Provision of the Capital Contributions for the Formation and Capital Increase of a Limited Liability Company

When founding and increasing the capital of a limited liability company ("GmbH"), the capital contributions must be properly made. Otherwise, there is a liability risk and even a risk of criminal prosecution.

Background: Strict requirements for capital contributions to a German GmbH

One of the main advantages of a German GmbH is that only the company's assets and (usually) not its shareholders are liable for the GmbH's obligations. In return for this protection of the shareholders from liability, strict capital protection regulations apply to the raising and maintenance of the share capital of a GmbH.

When the GmbH is founded or when its share capital is increased there are strict requirements for the capital contribution. Contributions in kind in these cases must always be contributed in full; for cash contributions a partial payment is sufficient under certain conditions. The contributions must in any case be at the free disposal of the management and may not be paid back to the shareholders (e.g. by way of a loan or for the acquisition of assets) easily.

The proper capital contribution must be assured by the managing directors when filing the commercial register application of the foundation or the capital increase. Only if this assurance is made correctly and completely, the commercial register will register the foundation or the capital increase (and thereby make the respective measure effective in the first place). This shows a case decided by the Jena Higher Regional Court ("OLG") on 13 October 2020.

The facts and the decision of the OLG Jena of 13 October 2020 (Ref. 2 W 340/20)

The case concerned the capital increase of a GmbH which had been resolved by the shareholders the legally required form (notarization). They had also properly paid the capital increase amounts to the GmbH and the managing directors had filed for the entry of the capital increase in the commercial register application. However, the assurance concerning the proper capital contribution was rather short which was why the commercial register rejected the registration of the capital increase at first.

The OLG Jena cancelled the decision of the registry court. It considered the management statement made in the commercial register application to be sufficient even if it was rather short.

Note: Diligence in capital contribution and application to the commercial register

The decision reminds of the strict capital raising rules that apply to the GmbH. Managing directors therefore carefully need to assess that all capital contribution requirements have duly been fulfilled before they register the formation or capital increase of such company to the commercial register. Also, they shall diligently phrase the application to the commercial register to avoid the registration being rejected because of formal reasons. However, there is no standard wording for the registration so that short assurances about the effective raising of capital can suffice. In cases of doubt, nevertheless advisors may be consulted, especially if the registration application is not made before a German notary in the (legally necessary) certified form but before a foreign notary (with subsequent apostille or legalization).

A proper assessment of the capital contribution and registration is in the interest of the GmbH as well as in the interest of the managing directors themselves. False assurances can not only constitute liability towards the GmbH and their shareholders but may also be punished by law.