German Bundesrat approves Act Implementing the Digitalization Directive (DiRUG) – An overview

1. Introduction

On July 31, 2019, the so-called Digitalization Directive of the European Union (Directive (EU) 2019/1151 of the European Parliament and of the Council of June 20, 2019 amending Directive (EU) 2017/1132 as regards the use of digital tools and processes in company law) entered into force, which contains a large number of provisions for the modernization of commercial and corporate law. The introduction of the possibility to form limited liability companies online was the centrepiece of the reform project. For further details, reference is made to our article from January 2020.

In principle, the Digitalization Directive was to be transposed into national law by July 31, 2021, although the EU Member States were granted an extension option of one year in special cases. The German legislator has made use of this option, so that the implementation must now take place by August 1, 2022.

Based on the Federal Government's draft of February 10, 2021, the German Bundestag passed the Act Implementing the Digitalization Directive (DiRUG) on June 10, 2021; it also passed the Bundesrat on June 25, 2021 and will enter into force (at least with regard to the online foundation) “just in time” on August 1, 2022.

The central new provisions of the law at a glance with a focus on the online formation:

2. Online Formation of Companies

With respect to the regulatory goals for the online formation of companies, two basic statements are anchored in the Digitalization Directive:

• The Member States must allow the formation of companies in an online procedure that makes the physical presence of the founder before the competent body unnecessary.
• The online formation procedure must be completed within five working days if the founder is a natural person and uses only model documents. In all other cases, the procedure must not take longer than ten working days.

a) Notarization by Means of Video Communication

In order to implement the first requirement, i.e. the possibility of formation in an online procedure without the physical presence of the founder, sec. 2 para. 3 GmbHG-E (Gesetz betreffend die Gesellschaften mit beschränkter Haftung) provides that the notarization of the articles of association and the shareholder resolutions passed in the course of the formation can be carried out by the Notary Public by means of video communication, whereby the option of choosing between online and presence procedures is given. To this end, the DiRUG contains requirements for an adaptation of the Notarization Act (Beurkundungsgesetz, sections 16a to 16e BeurkG-E). Against this background, the Notary Public remains a "gatekeeper" for the Registry Courts within the framework of the online procedure.

According to sec. 16a BeurkG-E, the Notary Public can refuse the notarization by means of video communication in individual cases if he or she cannot guarantee the fulfilment of his or her official duties in this way. This is particularly the case if he or she cannot identify one of the parties with certainty during the online procedure.

In accordance with sec. 16b BeurkG-E, the Notary Public shall draw up the minutes of the notarial deed in electronic form, which is to be signed by the parties involved by means of qualified electronic form.

Pursuant to sec. 16c BeurkG-E, the identification of the parties involved is carried out by means of an electronically transmitted photo in connection with an electronic proof of identity, for example the German identity card with eID function. The use of identification means issued in other EU Member States is also possible if such means are recognized in accordance with Art. 6 of the eIDAS Regulation and comply with the security level "high" as defined in Art. 8 para. 2 lit. c of the eIDAS Regulation.

In addition, the DiRUG provides that proxies can represent the founders for purposes of the online procedure. To this end, powers of attorney, which are to be attached to the minutes in electronically certified form pursuant to sec. 16d BeurkG-E, legalised or apostilled depending on the individual case, must be provided in the conventional manner, i.e. in paper form.

b) Time Requirements for Registration with the Commercial Register

To implement the second requirement, i.e. the deadline of a maximum of ten days for the completion of the online formation, the DiRUG provides for amendments to the Commercial Register Ordinance (Handelsregisterverordnung). Accordingly, the formation must be registered within a maximum of ten working days from the date of application pursuant to sec. 25 para. 3 HRV-E. In the case of incorporation with only natural persons as founding shareholders and using the model documents, which have been slightly modified for online formation purposes, registration within a maximum of five working days is required.

As already expected in advance, the DiRUG provides for a narrowly defined scope of application for the online formation. In particular, the online procedure is only opened for the formation of the GmbH (including the UG); the formation of other corporations, in particular the AG and KGaA, continues to be possible only in the regular procedure. In addition, the online procedure remains limited to formation with cash contributions, which is why formation with contributions in kind is reserved for the regular procedure. Finally, the online procedure is only available for founders who are holders of a corresponding electronic means of identification. Therefore, nationals of non-EU Member States or EU Member States that do not offer their citizens a suitable means of identification cannot benefit from the online procedure.

