Digitization in corporate law matters is gaining momentum: In June 2021, the legislator passed the Act Implementing the Digitalization Directive (“DiRUG”, BGBl. 2021, Part I, 3338), thereby creating the legal basis for establishing a German limited liability company (GmbH) by digital means. With the law, which came into force on August 1, 2022, the national legislator is implementing EU Directive (EU) 2019/1151.
Previously, the formation of a GmbH always required for all founding partners, managing directors or their respective representatives to physically meet in the notary's office for the articles of association’s certification. With the entry into force of the DiRUG, the previously required physical presence can be replaced by video communication in accordance with the new Art. 16a et seq. BeurkG (German Notarization Act).
How a digital GmbH formation actually works
The founders and the notary do not meet physically, but digitally in a video conference. The technical basis for this is a video communication system to be provided by the German Federal Chamber of Notaries. In order to ensure that the persons connected are actually the authorized persons, the notary must verify their identity. To do this, the participants first identify themselves electronically, for example, using the eID function of their ID card. In the second step, read-out photographs are compared with the appearance of the connected persons. The signature on the founding documents is replaced by a qualified electronic signature.
Identification with foreign documents is also possible, provided they have been issued by another EU member state and are suitable for electronic identification purposes while maintaining the same high level of security. Holders of identification documents issued outside the EU are not considered in the amendment.
The new option of online formations applies exclusively to formations by cash subscription, where the required share capital is paid in cash. In the case of a formation by non-cash capital contribution, where the contribution of the share capital is made in the form of non-cash assets such as land, machinery or vehicles, it is still mandatory to appear before the notary in person. However, a current draft bill is already planning to extend the online procedure to non-cash formations.
It should be emphasized that the new procedure is merely an alternative to the previous formation process. The amendment to the law does not impose an obligation on the founders to refrain from physically appearing before the notary. Even a mixed (hybrid) form of formation, in which one part of the founders physically appears and the other part joins by means of video communication, will be possible in the future.
Notaries, on the other hand, will be obliged to offer entrepreneurs willing to form a company the option of online formation. However, if the notary has doubts about being able to fulfill his official duties in an individual case, for example, due to a lack of certainty about the persons involved, he is entitled to refuse the online procedure (Art. 16a (2) BeurkG).
Open questions in the online formation process regarding non-cash premiums and undisclosed contributions in kind
In view of the amendment’s current clear differentiation between cash and non-cash formation, it remains unclear whether online formations are also effective in the case of a non-cash premium or undisclosed contributions in kind. In the latter case, the shareholder first makes a regular cash contribution. Using these funds, the company then acquires a non-cash asset from one of the shareholders, so that de facto cash is exchanged for a non-cash contribution. Since the law no longer provides for the invalidity of this exchange transaction since 2008, a reversal is not mandatory, so that the undisclosed contribution in kind can continue to exist. It remains to be seen what effects this will have under the new legal situation.
Despite these existing ambiguities, the newly created online formation option offers great potential for making the formation process simpler and more convenient. In particular in terms of time, the new procedure promises considerable acceleration in some cases.
The company’s formation can generally be further accelerated by making the contribution in cash, which is recognized by case law (Higher Regional Court (OLG) Frankfurt am Main, NJW-RR 1992, 1253, 1255). In this case, the managing director assures the register court of the contributions made. This procedure replaces the possibly costly and time-consuming bank transactions in the short term. In the case of payments in euros, a proper deposit can be assumed without further ado; however, when using other currencies, one must take into account that this is only deemed as payment on account of performance (Leistung erfüllungshalber). In this case, the final fulfillment of the shareholder’s obligation to make the contribution requires an exchange into domestic currency or an equivalent account credit.
We will be glad to advise you on all questions related to the formation of companies according to the previous or new procedure.
