Push for digitization for corporate law — changes in the law through the DiRUG and DiREG

German corporate law is facing a significant push towards digitization, in particular with regard to GmbH law. This would make it possible in the future, among other things, to found a GmbH online by means of newly introduced video notarization and resolve amendments to the articles of association (including capital measures). Furthermore, regulations will be introduced for virtual shareholders' meetings at the GmbH. This would mean a significant increase in flexibility and could lay the foundation for a comprehensive and urgently needed digitization of corporate law.

Starting point: Digitization Directive and DiRUG

The starting point of the changes is the implementation of EU Digitization Directive (EU 2019/1151). It stipulates that the Member States must enable the online cash-subscription founding of a GmbH as well as online procedures for filings and submissions to the commercial register. For the implementation of this Directive, the German legislator adopted, on 5 July 2021, the German “Act on the Implementation of the Digitization Directive” (Gesetz zur Umsetzung der Digitalisierungsrichtlinie, DiRUG) dated 5 July 2021, (German Federal Law Gazette I 2021, p. 3338), which will enter into force on 1 August 2022.

Online cash-subscription founding of a GmbH as well as online certification of registration in the commercial register

DiRUG makes it possible to found a GmbH online by means of a newly introduced online notarization, i.e. notarization by means of video communication. In addition, DiRUG also makes it possible for notarial certification for filings and submissions for registrations in the commercial register by means of video communication, so that also in this respect personal presence at the notary is no longer needed. In accordance with DiRUG, the option for online certification for filings and submissions to the register applies not only for GmbHs, but also for the corporate forms AG, KGaA and other EU/EEA stock corporations as well as sole traders. 

Expansion of the online procedures through the DiREG 

DiRUG does not cover the option of online founding of other corporate forms (e.g. AG, KGaA). The Digitization Directive does not impose any mandatory requirements on Member States in this regard.

Supplementing the DiRUG with the DiREG

The Digitization Directive also does not stipulate and the DiRUG does not cover the online notarization of GmbH founding with non-cash contributions (contribution in kind) as well as later processes subject to notarization such as the adoption of amendments to the articles of association (statute amendments), including resolutions on capital measures (increase or reduction of the share capital). This was considered unsatisfactory by many, in particular since e.g. capital increases often concern measures corresponding to the nature of the company’s founding. The legislator reacted to this criticism and introduced a supplementary law to the DiRUG even before its entry into force. With the German “Act on Supplementing the Regulation on Implementation of the Digitization Directive and the Amendment of Other Reguations", (Gesetz zur Ergänzung der Regelung zur Umsetzung der Digitalisierungsrichtlinie und zur Änderung weiterer Vorschriften, DiREG), which was approved by the Federal Council on 8 July 2022, the option for online notarizations and online certification will be significantly expanded:

Expansion of online procedures

The DiREG expands the DiRUG by the following additional online procedures:

• Online founding of a GmbH also for non-cash founding
• Online notarization of (unanimous) shareholder resolutions on amending the articles of association, including resolutions on capital measures (increase and reduction of the share capital), both for cash capital increases and capital increases with non-cash contributions 
• Expansion of online certification procedures, including for commercial partnerships (OHG, KG), cooperatives and associations.
• Setting up of a notarial authorization for the founding of a GmbH in an online procedure.

No online notarization in case of other certification requirements 

With regard to the online non-cash founding and statute amendments (in particular capital increases with non-cash contributions), it is, however, to be noted that the online notarization procedures are not available if there is a notarization obligation for other reasons. This applies in particular in cases where, as part of the non-cash founding or non-cash capital increases, real estate or GmbH shares are to contributed, since these transfer procedures and the associated obligations are subject to notarization themselves.

It would be possible and would not harm, however, to include obligations in the articles of association for assignment of shares in the company (e.g. for pre-emptive rights of the co-shareholders).

Online statute amendments only with unanimous adoption of resolutions

It should also be noted that the online notarization of shareholders’ resolutions regarding statute amendments is possible only if these are adopted unanimously, i.e. resolutions adopted with a simple or qualified majority are excluded from online notarization.

Mixed presence and online notarization

A mixed notarization is also possible, i.e. notarization by way of presence of some of the participants before the notary and the simultaneous video connection to other participants. Fortunately, this also ensures flexibility.

Virtual GmbH shareholders’ meetings 

In accordance with DiREG, in the future it will also be permissible, without requiring provisions in the articles of association, to hold GmbH shareholder's meetings virtually, i.e. by phone or through video communication. The legislator had already provided for transitional simplifications for the adoption of resolutions in circular procedures in a GmbH on the occasion of the COVID pandemic. However, this regulation expires on 31 August 2022, and it also does not regulate the form of holding a shareholders' meeting (i.e. presence or virtual) as such. Parts of the literature already considered the holding of a virtual shareholders' meeting at a GmbH as permissible based on the applicable legal situation. In any case, the DiREG now codifies this option and, as recently became the case for AGs and cooperatives, permanently provides the option of holding a virtual shareholders' meeting also for GmbHs. 

Articles of association regulations for virtual meetings possible and advisable

According to the DiREG, the companies (as was the case before) are also free to expressly create regulations in their articles of association for virtual meetings, in particular to expand or restrict options for the same. Express regulations in the articles of association are particularly advisable in view of the requirement for the consent of all shareholders to a virtual meeting. This is because, according to the DiREG, a requirement for holding a virtual shareholders' meeting is that all shareholders declare their consent in text form (e.g. email). This requirement could prove to be too far-reaching in practice. Thus, according to the DiREG, a virtual meeting cannot be held in the event of the objection of even one shareholder.

Entery into force of the new regulations

The new regulations of the DiRUG and DiREG enter into force with a time delay on 1 August  2022 and 1 August 2023.

• Regulations provided for in the DiRUG (i.e. online cash-subscription founding of a GmbH and online certification at a GmbH, AG, SE and KGaA) as well as the measures provided for in the DiREG relating to online GmbH founding authorisations, online certification for partnerships and cooperatives as well as the regulation on virtual shareholders' meetings enter into force on 1 August 2022.
• The other novelties of the DiREG (i.e. online GmbH non-cash founding, online GmbH statute amendments (including capital measures) and online subscription declarations of GmbH capital increases as well as online certification for the registration in the Register of Associations) enter into force a year later on 1 August 2023.

Technical implementation

To perform online notarization, the German Federal Chamber of Notaries has set up an independent video system which can also be used for "initiation and preparatory activities” (e.g. the coordination of the drafts). It is to be noted that, in order to participate in an online notarization or online certification, electronic identification via an electronic proof of identity (eID) is required, e.g. with a German personal ID with eID function. In the case of participation on the part of foreign persons, it must be verified in good time whether they are in possession of a document which meets the requirements of the applicable elDAS regulation. In addition, all that is needed is a suitable smartphone for reading the elD and the photo as well as an app provided by the German Federal Chamber of Notaries. There is no need for any other hardware (such as a card reader).          

Conclusion 

The measures provided for in the DiRUG and DiREG represent a significant contribution, if not the initial spark for digitization under corporate law. Even if this regulation certainly does not cover all desirable regulatory areas, it has undoubtedly initiated an important step towards digitization. One could say it is high time, since some other countries are already much further ahead.   

The German Federal Government intends to evaluate the DiRUG by 1 August 2024, in particular with regard to the possible expansion of online notarization to include GmbH shareholders' resolutions adopted by a simple majority, GmbH share transfers, AG founding, conversion measures as well as other resolutions and declarations of intent associated therewith also requiring notarization.