By using our website, you are agreeing to cookies being stored and Google Analytics being used on your device in order to offer the best possible service. You can find more information on thishere.
Austria.
Dynamic Business Location.

The Flexible Corporation

The flexible corporation ("FlexKap" or "FlexCo") as a new type of company

The Government Programme 2020-2024 stipulates the creation of a new type of company. The planned introduction of the so-called flexible corporation (FlexCo; in German: Flexible Kapitalgesellschaft, or "FlexKap" to be used hereafter) is designed to create an internationally competitive type of company on the basis of international models. In the year 2020, Viennese law firms were already contracted to prepare an expert report which ultimately encompassed a length of 200 pages. The FlexKap, formerly known under the working title "Austrian Limited," will likely turn out to be a hybrid form between the traditional limited liability company ("Gmbh") and the public limited company (hereafter "AG") and should be particularly attractive for startups as well as innovative small and medium-sized enterprises (SMEs). Due to the fact that draft legislation has not yet been published and a lively discussion has been going on concerning the planned project, the following explanations should be read with caution.

Minimum share capital

In practice, a frequent obstacle in founding a company is raising the legally prescribed share capital. In this regard, the minimum share capital is considered to be a "threshold" to judge the seriousness of the undertaking. The minimum required share capital of a limited liability company in Austria amounts to about € 35,000. There is also the possibility to take advantage of the "privileged formation" in which only € 10,000 is needed as the legally specified minimum share capital. The Austrian Stock Corporation Act even prescribes a higher amount of capital for the foundation of a public limited company. Anyone who wishes to set up a public limited company has to raise at least € 70,000 in share capital. In any case, half of the minimum share capital must be raised and contributed to the company as a cash contribution.

From today's perspective, the planned flexible corporation is expected to require a minimum share capital of € 10,000 and would thus be the most "affordable" form of company in terms of raising capital. This also applies if one considers the privileged formation of a limited liability company, because in this case the privileged formation must be transformed into a traditional limited liability company no later than ten years after founding. Accordingly, at least € 7,500 more in additional capital must be contributed by the shareholders. In contrast, the FlexKap should comprise a separate, permanent type of company because it need not be transformed into a traditional limited liability company or public limited company.

If the minimum share capital is, in fact, prescribed to amount to € 10,000, this would still be behind the original planning. In the meantime, a minimum share capital of only € 5,000 is under discussion. The well-known forms of raising capital - half as a cash contribution, half as contributions in kind - should continue to be valid. However, discussions are going on as to whether it will also be possible to raise capital in the form of providing services, for example performing work. On the one hand, this would be an advantage. On the other hand, the assessment of the value of services is also not without problems, especially in the initial phase of a company's existence.

Necessity remains to involve a notary public

Without doubt, one of the controversial aspects relating to the FlexKap is the obligation to have a notary public involved in setting up the company and in shareholders transferring shares in the limited liability company. A notarial act is required to conclude the shareholders' agreement of a limited liability company and articles of association for a public limited company. Furthermore, the Limited Liability Companies Act as well as the Stock Corporation Act prescribe a notary public to be involved in various procedures under company law. No changes are planned with respect to formalities relating to concluding the shareholders' agreement for a FlexKap and transferring shares. As things stand, a notarial act would be necessary for the above-mentioned procedures. However, in the meantime, thanks to the Digitalisation Directive, this can be done electronically on the basis of a digital notarial act. Moreover, the obligation remains to enter the company into the Commercial Register. This requirement already applies to the traditional limited liability company and public limited company.

Whether lawmakers will decide to deviate from the above-mentioned procedures in the final draft legislation remains to be seen. In particular, many people involved in teaching or in the practical implementation have demanded the elimination of bureaucratic obstacles such as the notarial act requirement and the entry into the Commercial Register. The new type of company is supposed to stand out on the basis of simplifications and quick founding. Nevertheless, it also remains to be seen how attractive FlexKap actually turns out to be for company founders if the formal procedures involved in the actual process of establishing a company do not fundamentally differ from setting up a limited liability company.

