The Austrian Parliament recently passed an amendment to the law on limited liability companies (LLCs) aimed at simplifying the foundation of a special kind of LLC. The purpose of the changes – and the simplifications associated with them ­– have been hotly debated.

Background

The new law seeks to make LLCs more attractive – especially for start-ups – by speeding up the foundation process and reducing associated costs. In order to benefit from the simplified procedure, the company must be a one-person LLC (ie, the sole founder and shareholder is a natural person who is also the sole managing director), with a standardised declaration of establishment, which is predefined by decree (standard LLC).

When founding a standard LLC the sole founder must first approach a bank, open a new account and pay the capital contribution. Then the bank will issue a confirmation that the share capital has been paid, identify the founder by requesting an official identification document and a specimen signature (simple form, no certification required). The bank then electronically submits the identification data and the confirmation to the competent commercial court (eg, the Vienna Commercial Court for LLCs with their corporate seat in Vienna). Subsequently, in order to guarantee double identification, the founder identifies him or herself to the court through a citizen's card or mobile phone signature. The founder may submit the (standardised) declaration of establishment as well as the application for registration of the company with the commercial register in one step.

A core feature of the new law is that a standard LLC can be founded without a notary. In contrast with the existing law, the declaration of establishment does not have to be an Austrian notarial deed and the specimen signature of the sole founder as the managing director and the application for registration in the commercial register do not have to be certified by a notary.

The amendments to the law will come into force on January 1 2018. The new provision (Section 9a of the Limited Liability Company Act) may cease to be in force after a three-year period (ie, after December 31 2020).

Comment

According to legislative materials, 38% of all newly founded LLCs meet the requirements to be considered as a standard LLC. However, the proposed amendments do not particularly benefit start-ups as such companies rarely have just one founder. Moreover, if a standard LLC wishes to bring on investors as shareholders at a later date, a notary (and its related costs) is likely to be needed. A notary must also be consulted whenever the declaration of establishment is amended.

While founding an LLC without a notary in an accelerated and less expensive procedure may appear attractive at first glance, there are several problems worth exploring. In the regular foundation of an LLC, a notary ensures the protection of:

  • the founder – through his or her legal advice and instruction duties; and
  • the general public – by verifying the founder's legal capacity and issuing officially attested deeds, which provide legal certainty.

Another typical problem that may occur without professional consultation arises when choosing a company name that does not comply with the law. Banks, which will be the first and main point of contact throughout the foundation process, cannot fully make up for these shortcomings and legal risks.

It is also doubtful if it is worth encountering the above issues for the sake of saving a few days. The idea and process of founding a company does not typically develop overnight, but is carefully planned over an extended period. Also, the cost savings of this foundation procedure cannot yet be determined as the services provided by notaries are more or less passed on to banks, and according to the legislative materials, banks may collect an as yet undetermined fee for their services.

Therefore, it remains to be seen whether the proposed procedure for the founding of a standard LLC will be useful in practice.

For further information on this topic please contact Fabian Kacic or Christopher Jünger at Schoenherr Attorneys at Law by telephone (+43 1 5343 70) or email (f.kacic@schoenherr.eu or c.juenger@schoenherr.eu). The Schoenherr Attorneys at Law website can be accessed at www.schoenherr.eu.

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