Digitalisation of Corporate Law
European lawmakers already realised this and issued the so-called Digitalisation Directive of the European Union (Directive (EU) 2019/1151) (hereafter "Directive"). In turn, this is based on the Company Law Package of the EU Commission and must be transposed into national law by 31 July 2021. More than anything else, the Directive is designed to promote the application of digital tools and processes in company law and provide new digital solutions for European companies in order to strengthen Europe as a business location and harmonise legislation.
One key objective of the Directive is to enable the online founding of companies without the necessity of physically appearing before public authorities and submitting information using analogue tools. However, the Directive also allows for the possibility of an opt-out, which means that the online founding of public limited companies cannot be implemented in some EU member states. In addition, the possibility of setting up companies via non-cash contributions may be excluded and based solely on cash contributions. Every member state is required to make sample forms for the online founding available in several languages. These forms are designed to standardise and simplify the online founding process.
Furthermore, the registration period of a company should not last more than five days, and in special cases a maximum of ten days starting on the day on which the application was submitted.
However, in practice, it has already been demonstrated that frequently national registration requirements or the processing time needed by the commercial court are not the primary reasons for delays in establishing companies. Instead, the search for the obligatory bank account turns out to be the most common cause of major delays. The underlying reasons for this are the frequent and complicated KYC (Know Your Customer) reviews or other internal bank regulations and processes. Depending on the business model, some banks refuse account management or only make a bank account available at unattractive terms and conditions. This lack of transparency in banking procedures lead some founders to despair and also result in unnecessary delays in the ongoing process of establishing companies. For this reason, it would be desirable to have banks ensure an offering of bank accounts solely designed as basic capital accounts for limited liability companies, regardless of their particular business model.
According to the Directive, it is at the discretion of the EU member states to decide whether notary publics are to be involved in the company foundation process or not. In Austria, Section 69b of the Austrian Notaries Act was already implemented in January 2019 thanks to the Electronic Notarial Form Foundation Act. This law enables limited liability companies to be set up by making use of an electronic means of communication, thus safeguarding the position of notary publics.
The planned linkage of all European business registers by the Business Registers Interconnection System (BRIS) should also be considered as a further positive innovation with respect to unified European-wide digitalisation. In the future, all Austrian companies will be given a European identification number, i.e., the EU-ID, alongside their national commercial register number.
The implementation of the Directive is being accompanied by a strong boost to digitalisation. On balance, the Directive and the resulting digitalisation of Austrian company law comprise a further step in the right direction.
Nevertheless, there are also tools and possibilities which already exist in company law. In part, they are derived directly from the EU law or can be agreed upon in the company statutes or articles of association.
For example, any communication between the company and its partners or shareholders can be carried out via e-mail and thus in the form of electronic communication. In this regard, companies are strongly advised to specify and agree upon the details in the statutes or articles of association.
Moreover, due to the large number of shareholders, the Austrian Stock Corporation Act (AktG) has already standardised existing digital tools, for example the possibility of holding a general meeting or shareholders' meeting online. In general, the general meeting serves the purpose of enabling joint decision-making on the part of shareholders with respect to issues relating to the company. Lawmakers consider the three options laid down in Section 102 Para. 3 AktG (satellite meeting, remote participation, remote voting) to be permissible as a means of ensuring such decision-making, amongst other things. A key element is that the articles of association of the particular public limited company also specifies the admissibility of such digital applications, or even only one of them.
Furthermore, when it comes to electronic communication in the form of a satellite meeting or remote participation, shareholders must also be enabled to have a real-time visual and acoustical two-way connection for the entire duration of the general meeting. These prerequisites underlying electronic communication can be fulfilled by using special transmission and voting software.
The electronic form of communication, decision-making and processing are already considered to be standard practice, particularly in smaller corporate bodies of a company. For example, the meetings of managing directors, management and supervisory boards already frequently take place as video or telephone conferences, and thus digitally. In this case, it should also be noted that the precise admissibility requirements and procedures must be specified in the statutes, articles of association or the respective by-laws.
To sum up, it can be said that company law is changing, whether in response to COVID-19 or due to the general need for more flexible and digital day-to-day solutions. It remains exciting to observe how the Digitalisation Directive will be implemented by the summer of 2021. It is already evident now that some provisions will also be integrated into the implementation of the much-trumpeted "Austrian Limited". Time will tell whether the digitalisation of the public limited company will be delayed. However, ultimately indispensable human interactions will not be completely eliminated despite the usefulness of digitalisation. This is because no media can substitute for or even completely replace the human desire for personal "face-to-face" communication in the long term.
Find out more about setting up a business in Austria here.