Newsletter Corporate Law: Digitalization is finally reaching German corporate law

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In this newsletter ARQIS lawyers Dr. Jörn-Christian Schulze and Franziska Korn explain the EU’s plans to modernize corporate law.

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Digitalization offers great simplifications for consumers and users. Thanks to the EU, it is now finally reaching the rather antiquated German corporate law. In April 2018, the European Commission submitted a proposal “as regards the use of digital tools and processes in company law”, which is currently being reviewed by the European Council and European Parliament. The proposal aims to facilitate the use of digital technologies during a company’s whole lifecycle, simplifying cross-border online business in the EU.


One important key aspect of the proposal are cross-border online establishments of limited liability companies.

Up to now, starting such a company online is only possible in ten of the EU’s 28 member states, while Estonia is the only member state, which allows founders from other member states to establish a company in Estonia digitally. In Germany the digital establishment of companies is still not provided for. Except for online register information, founding or other administrative corporate processes are not digitalized in Germany. That will now change, at least for private limited companies (Gesellschaft mit beschränkter Haftung, GmbH). Everything will probably remain the same for other company forms, as the implementation of the European Commission’s proposal is optional for those.
 
Today, the establishment of a GmbH in Germany requires a notary. Though it is possible to be represented by a proxy for the establishment, it still requires a notary-signed power of attorney. Additionally, the managing director has to report the company’s establishment for registration at the notary personally. This obligation to attend personally has two substantial reasons: for the identification, as well as the consultation of the acting person.
 
According to the European Commission’s proposal all member states should ensure that companies can be registered online in full, without the founder ever having to leave his home computer. That is a small revolution, as a real notary domain would no longer exist. Instead of going to the notary, the founder will have online access to template documents including a “manual” for the establishment.
 
These template documents are intended to be available in at least one language understandable to the greatest number of cross-border users. One can assume that language will be – besides German – English.
 
The acting person’s identity will in future be determined through “electronic identification means”. In Germany, this is the identity card with eID function. There is also the possibility for video identification, e.g. by means of a video conference on a smartphone. Subsequently, the founding documents have to be submitted electronically to the responsible register.
 
As usual, there is another side to this proposal: Electronic identification means could open the door to misuse. Reliable systems like the Estonian one, which only grants access to the founder after a review by Estonian authorities and personal identification in an Estonian embassy, do not necessarily seem to make the process simpler and more cost-effective.
 
As a result, digitalization will most likely not replace the notary in Germany completely, especially since a physical establishment will still be possible. It is most likely that lawyers, which have to fulfill the electronic conditions anyway, will assume the role of today’s notaries and take care of their clients’ online company establishments.
Dr. Jörn-Christian Schulze
Dr. Jörn-Christian Schulze
Franziska Korn
Franziska Korn

 

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