Stock Corporation Explanations

Joint stock company – what is it? Why are public companies founded? When founding a company, company founders have to decide which legal form their company should have. You can choose between partnerships and corporations. A common form of corporation is the stock corporation, abbreviated to AG. Alongside the limited liability company ( GmbH ), it is the most frequently chosen corporation in Germany.

Definition of the stock corporation

The AG is a corporation and is used particularly when founding large companies. In addition, an already existing company can be converted into an AG if certain conditions are met. There are a few points to consider when founding a stock corporation. The share capital must already amount to at least 50,000 euros at the time of formation. The share capital is broken down into individual shares. The entrepreneurs themselves, but also employees and people who are not employed in the company themselves, can participate by buying shares.

All of the shares that acquire are known as shareholders. When the stock corporation is founded, the shares usually have a very low value, so future shareholders can participate with small amounts. Shareholders can buy one or more shares. When issuing shares, the financial risk for shareholders is only limited if the stock corporation becomes insolvent . They only lose the amount they spent on the shares. The stock corporation itself can raise a lot of equity by issuing shares. If the AG becomes insolvent, the creditors are liableonly with the company’s assets. In the case of outstanding liabilities, liability is limited to the company’s capital, while the private assets of the shareholders are not affected.

Foundation of the stock corporation

According to DEFINITIONEXPLORER, the AG can be founded by a legal person, by legal partnerships or by several natural persons. Everyone involved in the establishment of the company must make contributions, for which they receive shares in return. When an AG is founded, a partnership agreement is concluded, which also serves as a statute and has to be notarized. The establishment of an AG is divided into three phases:

  • Pre-founding company or pre-founding consortium
  • Vorgesellschaft or Vor-AG
  • actual AG.

In the phase up to the notarization of the articles of association by the notary, there is the pre-founding company, which is usually a company under civil law. The pre-founding company serves to effect the formation through the notarial conclusion of a contract. If a commercial trade is practiced before contacting a notary, the pre-founding company is the open trading company (OHG) . As a partnership, the OHG requires at least two founders. The Vorgesellschaft or Vor-AG exists between the notarial determination of the articles of association and the entry of the stock corporation in the commercial register. Such a pre-company can also exist with only one founder. In part, this pre-AG is already legally competent, the name of the company bears the addition “i.Gr.”. This stands for “in formation”. In this pre-AG there are already the board of directors, the supervisory board and the general meeting. If the company is finally entered in the commercial register, it exists as an AG and has full legal capacity.

Organs of the public limited company

In a stock corporation, the distribution of tasks is clearly regulated. The organs of the stock corporation are the board of directors, the supervisory board and the general meeting. The board of directors is responsible for managing the AG and can consist of one or more people. The supervisory board appoints and supervises the management board, it examines the annual financial statements, the balance sheet and the AG. The general meeting acts as the decision-making body and consists of all shareholders of the AG. The voting rights of the shareholders depend on the proportion of shares they have acquired.

The general meeting has various rights. It can decide on amendments to the articles of association, in particular on capital increases and capital reductions. The general meeting appoints the members of the supervisory board and dismisses them, it discharges the executive board and the supervisory board. If the board of directors and the supervisory board so decide, the general meeting can adopt the annual financial statements, but in any case it accepts them. It decides on the use of the balance sheet profit and appoints auditors and special auditors. The general meeting can also vote on the dissolution of the company.

Shares: The capital of a stock corporation

The shares of a stock corporation do not necessarily have to be traded on the stock exchange. Usually only large stock corporations are listed on the stock exchange. Your shares can be freely traded. Small and medium-sized companies often issue shares to only a few shareholders and do not allow small shareholders to trade their shares. One also encounters a special construct here, the registered share. In contrast to bearer shares, in which the holder of the paper is automatically the shareholder, a registered share must be entered in the share register. This naturally lowers the marketability of the security.

Stock Corporation