Capital measures and flexible allocation of shares

It is no secret that startups are dependent on investors, especially in the initial stages. In order to be able to cover financing needs, equity capital financing should be simplified by a flexible allocation of shares to investors. In this regard, the current intention is to allow for quick measures to increase capital without the need to meet any formal requirements. For example, the possibility of making decisions on capital increases by means of a circular resolution as well as the possibility to pass anticipatory resolutions by introducing authorised capital are being discussed. In principle, possible capital measures for the FlexKap are planned to be similar to the public limited company and thus offer more options than the limited liability company.

Furthermore, current plans call for the FlexKap to be able to issue company shares with capital contributions of at least one euro. This also represents a difference from the traditional limited liability company, which involves the capital contribution of a shareholder of at least € 70. Moreover, the shareholders of a FlexKap should have the possibility to acquire and hold different types of shares. For example, this means a shareholder could have both non-voting shares and shares with voting rights. If a shareholder has several shares with voting rights, he should be able to exercise his voting rights in different ways.

Shares in a limited liability company can only be divisible in the legally stipulated cases or if such a clause is included in the shareholders' agreement. In contrast, the divisibility of shares in a FlexKap should be the rule.

Employee participation models

It is well-known that, as a rule, startups can only pay comparatively lower salaries in the beginning compared to larger, established companies. Nevertheless, in order to make these companies attractive to skilled workers, it should be possible to issue equity interests to employees (employee participation or profit-sharing models). In this way, employees are bound to the company, because their own participation enhances their interest in the economic success of the company. This type of equity interest would be in the form of non-voting shares so that these equity interests are only of an economic nature and have no influence on the management of the company. This is different from the traditional limited liability company, where the issuance of non-voting shares is completely inadmissible. Besides, it should be possible to transfer equity interests more easily than is the case with normal shares, supposedly without the need for a notarial act, thus excluding the transfer of shares to third parties. At the present time, plans for the documentation of equity interests in the company will not require the shareholders to be entered into the Commercial Register but should be discernible in a separate list of shareholders to be kept by the company.

Outlook

In principle, the underlying goal of making it more attractive and faster to establish a company and to simply capital raising measures should be supported. If this is done, the business location of Austria will further enhance its attractiveness on the basis of targeted and meaningful changes. It is worth discussing whether the approach should be to create a new type of company or to adapt existing regulations for setting up a limited liability or public limited company to market conditions. It will be interesting to see when and in what specific form the FlexKap will ultimately become part of Austrian company law. Even if no new type of company is created, lawmakers should display the courage to modernise existing rules.

Article originally published in German.

 

* * *

 

 

Andreas Pfeil, LL.M. (WU).

STADLER VÖLKEL Rechtsanwälte - Attorneys at Law
Andreas.Pfeil@sv.law

Share on Facebook Share on Facebook Share on Twitter Share on Twitter Share on Linkedin Share on Linkedin

Testimonials

Events

Meet us at events, seminars and trade shows - worldwide.

  • ILA Berlin Pioneering Aerospace 2022

    22.06.2022 - 26.06.2022, Berlin, Germany

Austria Map

Find the perfect location for your company

Reliability and expertise in the country and in the company are the convincing factors in selecting a business location. We can be justifiably proud but can still become even more attractive. This is something Austria should increasingly work on in the future!

Pfizer

Logo
More testimonials

news from the business location Austria

EU Commission relies on Austrian battery tests

The startup AVILOO headquartered in Lower Austria became the first company to develop a diagnostic test for electric car batteries.

PHIOS GmbH

Since 2007 PHIOS has accompanied well-known companies in the implementation of particularly challenging and complex software projects. At the beginning of May 2022, the Liechtenstein company opened its Vienna location. From here, the Austrian market is to be built up and neighboring countries in the east are to be worked on. The managing director is Stefan Vögel, an expert with many years of international experience in strategic consulting and project management.

More news All blog posts