Capital Measures and Shareholder Resolutions Explained

Whether you are managing a growing startup, investing in a joint venture, or restructuring a mid-sized enterprise in Germany, understanding capital measures is essential. Changes to a company’s share capital—such as increases, reductions, or reallocation—require careful planning, adherence to statutory procedures, and formal shareholder resolutions.

This guide provides a comprehensive overview of capital measures and shareholder resolutions in Germany, with a focus on their practical relevance for expats and international professionals engaged in corporate governance, investment, or restructuring. Topics covered include types of capital actions, legal procedures, regulatory filings, and implications for company stakeholders.

1. Legal Basis for Capital Measures in Germany

Capital measures are governed by the following laws:

• German Civil Code (BGB)
• German Limited Liability Companies Act (GmbHG)
• German Stock Corporation Act (AktG)
• Commercial Code (HGB)
• Transformation Act (UmwG) – in case of restructurings

The applicable rules vary depending on the legal form of the company—especially between a GmbH (Gesellschaft mit beschränkter Haftung) and an AG (Aktiengesellschaft).

2. What Are Capital Measures?

Capital measures refer to legal actions that affect the amount, structure, or allocation of a company’s share capital. These are often initiated to:

• Raise funds for growth or expansion
• Comply with regulatory requirements
• Optimize corporate structure or ownership
• Distribute surplus capital or resolve financial distress

Most capital measures require a formal shareholder resolution, notarisation, and entry into the commercial register (Handelsregister) to take effect.

3. Types of Capital Measures

1. Capital Increase (Kapitalerhöhung)

A capital increase enhances a company’s equity base and can take several forms:

a) Capital Increase Against Contributions (Ordentliche Kapitalerhöhung)

• New shares are issued to existing or new shareholders
• Requires shareholder resolution and subscription agreement
• Capital is paid in cash or in-kind (e.g., IP, real estate)
• Notarisation and registration required

GmbH: 3/4 majority of votes
AG: Requires management and supervisory board involvement

b) Authorized Capital (Genehmigtes Kapital – AG only)

• Shareholders pre-authorize the board to increase capital within a limit
• Valid for up to 5 years
• Offers strategic flexibility

c) Conditional Capital (Bedingtes Kapital – AG only)

• Tied to future events like stock options or convertible bonds
• Used to attract investors or incentivize management

2. Capital Reduction (Kapitalherabsetzung)

Reduces the company’s registered capital and is used to:

• Return capital to shareholders
• Offset accumulated losses
• Streamline shareholding structure

Forms of Reduction:

• Ordinary reduction by shareholder resolution (with creditor protection)
• Simplified reduction to cover losses (no distribution permitted)

Creditor protection rules include:

• Public notices to creditors
• Waiting period before effect
• Optional security deposits

For a GmbH, the new capital must be at least €25,000 unless the company is transformed or dissolved.

3. Nominal vs. Effective Capital Measures

4. Shareholder Resolutions: Legal Formalities

Capital measures must be approved via a formal shareholder resolution under strict procedural requirements.

Key Requirements:

• Minimum voting majority (usually 75%)
• Notarised meeting minutes
• Proper notice and agenda (especially for AGs)
• Entry in the Handelsregister
• Registration with the Bundesanzeiger (Federal Gazette)

A resolution template may include:

• Purpose of the capital measure
• Type and amount of shares affected
• Conditions for subscription or repayment
• Payment modalities and deadlines

Failure to follow procedures may result in nullity or legal challenge of the resolution.

5. Tax and Accounting Considerations

Capital measures impact a company’s financial statements and tax obligations:

• Capital increases must be reflected in the balance sheet as equity
• In-kind contributions must be properly valued and verified
• Capital reductions may trigger withholding tax if deemed a distribution
• Documentation must be aligned with German GAAP or IFRS

A tax advisor (Steuerberater) should review all capital-related actions in advance.

6. Impact on Shareholders

Capital measures can:

• Dilute ownership if shares are issued to new investors
• Trigger pre-emptive rights for existing shareholders
• Rebalance voting power
• Require payment obligations (increases) or trigger repayments (reductions)

It is essential that all shareholders are informed, involved, and legally protected. Conflicts can be avoided through detailed resolutions and transparency.

7. Special Cases and Complex Structures

Mergers and Reorganisations

Capital measures are frequently part of mergers, spin-offs, and transformations, regulated under the UmwG (Transformation Act). These require:

• Additional resolutions
• Certified balance sheets
• Independent audits (in some cases)

Venture Capital and Convertible Instruments

Startups often use:

• Convertible loans that convert into equity
• Phantom shares or profit participation rights (Genussrechte)
• These must be structured carefully under company and securities law

8. Timing and Registration

The full implementation of a capital measure may take several weeks:

1. Prepare and notarise resolution
2. Register with commercial court
3. Complete payment or creditor notifications
4. Entry into the Handelsregister
5. Update with the tax office and, if applicable, the shareholders’ list (Gesellschafterliste)

Delays can affect investor confidence, credit ratings, and legal compliance.

9. Common Pitfalls and How to Avoid Them

• Failing to notarise the resolution properly
• Non-compliance with creditor protection rules
• Improper valuation of in-kind contributions
• Overlooking tax implications of repayment
• Not updating the shareholder list (GmbH)

📌 Solution: Always consult legal counsel before executing any capital measure.

Conclusion

Capital measures are strategic instruments in corporate development, restructuring, and financing. For foreign shareholders, investors, and directors operating in Germany, it is essential to understand the legal structure, shareholder rights, and formal requirements involved in executing capital changes.

Whether you’re increasing capital to welcome new investors, reducing capital as part of a reorganisation, or resolving internal shareholder dynamics, compliance with German corporate law and proper execution of shareholder resolutions are critical to legal validity and business success.