The stock corporation (AG) is one of the most important forms of business in Germany. Currently, there are around 12,000 AGs in Germany. This figure shows that AGs can be a popular option for large businesses as well as for ambitious, medium-sized businesses.
In this article, you'll learn what an AG is and how to set one up. We also discuss how AGs are taxed and their controlling entities.

What's in this article?

• What is a stock corporation?
  
• How to set up a stock corporation in Germany
  
• What are the advantages of the stock corporation for German businesses?
  
• Entities of the stock corporation
  
• Tax obligations of German stock corporations
  
• Example: A stock corporation in the German SME sector
  
• Obligations of the stock corporation during ongoing operations
  

What is a stock corporation?

The stock corporation (Aktiengesellschaft, or AG) is a capital company and one of the most important legal formations for larger businesses in Germany. The abbreviation "AG" is protected by law. In official business names, it is always placed after the name of the business, as in "Example Company AG."

One characteristic feature of the AG is the legally enshrined separation between ownership and management. While the shareholders provide the capital, management is the responsibility of the board of directors. The AG is particularly suitable for businesses that want to build a broad capital base or go public.

There is a difference between listed and unlisted AGs. Listed AGs are publicly tradable on the capital market and are subject to strict transparency requirements. Unlisted AGs are more common in small and medium-sized enterprises (SMEs) and allow more flexibility in internal structure and capital procurement.

AGs are subject to the Stock Corporation Act (AktG), which regulates all legal bases for their establishment, organisation, liability and control. An AG has its own legal personality, meaning it has legal capacity and can enter into contracts, own property and sue or be sued in court.

The AG is characterised by the following key features:

• Limited liability of shareholders
  
• Three mandatory bodies, including the board of directors, supervisory board and annual general meeting
  
• Extensive publication and disclosure obligations
  
• Opportunity to increase capital
  

How to set up a stock corporation in Germany

Setting up an AG in Germany requires following clearly defined legal requirements regulated in the AktG. The process takes several steps and is possible with cash contributions or contributions in kind.

Formation by at least one natural or legal entity is permitted. The minimum capital required for an AG is €50,000 and must be divided into shares. According to Section 36a of the AktG, at least 25% of the nominal value per share and the entire capital contribution in kind must be paid before the business is registered in the Commercial Register.

Formation process and legal effects of registration

The establishment of an AG in Germany occurs in several steps. First, the founders must have the statutes notarised. Then, they take over the shares and appoint the board of directors and supervisory board. Next, they must raise the minimum capital for the AG.

In this phase, the business is considered a pre-incorporated company and is not yet legally considered an AG. Depending on its structure, it is treated as a partnership under civil law (GbR) or a general partnership (OHG). In addition, liability is not yet limited to the business's assets.

Upon registration in the Commercial Register, the AG becomes established as a legal entity. From that point on, the corporation:

• Has full legal capacity
  
• Can enter into contracts and acquire property
  
• Can be independently taxed
  
• Is subject to the duties of a legal entity and the provisions of the AktG, such as accounting, publication, and corporate governance
  

Entry into the register also eliminates the founders' personal liability and transfers it entirely to the AG itself.

What are the advantages of the stock corporation for German businesses?

The AG offers many advantages to businesses in Germany – strategically, legally and economically. Growth-oriented businesses in particular benefit from this legal formation. Here are some of the advantages:

Financial advantages and capital structure

• Investor friendliness: AGs significantly increase financing options because new or institutional investors can participate, such as through private placements.

• Limited liability: Shareholders are solely liable for their contributions.

• Retention: It's possible to create reserves through profit retention. Here, undistributed profits remain in the AG and are used to reinforce equity.

• Access to capital markets and capital increase: By issuing shares, the business can generate fresh equity capital, a decisive advantage over other legal formations. A key component is the capital increase in which new shares are issued, according to Section 182 of the AktG. This measure requires a resolution of the general meeting and must be entered in the Commercial Register. It is often used to finance expansion, improvement or acquisitions without additional debt.

Structural and organisational advantages

• Professional management structure: The clear allocation of roles among the board of directors, supervisory board and annual general meeting ensures transparent responsibilities and efficient control.

