number and the nominal values of shares held by each shareholder.18 Before the Act to Modernise the Law Governing GmbHs and Combat Abuses came into force, a shareholder could not subscribe for more than one share in a GmbH at the time of its formation. Now, a shareholder may hold several shares when establishing the GmbH or may acquire these later. The shares held by a shareholder may also have different nominal values. The nominal value of each share must be stated in full in euros (at least €1.00); that is, the creation of ‘penny-shares’ is not possible.19 Prior to the Act to Modernise the Law Governing GmbHs and Combat Abuses, the minimum nominal value of each share to be held by a shareholder had to amount to €100. Even if several shares with different nominal amounts are created, the total sum of the nominal amounts of all shares together must be identical to the share capital amount as stated in the articles.20
Unlike a stock corporation, a GmbH does not issue tangible shares and its shares may not be traded (directly) on a stock exchange. The ownership of a share in a GmbH is not determined by the ownership of a tangible piece of paper, but by the list of shareholders which is to be recorded in the commercial register at the request of the managing director or a notary (if the latter participated in any changes to the shareholders’ structure or their respective shareholding). The list is accompanied by a corresponding notarial deed or documentation issued by the managing directors indicating the distribution of the shares between the founding shareholders and any subsequent notarial deeds pertaining to the transfer of shares in a GmbH to a third person. For further details on changes in the shareholder structure, please refer to Sections 178–193.
19. Mandatory provisions: shareholders
The articles of association must set forth the names of the founding shareholders,21 wherein a GmbH may have either one or several shareholders.22 Shareholders in a GmbH may be individuals or legal entities. There are no restrictions and permission is not required with regard to foreign individuals or entities becoming shareholders in a German GmbH.
20. Mandatory provisions: miscellaneous
If the GmbH is only established for a limited period of time or if the shareholders have additional obligations towards the company apart from contributing the part of the share capital they undertook to contribute, these particular items must also be included in the articles of association.23 Additional obligations of this kind could for instance be the provision of goods and services, the payment of cash outside the subscribed share (eg, a premium or agio) or the provision of other assets necessary for the operation of the business (office space, licences, machinery, etc).
21. Other typical provisions
Apart from the mandatory provisions to be contained in the articles of association as set forth under Sections 13–20, the shareholders are principally free to include other provisions in the articles, and typically do so. The articles may deviate from most of the statutory provisions as provided in the Act on Limited Liability Companies.
22. Other typical provisions: business year
Typically, and if the articles of association do not stipulate otherwise, the business year equals the calendar