The Future Financing Act (Zukunftsfinanzierungsgesetz, “ZuFinG”) entered into force on 15 December 2023. Its primary objective is to strengthen the performance of the German capital market and enhance Germany’s attractiveness as a financial hub. The new act focuses primarily on start-ups and small and medium-sized enterprises (SMEs) and aims to make it easier for them to access the capital market and increase their competitiveness not only in Europe, but also further afield.
The following overview highlights key changes in stock corporation and capital markets law.
I. Reintroduction of multiple voting shares
The reintroduction of multiple voting shares represents a paradigm shift triggered by the global competition among capital markets. Dual-class shares carrying different numbers of votes are common among public companies in the US. Since various European states now also allow multiple voting shares in public companies, the new act aims to prevent German start-ups and IPO candidates from choosing a foreign legal form for this reason alone. Founders will be able to retain a controlling influence over the company even after selling shares to investors or going public.
Section 12, sentence 2 Stock Corporation Act (Aktiengesetz, “AktG”) (new version) now allows corporations – not just SMEs or publicly traded companies – to issue registered shares with multiple voting rights. Multiple voting shares are a separate class and not a special type of preference share. Section 135a AktG (new version) sets out the options and limits when issuing multiple voting shares: The multiple voting rights may not exceed ten times the voting rights of “ordinary” shares. All shareholders must agree to create multiple voting shares, which makes it more or less impossible to introduce such shares at existing public companies. Multiple voting rights expire ten years after the company’s IPO or inclusion in the regulated unofficial market (sunset clause). This period can be extended by up to ten years based on a shareholders’ resolution adopted with a three-quarters majority. The resolution is only valid if it is approved by the shareholders of each class of voting shares. As multiple voting rights are intended to allow founders or early investors to maintain a controlling influence for a limited period of time, they expire if multiple voting shares are transferred to third parties after an IPO or inclusion in the regulated unofficial market (section 135a(2) AktG (new version)). Multiple voting shares also cannot be issued when utilising authorised capital (section 202(1), sentence 2 AktG).
A company’s articles of association may restrict the exercise of multiple voting rights to certain resolutions, but there is no obligation to do so. When it comes to resolutions on appointing the external auditor (section 119(1), no. 5 AktG) or a special auditor (section 142(1) AktG), however, also multiple voting shares only confer one vote (section 135a(4) AktG (new version)).
Multiple voting shares can play an important role in more than just the start-up phase – when a subsidiary goes public, for example, the parent company may wish to retain influence by holding shares with multiple voting rights. For financial investors, shares with multiple voting rights may offer a way of acquiring control over a company using only a limited amount of capital and based on an agreement with the current shareholders.
II. Additional options and greater legal certainty for capital measures
1. Increased volume for capital increases with simplified exclusion of subscription rights
The increase in the permissible volume for a capital increase with simplified exclusion of subscription rights laid down in the ZuFinG will have a substantial impact in practice. Under section 186(3), sentence 4 AktG subscription rights may be excluded for a capital increase against cash contributions in particular if the issue price is not significantly lower than the stock market price. The volume for capital increases with simplified exclusion of subscription rights was limited to 10% of share capital so far; this limit has now been increased to 20%.
Listed companies generally use this type of capital increase in the context of utilising authorised capital. It remains to be seen how proxy advisors and institutional investors will view the increase in volume. To date, a common recommendation has been to approve authorisations for capital increases with the exclusion of subscription rights only up to 10% of the share capital due to the associated dilution. Issuers planning authorised capital with an increased volume for the simplified exclusion of subscription rights at their 2024 general meetings should contact their proxy advisors well in advance.
Capital increases with simplified exclusion of subscription rights will also be more attractive to issuers because legal remedies are largely excluded. Resolutions on a capital increase with simplified exclusion of subscription rights cannot be contested on the basis that the issue price is unreasonably low (section 255(2) AktG (new version)). Nor are shareholders whose subscription rights have been excluded as part of such an issue entitled to cash compensation pursuant to section 255(4) AktG (new version) (see 3).