• Attractive public image: This legal formation enjoys a positive reputation among banks and business partners and in an international context. It represents structure, stability and growth.

• Legal form for scaling: The AG is ideal for businesses that have plans for expansion or the stock market. It's also possible to convert to a European Company (SE).

• International compatibility: The AG structure is internationally recognised. This simplifies joint ventures, requests for proposals or cooperation with foreign partners.

International expansion and capital market access

• Global access to capital: The AG is the only German legal form that allows structured and flexible capital raising via stock exchanges and institutional investors. For businesses with international growth objectives – such as entering new markets, mergers and acquisitions or expansion phases – it offers a decisive advantage.

• Investor confidence and compliance: International investors prefer transparent structures with clearly defined responsibilities, comprehensible accounting and strong controls. These are all qualities of the AG. The AG complies with these standards in accordance with German and European law.

• Legal form compatibility: For joint ventures, investments or conversions in an international context, the AG is structurally compatible with the SE. It is also compatible with the British public limited company (PLC) and incorporated businesses in the US (i.e. those using the "Inc." designation).

Entities of the stock corporation

The bodies of the AG are clearly defined by law and organised according to the principle of separation of powers. The AG must have three main bodies:

Board of directors

The board of directors manages the business of the AG independently and represents it externally. In doing so, it cannot accept any instructions from the general meeting or the supervisory board. This is a key principle of independence. The board of directors consists of one or more individuals and is appointed by the supervisory board for a maximum of five years. Reappointments are allowed.

The board's legal duty includes careful management of the company. It is personally liable for any breach of duty.

Supervisory board

The supervisory board monitors management and appoints and dismisses the board of directors. In larger businesses, the supervisory board is usually made up of an equal number of shareholders and employee representatives. Members are generally appointed for four-year terms. A longer term of up to six years can be provided for in the business's statutes.

The supervisory board examines the annual financial statements, can initiate special audits and makes a significant contribution to the corporate governance of the AG. It is entitled to a comprehensive right of information and consultation with the board.

Annual general meeting

The annual general meeting is a body of the shareholders that makes key decisions about the structure and direction of the company. These include, among others, amendments to the articles of association, capital measures, election of the auditor and discharge of the board of directors and supervisory board. In listed businesses, the principle of "one share, one vote" applies. There are also extensive requirements regarding convening, agendas and publication obligations. These requirements cover, for example, shareholder participation and transparency toward the capital market.

In non-listed AGs, these regulations apply in a simplified form. For example, there is no obligation to publish in the Federal Gazette, and invitations can usually be sent directly to shareholders. Voting rights can also be regulated more flexibly in the articles of association, such as through multiple voting rights or registered shares with restricted transferability. Nevertheless, even non-listed AGs must comply with the general requirements of the AktG regarding general meetings.

How the bodies interact

The work of each body is clearly separated into a dualistic system. The board of directors manages operations; the supervisory board focuses on strategy; and the annual general meeting decides on fundamental issues. Unlike in the monistic system (e.g. in the UK or US), the annual general meeting cannot give operational instructions to the board of directors. This promotes legally secure, professional structures, especially for larger and listed businesses.

Tax obligations of German stock corporations

Similar to other corporations, the AG is subject to regular taxation at two levels: business and shareholder.

Corporate and trade taxes at the business level

At the business level, corporate tax is levied at a rate of 15%, plus a 5.5% solidarity surcharge. The trade tax varies depending on the municipality's assessment rate. The combined tax burden on corporate profits is typically around 30%.

Taxation of distributed profits at the shareholder level

The annual general meeting decides on the AG's distribution of profits. The shareholders decide whether to pay out the dividends and to what extent they should be paid out. At the shareholder level, distributed profits are subject to a flat-rate withholding tax of 25%, plus the solidarity surcharge and, if applicable, church tax. This leads to double taxation, which businesses can avoid or reduce through targeted profit retention.

Here, Stripe Tax can help. Tax automates the creation of dividend statements and tax-compliant documentation for the tax office, facilitating compliance with legal requirements.

Profit retention to strengthen the equity base

Profit retention increases the equity ratio. It can be used for investments or growth, such as in planned capital measures (e.g. initial public offerings [IPOs]) or the issuing of new shares.

