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2 Stock Corporation (AG) |
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complete loss of the title in case of loss, theft or destruction of the physical stock certificates.
Registered Stocks
If registered stocks are issued, the company has to keep a stock register (Aktienbuch) in which the name, the address and the date of birth of each stockholder are entered.97 The stock register is updated continuously. Each stockholder is entitled to check the information on heror himself in the stock register.
From the point of view of the company, registered stocks have several advantages. First, the stock register provides theAG with the information necessary to track changes in stock ownership and to contact its stockholders, e.g. in order to invite them to stockholders’ meetings. Second, registered stocks may also be useful with respect to plans for a future potential listing abroad. For example, it is quite common for listed US stock corporations to issue registered stocks. Therefore, a German stock corporation planning to be listed on the New York Stock Exchange may also prefer to issue registered stocks in order to comply more easily with the US listing standards. Third, registered stocks may also be advantageous in a takeover situation, since the stock register provides some information about the target company, e.g. regarding its shareholder structure. Furthermore, in a takeover scenario it is even more important to issue so-called restricted registered stocks (vinkulierte Namensaktien), which may only be validly transferred with the explicit approval of the management board. Vinkulierte Namensaktien may therefore be used proactively to inhibit acquisitions of stocks by possible (hostile) bidders.
2.3.3 Capital Increases
If theAG wishes to increase its registered capital subsequent to its formation, it has to follow strict (and in most cases mandatory) rules, which aim at protecting creditors and shareholders. Interests of creditors may be involved, if, e.g. the AG issues new stocks below par value. In general, stockholders have to be protected against any involuntary changes or dilutions of their effective stock ownership.
The AktG provides for four such sets of rules on capital increases: so-called ordinary capital increases against contributions (Kapitalerhöhung gegen Einlagen), contingent capital increases (bedingte Kapitalerhöhung), capital increases from authorized capital (Kapitalerhöhung aus genehmigtem Kapital ), and capital increases from company resources (Kapitalerhöhung aus Gesellschaftsmitteln).
2.3.3.1 Ordinary Capital Increase Against Contributions
In an ordinary capital increase, the corporation issues new shares for which the (new or existing) subscribing shareholders make contributions either in cash or in kind. The ordinary capital increase requires a shareholder resolution with a majority of 75% of the share capital represented at the stockholders’ meeting or such
97 See Sec. 67AktG.
2.3 The Capital of the AG |
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majority as provided for in the articles of association.98 The resolution has to cover the material issues of the capital increase, such as amount of increase, numbers of shares, and the initial price of each share. Additional special resolutions may be necessary if the corporation has issued more than one class of shares.
2.3.3.2 Contingent Capital Increase
The stockholders’ meeting may authorize the management board to issue new shares on the condition of certain events. According to the AktG such contingent capital increase (bedingte Kapitalerhöhung) is only permitted in connection with
(1) the issue of certain financial instruments (convertible bonds or similar securities), (2) in order to prepare for a merger of enterprises and (3) in order to grant specific subscription rights to employees and members of the management board (such as stock-options).99
The stockholder resolution authorizing the management board to execute the contingent capital increase requires a 75% majority and has to indicate the purpose of the capital increase, the specific event upon which new stocks may be issued, as well as the persons entitled to subscribe to such stocks and the issue price (or a basis on which the price is to be computed).The amount of the contingent capital increase may under no circumstances exceed 50% of the existing capital stock as of the date when the increase was approved. Usually, the amount is based on the number of stocks to be converted or purchased through subscription rights of the bondholders.
When the relevant event occurs, e.g. if bondholders exercise their call-options, the management board may (similar to the situation of a capital increase from authorized capital) issue new stock without another involvement of the stockholders’ meeting.
2.3.3.3 Capital Increase from Authorized Capital
As outlined above, in case of an ordinary capital increase all essential issues are decided by the stockholders’meeting by way of resolution, which the management board must execute. While the regulatory framework for an ordinary capital increase provides for a maximum degree of protection of shareholders’ interests it also considerably reduces theAG’s ability to quickly adapt to changing market situations, thus restricting the company’s scope for action. Given the lengthy and highly formalized process of validly calling and conducting a stockholders’ meeting, the AG runs the risk of missing interesting business opportunities.
To provide the management board with more flexibility, theAktG thus acknowledges a procedure called ‘authorized capital’(genehmigtes Kapital ).100 It allows the stockholders’ meeting to approve of a capital increase in advance, already before
98 See Sec. 182AktG.
99 See Secs. 192 et seq. AktG.
100 This specific (German) term is not to be confused with the Anglo-American concept of ‘authorized share capital’, which refers to the maximum amount of share capital that the company is authorized under its constitutional documents to issue to shareholders (also referred to as ‘nominal capital’).