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Simplified formal requirements and increased flexibility – the FlexCo as a group company
23. November 2023
The FlexCo is intended to offer the possibility of adapting the legal framework to the individual needs of a company through greater flexibility in certain areas (e.g., in the decision-making of shareholders). The question therefore arises to the extent such flexibility provides advantages over the traditional GmbH, especially for group companies.
For the purposes of this question, two different types of group companies must be assessed:
- wholly owned subsidiaries; and
- group companies with minority shareholders.
With regard to the first type, it can be stated that the simplification of the formal requirements will hardly have any practical influence on the corporate investment management. According to section 34 of the Austrian Act on Limited Liability Companies (GmbHG) there are two forms of passing resolutions, namely (i) passing resolutions in a general meeting and (ii) passing circular resolutions (in writing). However, Austrian case law and literature also recognize the oral and even implied adoption of resolutions if all shareholders agree to the respective measure. Thus, the practical restrictions resulting from such limitation are very limited if notarized resolutions are not required. It should be noted that even the FlexKapG does not provide for any simplifications for notarized resolutions.
With regard to the second type, the FlexCo offers exciting organizational possibilities. According to section 34 GmbHG, the admissibility of a circular resolution requires that all shareholders agree in writing to the subject of the resolution or to casting the vote in writing. If a (minority) shareholder refuses to participate in such written circular resolution, a general meeting must be convened in compliance with the applicable formal requirements and convocation periods. With the FlexCo, such time-consuming convocation procedure can be avoided, if the articles of association provide for a respective possibility, since section 7 para 1 FlexKapG provides that the articles of association can stipulate that the consent of all shareholders is not required for a circular resolution (in writing). In this case, it would only have to be ensures that all shareholders with voting rights are allowed to cast a vote for a valid circular resolution.
In addition, the practical question of the specific formal applying for signatures on circular resolutions regularly arises in connection with the corporate investment management in corporate groups. Section 34 GmbHG generally requires written form within the meaning of section 886 of the Austrian Civil Code (ABGB). Therefore, a handwritten (wet ink) signature or a qualified electronic signature (being equivalent to a handwritten signature) is required. This requirement results in (i) a considerable additional effort when signing by handwritten signature – compared to simple electronic signatures – and is often also not in line with a corporation’s effort to digitalize contract management and (ii) increased costs when signing by qualified electronic signature. Section 7 para 1 FlexKapG now stipulates that the articles of association may also provide that text form within the meaning of section 13 para 2 of the Austrian Act on Stock Corporations (AktG) is sufficient, including a simple electronic signature. However, in view of the recognition of the validity of oral and implied resolutions with the consent of all shareholders by Austrian case law and literature in the case of GmbH’s, the practical relevance of this simplified formal requirement in group companies appears to be limited.
The simplified formal requirements can also lead to simplifications in intra-group reorganizations. Pursuant to section 76 GmbHG, the sale and transfer of a share in an Austrian GmbH requires the execution of a (typically Austrian) notarial deed. Pursuant to section 12 FlexKapG, however, it is now sufficient for a notary or lawyer to draw up a (private) deed regarding such transfer of shares in a FlexCo. This should result in time and cost savings for companies.
However, it should be noted that such simplification is only intended for the transfer of shares in the context of singular succession. In the case of reorganization measures that provide for (partial) universal succession (i.e., in particular mergers and demergers), however, the requirement to draw up a notarial deed remains in place.
Finally, it should be noted that the participation of (local) management through the issuance of company value shares (Unternehmenswertanteile) is now a real option for employee participation. In this regard, we refer to this article on the KPMG website.
As a result, the FlexCo also offers an exciting alternative for the management of Austrian shareholdings, whereas the advantages depends on the structure of the respective group.
