Prior Legal Status
Current Status

The Registered Shares Act was first published on January 24 2001 (BGBl I S 123). It came into force on January 25 2001, with the exception of the provisions dealing with changes to Section 52 of the German Stock Corporation Act, which have retroactive effect as of January 1 2000. The changes to the law can be summarized as follows:

  • The provisions of the German Stock Corporation Act relating to registered shares have been updated (eg, the act now allows for the possibility of keeping an electronic share register);

  • The entire law concerning shares has been revised with particular regard to written requirements, in order to account for new technologies (ie, the Internet and computer systems); and

  • The highly restrictive provisions of Section 52 of the Stock Corporation Act concerning post-formation requirements have been relaxed considerably. The changes are based on Article 11(1) and (2) of the Second EC Directive.

This update deals solely with the amendment to the requirements of Section 52 of the Stock Corporation Act.

Prior Legal Status

Section 52 of the Stock Corporation Act provided that stock company transactions which were undertaken for consideration that exceeded one-tenth of the nominal share capital, and which were entered into during the two years following the company's registration, required the consent of three-quarters of the shareholders present at a general meeting.

The contract to be approved (in as far as it was in written form) had to be made available for inspection by the shareholders at the company's offices before the general meeting was called to approve the contract. A copy of the contract also had to be provided on request. Before the contract was made available for inspection, it had to be examined by the supervisory board, which was obliged to produce a post-formation report in connection therewith.

Further, the contract needed to be examined by at least one of the founding auditors. The founding auditors were appointed by the court after a Chamber of Commerce hearing. Certified accountants were principally entrusted with this task. The report produced was then freely open for inspection at the commercial register. It was only upon registration in the commercial register that the contract finally became effective.

The aim of the old regulations was to prevent avoidance of the provisions covering the formation of a stock corporation through non-cash capital contributions. The assumption was that, during the years following formation, the company would be particularly dependent on its founders. This belief led the legislator to create the post-formation requirement in 1884. The requirement applied, with only minor modifications, until the introduction of the Registered Shares Act. Section 52(1) of the Stock Corporation Act was intended to prevent the postponement of transactions which, in reality, were connected with the company's formation. Consequently, transactions which provided for payment of an amount exceeding 10% of the nominal share capital were subject to the provisions regarding post-formation acquisition.

A further reason for the provision was to safeguard capital contributions. This was based on the belief that purchase obligations which closely followed formation presented a similar risk to contributions in kind, in so far as they might lack real value or be based on flawed valuations.

Current Status

The statutory provisions of Sections 52(1) and (9) of the Stock Corporation Act have been amended. Now, the only stock company transactions which are subject to the post-formation provisions are those based on contracts with founders or shareholders that hold more than a 10% share of the nominal share capital. With regard to the acquisition of assets in the normal course of the company's business, be it on the stock exchange or as part of a debt enforcement, the post-formation provisions do not apply.

One of the most important reasons for the amendment was the fact that the relaxation of the law on stock corporations has brought a two-fold increase in their number in Germany since 1994. In particular, middle-ranking and 'new economy' businesses have chosen the stock corporation as their legal form. The boom in the number of stock corporations has doubtless been due to their greater ability to raise capital on the financial markets as part of an imminent stock exchange flotation, in addition to the requirements imposed on companies by venture capital businesses for financial investment in the start-up or pre-initial public offering phase. Section 52 of the Stock Corporation Act was of significant application to these smaller companies. The management boards often foresaw this risk in practice, which brought with it increased responsibility for them. This was especially the case where the company's stock exchange capitalization was a multiple of the nominal share capital, since the 10% rule used the nominal share capital entered in the commercial register as its basis and the premium on the issue of the shares could not be taken into account.

The rule applied equally to changes of legal form, mergers and spin-offs. In these situations there was often a lack of awareness of the problem, since the newly formed stock corporations had usually existed as a company with limited liability for a long period prior to the change in legal form. Consequently, the management board would no longer regard the two-year provision as applicable, as it was not a 'young company'.

As a result of the new provisions of Section 52(1) of the Stock Corporation Act, a significant element of risk was removed, as now only transactions involving founders and shareholders with holdings of over 10% are subject to the post-formation requirements. Since the provisions have retroactive effect as of January 1 2000, all transactions entered into after this date shall be governed by the new provisions.

The old provisions shall continue to apply to transactions entered into before January 1 2000, but only until December 31 2001. After this date, all transactions shall be governed by the new provision.

Although this rule brings with it an increased level of legal certainty, there are some unresolved difficulties in the new Section 52 of the Stock Corporation Act:

  • The amended Section 52(1) does not include a clause that deals with group companies, so it is unclear whether transactions entered into with subsidiary companies of the founders are covered by the provision; however, in light of the purpose and aims of the provision it would appear that they are.

  • It is unclear whether contracts to provide consultancy services, while not a case of contributable assets, are subject to the post-formation rules. The general view seems to have shifted, the more recent opinion being that such contracts are subject to Section 52(1).

  • The scope of application of Section 52(9) is unclear as to whether the term "normal course of business" includes consultancy agreements with members of the board of directors.

  • It is also unclear whether contracts with the company which will give a future shareholder more than 10% of the nominal share capital are caught by Section 52(1). According to the wording at least, a shareholder must already own more than 10% of the nominal share capital to fall within the scope of Section 52(1).

  • Equally disputed are the formalities concerning loans post-formation. Payments of interest might be viewed as consideration.


Unfortunately, the welcome reform of Section 52(1) of the Stock Corporation Act has not completely removed all of the related post-formation requirements within the field of restructuring law, even where the company had existed for more than two years before restructuring. Nevertheless, it is certain that the reform has achieved a greater degree of legal certainty, particularly because of its retroactive effect. The remaining open questions will only be legally resolved through future judicial decisions.

The amendments to Section 52 do not reduce the protection of shareholders and creditors. Over the last two decades, the protective functions of Section 52 of the Stock Corporation Act were increasingly fulfilled (at least for listed companies) by information to be provided in accordance with Section 38 of the German Stock Exchange Act, in connection with Sections 15(13) 19 and 20 of the German Stock Exchange Directive. According to these provisions, shareholders must receive the necessary information on the application of funds raised by a listing. This information must also be provided by the issuer according to Chapter 4.1.3(1) 14 of the Rules and Regulations of the Neuer Markt. The access to information, as well as the protection of capital contributions (see also Section 7 of the German Sales Prospectus Act, in connection with Section 6 of the German Sales Prospectus Directive) accord with the goals of Section 52 of the Stock Corporation Act.

For further information on this topic please contact Oleg de Lousanoff at Hengeler Mueller by telephone (+49 69 17 09 50) or by fax (+49 69 72 57 73) or by e-mail ([email protected]).
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