On 10 June 2021, the German Parliament (Bundestag) adopted the Act on the Implementation of the Digitalisation Directive (Gesetz zur Umsetzung der Digitalisierungsrichtlinie, DiRUG) of the European Union¹, setting the framework for the online formation and registration of branches of new businesses in Germany.
Background: Digitalisation Directive of the European Union
The European Union’s Digitalisation Directive (the “Directive”), which came into force on 31 July 2019, aims to facilitate the online formation of companies, registration of branches and filing of documents and information in the EU.
Currently, there are significant differences in the digitalisation process under the applicable company laws of EU member states. Whereas some member states offer comprehensive and user-friendly services entirely online (e.g. Estonia), others only allow for company formation or filing amendments to documents and information be done in person with the relevant registrar.
Company incorporations or branch registrations through an online procedure that do not require the physical presence of the applicant before the competent authority reduce the costs, time and administrative burdens associated with such procedures. The digitalisation of EU company law should improve economic activity within the internal market and ensure a culture of competitiveness and compliance.
The Directive provides for the online formation of corporations of all kinds, covers cash and non-cash formations (Sach- und Bargründungen), and permits natural persons and legal entities to use online procedures.
The whole online process must be completed within five working days if the applicant is a natural person and only uses model documents. In other cases, member states must ensure that online formation is completed within 10 working days. To combat fraud or abuse more effectively, and to provide safeguards for the reliability and accuracy of documents and information contained within national registers, member states are also required to include controls on the identity and legal capacity of the persons seeking to form a company, register a branch or file documents and/or information.
Within the framework prescribed by the Directive, member states enjoy a margin of flexibility in how they implement it into national law. Furthermore, matters concerning online procedures which are not regulated in the Directive explicitly continue to be governed by national law. The Directive also does not provide for a waiver for national notarisation requirements and/or using a notary, which is particularly important in Germany where there are such notarisation requirements for company formation.
The Directive must be implemented into national law by member states by 31 July 2021. However, national legislators have been granted an extension option of one year (i.e. 1 August 2022), which Germany has opted to exercise.
Implementation into German Law: DiRUG
The German Federal Government has exercised its discretion to permit the online formation of limited liability companies (Gesellschaft mit beschränkter Haftung, GmbH) on a cash subscription basis (Bargründung). Other types of corporation are excluded from taking this option, due to the complexity of establishing a company based on non-cash contributions (Sachgründung) which often consist of real estate. The same applies to the difficulties linked to the formation and registration of stock corporations (Aktiengesellschaften, AG). Other shareholders’ resolutions in relation to company actions such as share capital increases or amendments to articles of association still require personal attendance pursuant to German law.
Also, relevant prohibitions, often by court order, for management obtained via the European wide information exchange are required to prevent the appointment of managing directors who have been disqualified by a competent authority of another member state; the assurance given when appointing managing directors in Germany is extended accordingly.
Pursuant to the DiRUG, the online formation of GmbHs and notarisation of qualified electronic signatures shall take place by way of audio-visual remote communication with the notary via a (still to be created) video communication system operated by the Federal Chamber of Notaries (Bundesnotarkammer) and electronic proof of identity. If the notary is not able to provide such a video communication system, the physical presence of the applicants will be still required. Therefore, notaries remain key figures in the online company formation process in Germany.
The DiRUG will enter into force on 1 August 2022, whereas the provisions regarding GmbHs do so on 1 August 2023.
RISKS AND OPPORTUNITIES IN GERMANY
The DiRUG promotes the digitalisation of the registration and establishment of companies in Germany and considers what is current common practice in other EU member states. The Covid-19 pandemic, in addition to the social and economic challenges of globalisation and digitalisation, shows that technological advancements in Germany are needed to ensure personal attendance is no longer required in such instances.
Please see our article on the regulations regarding virtual shareholders’ meetings in Germany here for more information on this related matter.
Although the DiRUG contains some significant changes to Germany’s register system and company formation process, the federal government has not yet fully implemented the Directive:
- The online formation of corporations and branches or the filing of documents and information is still not possible without the involvement of public notaries;
- The online formation of corporations such as AGs and KGaAs is excluded; and
- The DiRUG does not permit non-cash formations.
The DiRUG sets out a simpler, faster and more efficient process for forming GmbHs, but it remains to be seen what acceptance and practical relevance its new processes will bring. This will certainly determine whether the rules will be extended to other companies and other sorts of filings in Germany. The recorded time between the start of a new company incorporation procedure and its is said to be around 18 minutes in Estonia – Germany still has a long way to go.