New German Govt. Act on setting up businesses online14 July 2021

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.