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O. Law

The Formation of a Public Limited Company (AG) in Germany

I – What is a public limited company?

A public limited company (AG) is a corporation whose partners (= shareholders) own shares in the company in the form of stock. The share capital of an AG is therefore divided into shares, whereby this amounts to at least 50,000.00 euros. Before the AG is registered in the commercial register, at least one quarter of the share capital, i.e. 12,500.00 euros, must have been deposited. Shareholders‘ co-determination rights depend on the amount of the share they hold in the company.

II – Who can form a public limited company?

Even though the structure of the AG is particularly suitable for companies with a high capacity of financial resources, an AG can in principle be founded by anyone. Accordingly, a single person can also found a one-man AG or a one-person AG. Founders of an AG can be natural persons as such, partnerships with legal capacity, but also other corporations (e.g. a GmbH).

The AG must also nominate and appoint

  • a supervisory board with at least three members
  • and an executive board with at least one member

The founders may be identical with the members of the supervisory board or the executive board – however, members of the supervisory board and the executive board may not be identical.

III – What is the composition of a public limited company?

The executive board

The executive board consists of one to three members who are responsible for the management of the company. The executive board’s task is to represent the company both internally and externally.

The supervisory board

The supervisory board of an AG consists of at least three members. Its task is to supervise the actions of the executive board, to elect the executive board and, if necessary, to dismiss it.

The general meeting

The general meeting makes important decisions concerning the AG. The members of this meeting are all shareholders who own shares in the company.

IV – How can a public limited company be founded?

In the case of a new formation of the AG, the public limited company is formed by means of a notarized memorandum and articles of association (= articles of association) and entry in the commercial register. The following explanations refer by way of example to the classic new formation.

On the other hand, a public limited company can also be founded by conversion. Here, on the one hand, there is the possibility of conversion by means of a change of legal form for an already existing company. Furthermore, already existing companies can be merged with each other for the purpose of new formation or a part of the company can be spun off from the previous company for the purpose of new formation of an AG.

V – What is the procedure for the formation of a new public limited company?

The formation of a public limited company consists of several phases until the actual formation takes place. Careful incorporation takes approximately between four and eight weeks. The three phases of formation can be divided as follows:

The pre-incorporation company

The pre-incorporation company exists until the notarization of the articles of association (i.e. the memorandum and articles of association). In this phase, the name of the future AG, the shareholders and the company shares are determined in particular by means of the articles of association. If the memorandum and articles of association are then notarized and come into being in a formally effective manner, the phase of the pre-incorporation company ends and the so-called public limited company in formation (i.G.) – or the pre-incorporation company – comes into being.

The pre-AG

The pre-AG has partial legal capacity. The supervisory board, general meeting and executive board have already been established. With regard to legal transactions, the designation „i.G.“ is indispensable, because although the public limited company has not yet been entered in the commercial register, as an AG i.G. it is nevertheless capable of participating in legal transactions and entering into liabilities. The provisions of the later public limited company are applicable to all liabilities arising for the pre-public limited company.

The AG

The founded company must be registered with the commercial register by all founders, the first executive board and the first supervisory board, cf. § 36 paragraph 1 of the Companies Act. This is because the AG only becomes a legal entity when it is entered in the commercial register. Accordingly, the entry has a constitutive character. With successful entry and announcement in the commercial register, the phase of the pre-AG ends and the public limited company as such is now established, cf. section 41 (1) of the German Stock Corporation Act.

VI – What regulations exist regarding liability?

Only with the registered public limited company are the shareholders liable with the company’s assets. In the phases prior to registration the shareholders are liable for any liabilities from private assets. It is therefore prudent to act should liabilities be entered into prior to the registration of the company limited by shares.

VII – How much does the formation of a public limited company cost?

The formation of a public limited company involves high costs. The share capital to be divided into shares must amount to at least 50,000.00 Euros, of which 12,500.00 Euros must be invested before registration in the commercial register. Further costs are incurred at the notary’s office for the preparation and notarization of the memorandum and articles of association, if necessary, also through legal assistance. Furthermore, costs must be expected at the commercial register and at the trade office as well as expenses for a tax advisor. Moreover, annual membership fees must be paid to the Chamber of Industry and Commerce (IHK). The exact costs therefore depend on the individual consultation effort.

VIII – What are the advantages of a public limited company?

Although the formation of a public limited company is initially subject to several financial and bureaucratic hurdles, there are ultimately several advantages:

  • The company’s assets are liable for the obligations of a public limited company, shareholders are only liable for their share of the share capital.
  • Participation is possible in purely financial form, i.e. with regard to participation there is no need to be active in the company itself
  • Higher creditworthiness and prestige due to the high minimum capital and easier options to obtain more capital
  • Anonymity of the shareholders and no obligation of publicity, only the formal bodies must be registered by name in the commercial register
  • A single person is sufficient to form a company
  • Shares can be transferred easily and cheaply (without a notary)
  • Simple possibility of employee participation

IX – Conclusion

The formation of a public limited company involves a great deal of bureaucracy. The articles of association contain many necessary details and should be drawn up carefully, ideally with the help of lawyers, to avoid future conflicts and uncertainties. Once the company limited by shares is established, there are some profitable advantages.

Written by Linda Naomi Henschel

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