2. Volume limits for conditional capital increases
The ZuFinG also raises some of the volume limits for conditional capital: Conditional capital increases to fund stock options for members of management bodies and employees may now be carried out up to 20% (previously 10%) of the share capital. This amendment is likely to have practical implications for start-ups where significant portions of the remuneration are paid in the form of shares. Under the new rules (section 192(3), sentence 1 AktG (new version)), conditional capital used to create shares for a merger with another company – an option that is rarely exercised – can now amount to 60% instead of the previous maximum of 50% of existing share capital. The limit of 50% of share capital for conditional capital created to issue convertible bonds (which is generally the primary purpose) remains unchanged, however.
3. Fundamental revision of the system of legal protection against capital measures
The ZuFinG completely overhauls the system of legal protection afforded to shareholders against capital measures introduced by the general meeting. In doing so, the ZuFinG addresses a criticism frequently levelled in the past at the concept laid down in section 255(2), sentence 1 AktG (old version). This previously made it possible to contest a resolution to increase the company’s capital with the exclusion of subscription rights on the basis that either the issue price or the minimum price was unreasonably low. Since an action based on a valuation-related objection was as a rule not obviously unfounded and there was no guarantee that the court would rule in the company’s favour pursuant to section 246 AktG, there were risks that such capital increase resolutions could be delayed or not implemented at all.
According to section 255 AktG (new version), a resolution can no longer be contested on the basis that a shareholder sought to obtain special benefits (section 243(2) AktG) or that the value of the contribution attributable to a share was unreasonably low. It is worth noting that the scenario in which a resolution cannot be contested is not restricted to capital increases with the exclusion of subscription rights, but also covers any rights issue. When it comes to valuation-related objections, the ZuFinG replaces the legal protection afforded to shareholders in the form of avoidance and/or nullity actions that can render the resolution null and void with a compensation claim awarded in appraisal proceedings. This significantly improves transaction security for capital increases. Following the example of the Act implementing the Directive on Cross-Border Conversions (Gesetz zur Umsetzung der Umwandlungsrichtlinie), a company can choose whether to settle any compensation claims of its shareholders in cash or – to protect its liquidity – by granting additional shares (sections 255a, 255b AktG (new version)).
At first glance, the concept seems sound, but raises questions on closer scrutiny. It does not appear conclusive to allow valuation-related objections in the case of capital increases with subscription rights, but to refuse them in the case of capital increases with simplified exclusion of subscription rights (section 255(4) AktG (new version)). Moreover, dealing with compensation claims in appraisal proceedings is time-consuming for the issuer and also complex, especially where compensation is granted in the form of shares. Given that the risk of having to pay costs is relatively low for applicants, we will likely see an increase in appraisal proceedings where shareholders contest capital increase resolutions. Ultimately, the increase in transaction security brings with it the burden of subsequent proceedings.
Section 255(5) AktG (new version) does provide significant relief, however, in that the value of the granted shares in the case of listed companies must generally be set at the stock market price and there is no claim to compensation if the issue price is not significantly lower than this. We expect that this valuation will also have an impact on the judicial review of compensation for structural measures and simplify appraisal proceedings in such cases.
III. Change to the record date for participation in the general meeting
For bearer shares of listed companies, the certificate confirming share ownership required for participation in the general meeting previously had to “make reference to the beginning of the 21st day prior to the meeting” (section 121(4), sentence 1 AktG (old version)). In future, however, “close of business on the 22nd day prior to the meeting” will be the relevant record date. This change is a direct response to Article 1, point 7 Commission Implementing Regulation (EU) 2018/1212 of 3 September 2018. In practice, this means that the invitation to the general meeting and the shareholders’ rights must be based on the close of business on the 22nd day prior to the general meeting, for example 24:00 on 25 May instead of 0:00 on 26 May, as was previously the case. Given the primacy of the AktG, the new provision also applies to companies that had adopted the previous wording of the act in their articles of association. For reasons of legal certainty, companies in this position would be well-advised to amend their articles of association by shareholders’ resolution.
