Draft Bill: Digitization in Corporate Law.

 The digitization of the economy is a big topic. The Covid 19 pandemic makes it more than clear that Germany needs to catch up.

Draft Bill: Digitization in Corporate Law.

Germany's implementation of the Directive (EU) 2019/1151 as regards the use of digital tools and processes in company law of June 20, 2019, is planned to decisively advance the digitization of corporate law. Among other things, this directive allows for the possibility of online procedures for company formations and register entries.

The German government passed its draft bill to implement the Directive (EU) 2019/1151 as regards the use of digital tools and processes in company law (Gesetz zur Umsetzung der Digitalisierungsrichtlinie, DiRUG) on February 10, 2021. The DiRUG is planned to come into force on August 1, 2022. It is intended to implement the requirements of Union law while maintaining the established fundamentals and principles of German commercial and corporate law to the greatest possible extent. Particular attention is to be paid to preserving the functionality and reliability of the commercial, cooperative and partnership registers and to taking account of their importance for legal and business transactions. Furthermore, German notaries and registry courts are to continue to play a decisive role.

Contentually, the DiRUG essentially contains the following changes:

  1. The introduction of notarial online procedures for the formation of a German limited liability company (GmbH);
  2. A substantial change in the disclosure system and the system for the disclosure of accounting documents; and
  3. The introduction of notarial online procedures for register entries.

1. Online Formation of a GmbH

In future, forming a GmbH will also be possible digitally. However, companies of other legal forms will not be able to be established online. Moreover, it will only be possible to establish a GmbH online in the form of a cash foundation. A formation of a company on the basis of contributions in kind will continue to be permissible only in analog form, i. e. in person at a German notary’s office.
Traditional notarial certification and authentication is to be combined with video communication with online formation, thus continuing to preserve the principles of the notarial face-to-face procedure and the function of notaries. In accordance with the government draft, the infrastructure required for this will be provided centrally by the Federal Chamber of Notaries. It will be responsible for running a video communication system that makes it possible to carry out notarization activities by means of video communication.

2. Disclosure of Documents

Furthermore, the DiRUG comes with a major simplification for the publication system. Until the DiRUG comes into force, information to be entered in a register can only be published in the official gazette. On the other hand, it will be sufficient in the future if the documents and information required for publication are made available to the register digitally. In the future, a publication will only be permitted as an additional publication. This requires a substantial adjustment of the present regulations on the publication of commercial, cooperative, partnership and general register entries, which are linked to numerous other regulations.

In its draft of the DiRUG, the German government has decided to stick to the term “Bekanntmachung” (publication). Nonetheless, it has been given a whole new meaning. From a legal point of view, this is the most minimally invasive procedure, as this avoids changes to norms that have been linked to the publication up to now.

In the future, publication is to be understood as the first-time retrievability of the entry in the commercial register via an electronic information and communication system. As a result of the new version of the German Commercial Code (Handelsgesetzbuch, HGB), the legal separation between the information and communication system for publication (Article 10 HGB new) and the system for retrieving commercial register data (Article 9 HGB old) is to be overridden. This means that in the future, documents and information no longer need to be published in separate official gazettes or portals. An entry in the relevant register responsible for the corporation will suffice. The same is applicable to the accounting documents, i. e. the annual accounts, which in future only need to be entered in the company register and disclosed there.

3. Register Application Possible Online

In the end, the certification of register applications is also intended to be possible online. The certification of the applicant’s hand signature by a German notary, which is required for a register application, will be made possible by means of video communication.

In addition to German GmbH, this form of register application will also be available to other corporations. Only for personal companies, the draft law does not (yet) provide for a corresponding regulation.

All in all, the suggestions of the government draft for the implementation of the requirements of the Digitalization Directive into national law are welcome. With the online procedures, a synthesis of the previous advantages of precautionary administration of justice with the possibilities of modern communication succeeds. If the law is passed as intended, this will lead to considerable simplifications in dealing with German limited liability companies, especially for managers based abroad. If the procedure proves successful with the GmbH, it can also serve as a pioneer for future extensions of online procedures to other applications of notarial certification. One example would be the formation of joint-stock companies other than just the German limited liability company.