The project to create a new form of company that would take the needs of start-ups in particular into account is now (after lengthy delays) nearing completion after all. What began under the catchword “Austrian Limited” will now (presumably) be completed this year in the “Bundesgesetz über die Flexible Kapitalgesellschaft oder Flexible Company – FlexKapGG” (Federal Act on the Flexible Company – “FlexCo Act”). The ministerial draft provides for the new law to enter into force on 01.11.2023. This article gives a short overview on the new company form as provided for in the ministerial draft.
What is the Flexible Capital Company?
The Flexible Company (“FlexCo”) is a new form of company that shall take its place alongside the existing companies GmbH (Limited Liability Company) and AG (Stock Corporation). The starting point for the FlexKapG is the Austrian Act on Limited Liability Companies (“GmbHG”); the GmbHG is to be applied subsidiarily to the FlexCo if the FlexCo Act does not contain any special regulations. In those areas where until today only stock corporation law has opened up certain organisational possibilities required by start-ups, provisions from the Austrian Stock Corporation Act (“AktG”) are now to be adopted and adapted accordingly. Against this background, the new company form is also referred to in the legislative materials as a “hybrid form” between GmbH and AG.
A FlexCo may be founded for any legally permissible purpose by one or more persons. The legal form suffix will be “FlexKapG” in German, and it is also possible to use the written-out variant (Flexible Kapitalgesellschaft). Alternatively, the English term “Flexible Company” or the abbreviation “FlexCo” may be used. According to the legislative materials, this shall be enabled because the FlexCo is supposed to be particularly attractive to international venture capital investors.
As mentioned above, the FlexCo Act is based on the GmbHG. If there is no separate regulation in the FlexCo Act, the limited liability company law provision is applied. The changes to the previous legal situation compared with the GmbH are therefore of particular interest.
Share capital, shares and formal requirements for share transfers/subscription declarations
The minimum share capital of a FlexCo will be € 10,000, of which at least € 5,000 must be paid in at the time of foundation. However, the share capital is not regulated in the FlexCo Act itself. It is derived from the GmbHG, which will be amended accordingly and the minimum share capital of the GmbH will also be reduced from € 35,000 to € 10,000. As a side effect, this will also mean the end of the so-called “privileged foundation” GmbH.
In order to be able to represent very small shareholdings in a FlexCo, the minimum amount for a share will be € 1 instead of € 70 as in the case of a GmbH. Accordingly, an amount of € 1 must be paid in on the share in any case.
Share transfers and subscription declarations (in the case of capital increases) must comply with the form requirement of the notarial deed in the case of the GmbH. In deviation from this, a deed drawn up by a notary or a lawyer is (alternatively) sufficient as a form for share transfers and subscription declarations in the case of a FlexCo. However, this does not apply to the formation of a FlexCo, where the notarial deed requirement under the GmbHG applies.
In contrast to a GmbH, shares in a FlexCo are always divisible, unless this is excluded by the articles of association. There is another aspect in which FlexCo shares are different from GmbH shares. In the FlexCo it is possible to deviate from the principle of uniformity of the share (so-called “unit shares”). This means that in future several shares of the same or different types can be held by one shareholder.
Enterprise Value Shares
In start-ups, there is often a desire to allow employees to participate in the economic success. In order to enable corporate participation by employees in the future, the FlexCo is to provide for a form of participation or share class specifically tailored to the aforementioned needs– the “enterprise value shares”. Enterprise value shares may only be issued in the amount of up to 25% of the entire share capital. Although company value shares are typically used for employee stock option programmes, they are by no means limited to this group of persons. Enterprise value shares entitle the holder to a share in the balance sheet profit and the liquidation profit. However, they only give the right to participate in the shareholders’ meeting, but not to vote.
Adoption of regulations of stock corporation law
The acquisition of own shares, the redemption of shares as well as conditional capital increases and authorised capital are taken from the AktG (and are partly adapted to the special features of the FlexCo).
Since the FlexCo has options that are otherwise reserved for stock corporations, the ministerial draft extends the obligation to establish a supervisory board as regulated for the GmbH as a “compensation”. An obligation to establish a supervisory board for a FlexCo also exists if the company in question is to be considered at least a medium-sized corporation. Thus, there is an obligation to establish a supervisory board if there is also an obligation to audit the financial statements.
Changes to circular resolutions and voting
In contrast to the GmbH, where the requirement of the participation of all shareholders in a circular resolution cannot be waived, it shall be possible to waive this requirement for the FlexCo by means of a corresponding regulation in the articles of association. There is therefore no statutory minimum quorum. However, in order to determine the majority required for the respective resolution, it is not only the votes cast that are important, but the total number of votes to which all shareholders are entitled. As a result, a resolution requiring a simple majority can only be passed if at least more than half of all votes actually take part in the vote and are in favour of the proposed resolution. Text form is sufficient for a circular resolution if this is provided for in the articles of association. This means that votes can also be cast by e-mail.
Shareholders of a FlexCo who have more than one vote will be able to vote in a non-uniform manner (“split voting”), the permissibility of which is disputed in the case of a GmbH. This is especially relevant for shares of several persons held in trust by a trustee.
Since the FlexCo and the GmbH are each separate company forms, the change between these legal forms constitutes a conversion. However, the differences in content between the FlexCo and the GmbH are legally structured in such a way that neither special measures for the protection of creditors (such as conversion balance sheet, security claim or formation audit) nor a cash settlement claim for shareholders who do not agree with the conversion are required. However, due to the analogous applicability of section 99 GmbHG, special consent requirements may exist. A conversion of a FlexCo into a GmbH (or vice versa) therefore only requires a corresponding resolution of the shareholders’ meeting and an amendment of the articles of association.
For the conversion of an AG into a FlexCo (or vice versa), the existing regulations under stock corporation law for the conversion of an AG into a GmbH (or vice versa) apply accordingly.
Author: Florian Wünscher