I. Background

The government draft presented by the German government on 10 February 2021 is based on the European Digitalization Directive, which must be transposed into national law by the member states by 1 August 2021. Despite the planned adoption in the current legislative period, the extension option until 1 August 2022 was used for the implementation in Germany in order to give the courts and notaries the opportunity to prepare sufficiently for the practical implementation in the subsequent period.
The Digitalization Directive, together with the Mobility Directive as the so-called Company Law Package, forms the comprehensive reform project for the European Company Law Directive already adopted in 2019. In addition to increasing the attractiveness of Europe as a business location by standardizing European corporate law, this also aims in particular at advancing digitalization in line with the needs of the modern economy, true to the motto of the European Commission: „A Europe fit for the digital age“. What Germany has only been able to dream about in terms of digitalization is already normal in some other countries. In Estonia, for example, it has been possible since 2014 to apply for e-residency, which allows a company to be founded online within minutes. In addition to the innovations to be expected in the future, this article is intended to explain in more detail the problems of implementation into German law as well as an outlook for the future.

II. Online foundation procedure

The heart of the Digitalization Directive and the government draft, and arguably the most sensational innovation, is the possibility of forming corporations online within five to ten days in the future. This option shall be open to any number of natural persons, legal entities and partnerships. According to the Digitalization Directive, the member states should in principle enable online formation for all corporations, i.e. joint stock companies (AGs), limited joint stock companies (KGaAs) and limited liability companies (GmbHs) alike. For this purpose, a model protocol is to be provided optionally for founders, similar to the already existing model protocol in the simplified formation procedure pursuant to sec. 2 para. 1a German Limited Liability Companies Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung – GmbHG), in order to facilitate the formation of SMEs. Despite the existing (but highly restricted) options in the new online protocol, an individual statute will probably still be necessary in practice.
Due to the notoriously strict formation and capital raising requirements in Germany and the associated complexity of the formation process, the German government has, for the time being, made use of the opt-out options permitted in the Digitalization Directive in the government draft for a restriction to GmbH formations and for the exclusion of formation in kind. Consequently, in the near future it will probably only be possible to form a GmbH (including an UG (company with limited liability and insufficient share capital) as a sub-form of the GmbH) online. However, an expansion of online foundation options in the next few years cannot be ruled out and is presumably dependent on the empirical values and optimization options gained by then.
Despite the online procedure, the mandatory involvement of a notary in the formation process can still be retained in Germany due to an opening clause in the Digitalization Directive. The notarial certification fulfills an important instructional and warning function as well as a filtering and relief function for the German registry courts, as a point of intense discussion in the consultations on the Company Law Package. In the opinion of the legislator, the involvement of notaries in the formation process as a precautionary administration of justice represents an indispensable independent component in addition to the verification under registry law in the German register system. This is all the more true in the online incorporation process, which is fraught with the risk of manipulation. For this purpose, a real-time video communication system to be provided by the Federal Chamber of Notaries (Bundesnotarkammer) is to be newly introduced, which is to guarantee the sovereign character of the notary’s activity on the one hand and protection against manipulation on the other. A notary can then use this system to identify the parties involved and carry out the online formation of the GmbH. Identification shall be made on the basis of an electronically transmitted photograph together with a means of identification.
In Germany, for example, the ID card with eID function or an electronic means of identification from another member state serves as the means of identification, provided that it is subject to an equivalent high security standard. In this context, the participation of companies as founders is also problematic. While the powers of representation of corporations and German partnerships can be easily viewed from the commercial and company registers, the participation of non-German partnerships is problematic due to the lack of harmonization of register publicity. Up to now, there has been no possibility in Germany to electronically map the corresponding verification documents, in particular powers of attorney for the representation of natural persons. Such verification documents required for reliable identification will therefore continue to have to be submitted in paper form even in the case of online incorporation.
In addition, the general right of refusal (“in particular”) of a certification by means of video communication in accordance with sec. 16a para. 2 Draft Notarization Act (BerurkG-E) is still regarded critically in the event that notaries do not consider the fulfillment of their official duties to be guaranteed. However, this contradicts the limited possibility of refusal for certain cases under the Digitalization Directive and would thus undermine the European efficiency requirement.

III. Innovations in registry matters

The second major regulatory complex concerns various registry matters. In addition to the improvement of the digital submission of documents to the commercial register and a redesign of the register publicity, the cross-border communication of European business registers regarding directors disqualifications and branches for the purpose of cross-border data exchange will be enabled.
Although it is possible to submit documents to the commercial register electronically in accordance with sec. 12 para. 1 sentence 1 German Commercial Code (Handelsgesetzbuch – HGB), these have so far required notarial certification of signatures, which means that a physical appearance at the notary’s office is necessary. Alternatively, notaries are now also to be able to certify qualified electronic signatures via the new video communication system in accordance with sec. 40a para. 1 sentence 1 BeurkG-E. This new form of certification is to be made available not only for the registration of AGs, KGaAs and GmbHs, but also for sole proprietorships, branches, EU/EEA corporations and the registration of cooperatives. Although the qualified electronic signature itself already fulfills an identification function, the notary must also fulfill other tasks for the purpose of preventive administration of justice. This is to be further adhered to.
The “register-only” solution was introduced as a further regulatory subject. Traditionally, German registry law distinguishes between registration and announcement, whereby according to the intention of the (former) legislator, from times of keeping the register in paper form and announcement in the official gazette or daily newspaper, the announcement should be the more reliable source. Double consideration was correspondingly prone to error. Under the new solution, a publication is now defined as being retrievable in the register for the first time. This avoids the need to adapt various regulations that refer to the publication. Similarly, the publication of accounting documents in the Federal Gazette is to be abolished; in future, these documents will only have to be entered in the company register. Finally, the inspection of the register will be free of charge in the future; instead, a provision fee will be charged to the respective legal entities.
The innovations to make disqualification arbitrage more difficult are also worth mentioning, as previously managing directors could take up a comparable position in another member state after being “disqualified”. While no harmonization of rules has been achieved, member states may (but are not required to) consider disqualifications from other member states in the appointment process. The cross-border exchange of information in this regard is to take place via the BRIS information system. Instead of creating an integrated register of disqualified directors in Germany, this task should be taken over by the company register through manual inquiries. Moreover, in order to improve the interconnectedness of the BRIS information system, in the future not only information of domestic branch transfers will be transmitted, but also information of the foreign company to the register of the branch.

IV. Consequences and outlook

As the article has shown, the implementation of the Digitalization Directive through the government draft brings new legislative impulses to German company and registry law. If Germany has good experience with the online formation of GmbHs, there is probably nothing standing in the way of an online bar formation option for all corporations. In this context, the possibilities for digitalization of other notarial matters can be considered as a further logical step. If founding a GmbH works online, then why not, for example, the transfer of GmbH shares?
Improvements are required with regard to the verification documents that must continue to be submitted in paper form. A European register of powers of attorney with publicity effect is still a long way off. The possibilities of online notarization and online authentication of qualified electronic signatures, on the other hand, are very pleasing. Additional integration of partnerships registries would still be worth considering. The abandonment of the dichotomy of registration and publication as well as the advancing interconnection of European registries are to be welcomed.
In addition, the plan to introduce a uniform European e-ID, as already announced by the current Commission President, can be followed with eager anticipation. This would open up the possibility of founding corporations throughout Europe to all EU citizens equally. With the help of the Estonian e-residency concept, even citizens from third countries would potentially be included.