The pros and cons of the AG: Weighing up the stock company in Germany

Advantages of the AG

Greater transferability of shares

The transfer of shareholder shares (Gesellschafteranteilen) in an AG, i.e. shares (Aktien), is relatively straightforward. No formal requirements such as notarial certification (a mean feature of the GmbH) are necessary. However, the conditions of the transfer depend on the type of shares:

• For “nicht verbriefte Anteile” (“un-certificated shares”) to change hands, all is required is a simple transfer.
• “Namensaktien” (“registered shares”) can be transferred by endorsement, i.e. a written declaration.
• The transfer of registered shares with “restricted transferability” must be approved at the Hauptversammlung (shareholder’s general meeting) before going ahead.
• The transfer of “Inhaberaktien” (“bearer shares”) takes place by handing over the certificates, i.e. the actual paper share.

Continuity independent of ownership

An important advantage is the “Unternehmenskontinuität” (“business continuity”) in the event of a change of shareholders. The existence of a public limited company is independent of who its shareholders are or a change in shareholders, e.g. through death or sale of shares. Since the shareholders cannot intervene, there is also no danger that a new co-partner will want to interfere with the company’s operations. However, shareholders can exercise their rights of control and information individually.

Financial independence through IPO and short-term capital increase

The AG as a legal form offers an alternative to loans from credit institutions. For example, if an AG goes public, financing is done through the sale of shares. Additionally, new capital can be raised at short notice through a capital increase.

The reputable legal form in Germany

The legal form of an AG has a clear advantage for the outside world: it appears respectable and professional, i.e. it enjoys a high reputation. This also has a psychological effect, the so-called “bank director effect”. That is, the title “Vorstand” (“executive board”) on the business card generally makes a good impression on customers.

Permanent influence through shares

Entrepreneurs can secure permanent influence on a company through the ownership of shares and at the same time acquire external capital. For example, this can allow a company to remain in the hands of one family.

Management is not obligated to follow instructions from shareholders

The Hauptversammlung (general meeting) can’t decide operational business matters or how the board of directors should run the company. Thus, the management of an AG doesn’t have to follow the instructions of the owners, i.e. the partners or shareholders. But, rather, the members of the Vorstand (the management or executive board) are accountable to the Aufsichtsrat (supervisory board).

Checks and balances

The AG’s structure means that the functional division between the Aufsichtsrat (supervisory board) and the Vorstand (executive board) acts as a check and balance mechanism. That is, separate and independent bodies are in charge of managing and controlling an AG. For example, only the shareholders can dismiss a member of the Vorstand (executive board). In this case, there is a “vote of no confidence” in the executive board member at the Hauptversammlung (general meeting). If a majority votes in favour of the motion, the executive board must remove the member in question.