Offsetting loss in the stock corporation

Within the framework of the legal regulations, losses can be offset against future profits (i.e. loss carried forward) or against profits from the previous year (i.e. loss carryback), which reduces the overall tax burden.

Value-added tax (VAT) and industry-specific exemptions

The AG is generally subject to VAT. Exceptions apply to certain sectors such as healthcare or nonprofit educational institutions. Regular preliminary VAT returns and an annual return are mandatory.

Transparency through disclosure

The AG is subject to comprehensive disclosure requirements, which are particularly important for investors, banks and authorities. Regular disclosure of finances can promote confidence in an AG's stability and legal compliance.

Example: A stock corporation in the German SME sector

A growing German technology business decided to change from a limited liability company (GmbH) to an AG after several successful financing rounds and the growth of its international customer base.

The business aimed to attract institutional investors and prepare for a future stock market listing. Becoming an AG made it possible to build out an expanded management team with external expertise, establish a supervisory board, and issue convertible bonds. The AG structure also made it possible to establish international cooperation with a Scandinavian partner.

This step provided access to external capital and a more professional management structure with clearly defined responsibilities – a significant difference from the former GmbH. The reporting requirements and disclosure rules – which were initially considered cumbersome – also strengthened the confidence of potential investors.

This example of an AG from the German SME sector shows how medium-sized businesses also use the AG as a future-oriented structure for growth, access to capital and internationalisation.

Stock corporation vs. limited liability company

Obligations of the stock corporation during ongoing operations

In its day-to-day business operations, an AG must fulfil several legal obligations. These relate in particular to accounting, organisational requirements, and – in the case of stock exchange listing – capital market regulations. The goal is to ensure transparency and legal compliance, and ensure the trust of investors, regulators, and business partners. Here are some of an AG's legal obligations:

Accounting, auditing and disclosure

• Accounting and annual financial statements: According to Section 238 of the German Commercial Code (HGB), every AG is required to keep double-entry bookkeeping. The annual financial statements should include the balance sheet and profit and loss account. For medium-sized and large businesses, an appendix and management report are also required.

• Audit: Annual financial statements must be audited by an independent auditor, regardless of the size or revenue of the business.

• Disclosure obligation: The audited annual financial statements must be submitted electronically to the Federal Gazette. Failure to comply within the deadline could result in administrative fines.

Corporate organisation obligations

• Notifications to the Commercial Register: Businesses must report changes to the board of directors or supervisory board, capital measures or other transactions relevant to the articles of association to the Commercial Register immediately. Many of these transactions require notarisation.

• Documentation and retention obligations: According to Section 257 of the HGB, companies should keep business documents and books for 10 years.

Capital market disclosure and reporting obligations for stock exchange listing

If the AG is listed on the stock exchange, additional requirements from the Securities Trading Act (WpHG) and the Market Abuse Regulation (MAR) apply:

• Ad hoc publication: Businesses must publish price-relevant information immediately.

• Directors' dealings: AGs must disclose personal transactions by directors and their relatives in securities of the AG.

• Voting rights and shareholding notifications: When the business reaches certain participation thresholds, there are reporting obligations to the Federal Financial Supervisory Authority (BaFin).

Other ongoing obligations

• Tax obligations: The AG is obliged to submit regular tax returns, including advance VAT, corporate and trade tax returns.

• Wage and social security obligations: When employing staff, businesses must correctly calculate and pay wage tax and social security contributions on time.

• Employment and data protection law: The German Evidence Act (NachwG), the Federal Data Protection Act (BDSG), and – in the case of a digital business model – the General Data Protection Regulation (GDPR) apply, among others.

Mandatory termination: Dissolution and liquidation of a stock corporation

If the AG no longer fulfils its legal or economic obligations, the liquidation process begins. This can happen, for example, as a result of insolvency or if the general meeting decides on voluntary dissolution. Following the resolution to dissolve the business, liquidators are appointed to sell the business's assets, collect receivables, settle liabilities and distribute the remaining assets to the shareholders. Finally, the AG is deleted from the Commercial Register. Depending on the extent of the assets, this process can take several months or years.