IV. Introduction of a German SPAC
A SPAC (Special Purpose Acquisition Company) is a company without commercial operations formed specifically to raise capital through an IPO for the sole purpose of acquiring a non-listed company within a specified period of time. SPACs have been around in the US for decades, but have as yet not been of major practical significance on German stock exchanges. The few known SPACs in Germany were all set up exclusively in accordance with foreign law, mainly because of the restrictive requirements laid down in the AktG.
The ZuFinG makes it easier for German companies to be used as SPACs. To this end, the Stock Exchange Act (Börsengesetz, “BörsG”) now provides for a special variant of the German stock corporation (AG) or the Societas Europaea (SE), which is called a Börsenmantelaktiengesellschaft (or listed shell stock corporation). This is the German equivalent of a SPAC and is not subject to certain restrictive provisions of the AktG.
The Börsenmantelaktiengesellschaft is an AG or SE that expressly trades as such and whose corporate purpose is to manage its own assets, execute its own IPO and prepare and conclude a corporate acquisition that meets the criteria described in the listing prospectus. It is important to note in this regard that the target cannot be a listed company. Following the successful IPO, a Börsenmantelaktiengesellschaft has 48 months in which to complete a target transaction and acquire a company (section 44(3) BörsG (new version)). The target transaction must be approved by the general meeting with a 75% majority and any shareholders who object to the transaction may offer their shares for sale. If no company is acquired within 48 months, the Börsenmantelaktiengesellschaft must be dissolved in accordance with general regulations and as a rule be wound up (section 47b(1) BörsG in conjunction with section 262(1), no. 1 AktG).
V. Improvements to the tax framework for employee participation programmes
In addition to increasing the volume limit for conditional capital for granting shares to management board members and employees, the ZuFinG includes a number of tax measures to promote employee participation programmes (article of 5 December 2023).
VI. Setting the stage for electronic shares
The Electronic Securities Act (Gesetz über elektronische Wertpapiere, “eWpG”), which came into force on 10 June 2021, has to date only allowed bearer bonds and investment fund units to be issued electronically in accordance with the Capital Investment Code (Kapitalanlagegesetzbuch). The ZuFinG allows shares to be issued in the form of electronic securities, as defined in the eWpG, with effect from 1 November 2025. The certificate issued for a security will be replaced by an entry in an electronic register – either a central or crypto securities register – which will at the same time provide the requisite public record in the case of transfer. For central register securities, a central register is kept for all issued shares at a securities clearing and deposit bank or at a central securities depository authorised by the company (e.g. Clearstream) (sections 4(2), 12 eWpG). A crypto securities register, in contrast, is a tamper-proof recording system in which data is logged and stored in chronological order.
The European market infrastructure regulations do not currently provide any framework for the trading, listing and settlement of electronic securities, although a trading framework is likely to be in place by the end of 2025.
VII. Entry into force
Large parts of the ZuFinG have come into force following its promulgation in the Federal Law Gazette, but the provisions revising the eWpG and introducing crypto securities (Article 16 ZuFinG) will only take effect on 1 November 2025.
VII. Conclusion
The ZuFinG contains a number of improvements for start-ups and SMEs seeking access to the capital market, while its reintroduction of multiple voting shares opens up interesting options. The new law also creates better conditions for employee participation programmes.
The ZuFinG offers listed companies greater flexibility and legal certainty when carrying out capital measures, although it remains to be seen how the new provisions on valuation-related objections will affect these. While companies no longer face the spectre of a de facto block on entering capital increases in the register because a valuation-related objection has been filed, they may have to contend with lengthy appraisal proceedings concerning shareholders’ compensation claims.
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