3. Further New Provisions

In addition to the regulations on online formation, the DiRUG addresses further topics, of which the following in particular will be presented in overview:

a) Certification by Means of Video Communication

Pursuant to sec. 12 para. 1 sent. 2 HGB-E (Handelsgesetzbuch), applications for the Commercial Register can in future be certified by means of video communication if the application is made by sole traders, corporations in the legal forms of GmbH, AG and KGaA or German and EU / EEC branches. In this respect, sec. 40a BeurkG-E regulates the details of the certification of a qualified electronic signature.

b) Restructuring of the Register Publicity

With regard to register publicity, the DiRUG now introduces a "register only" solution. This means that the publication of entries in the Commercial Register (Handelsregister) will only be made by retrieving the relevant information for the first time from the German Commercial Register (www.handelsregister.de). This will eliminate redundancies caused by multiple announcements in the previous sense (as currently via www.handelsregisgterbekanntmachungen.de and www.unternehmensregister.de).

Furthermore, the DiRUG contains a new regulation of the modalities for the disclosure of accounting documents. In future, submission of the annual accounts for disclosure shall be made to the Companies Register (Unternehmensregister) and no longer to the electronic Federal Gazette (elektronischer Bundesanzeiger), as has been the case to date. The retrieval of documents will also be carried out exclusively via the Companies Register in the future.

Finally, the retrieval of data from the Commercial Register will be possible free of charge. The registered legal entities will pay a provision fee for financing purposes.

c) Cross-Border Exchange of Information on Disqualified Directors

The DiRUG contains a number of new regulations that facilitate the cross-border exchange of information on disqualified directors. To this end, according to sec. 9c HGB-E, the Companies Register is entrusted with answering foreign enquiries and forwarding requests for information from German courts.

In addition, professional and trade bans imposed abroad shall lead to the disqualification of German Managing Directors and Board Members (sec. 6 para. 2 sent. 3 GmbHG-E or sec. 76 para. 3 sent. 3 AktG-E, Aktiengesetz).

d) Cross-Border Exchange of Information on Branches

Pursuant to sec. 13a HGB-E, information on foreign branches established by German companies in an EU/EEA state shall also be entered in the Commercial Register.

In addition, for foreign Directors and Board Members, the requirement of a declaration of non-existence of impediments to appointment analogous to sec. 37 para. 2 AktG, or sec. 8 para. 3 GmbH, is omitted. For the legal representatives of companies from non-EU Member States, however, the previous requirements are to remain in place.

4. Conclusion

Through the DiRUG, German commercial and corporate law is undergoing a long overdue modernization, not least through the introduction for the first time of the possibility of remote notarization by means of video communication.

The limited scope of application of online formation makes it clear that the legislator would like to test remote notarization first. Against this background, the practical relevance of the new possibilities should not be overestimated. As already shown above, the possibility of remote notarization is limited to the formation of a GmbH and by cash contributions only. Other legal forms and formation by means of contributions in kind are excluded. Despite the fact that the possibility of online formation is likely to be of particular interest to foreign founders, it must be noted that in many cases foreigners are denied access to the online procedure. This is due to the strict requirements for the means of identification with which founders can identify themselves in the online procedure. In particular, founders from non-EU Member States, such as the USA or Japan, are excluded from the online procedure from the outset due to the lack of adequate means of identification. Even within the European Union, many citizens currently do not have a suitable means of identification.

Apart from that, it should be noted that although the DiRUG contributes to the digitalization of company law, it falls well short of expectations in many respects. In particular, in the case of formation by a (foreign) authorized representative, it is the case that the notarial certified power of attorney (with Apostille, if applicable) must still be submitted to the certifying Notary Public in original or copy, as there is no possibility of electronic transmission. Against this background, the term "online formation" appears in many respects to be overstated. The law also does not provide for the possibility of video communication for other transactions requiring notarization, such as amendments to the articles of association, increases of the stated capital, relocations of the registered seat or transfers of shares.

Finally, it should be noted that it is questionable whether the new time requirements for registration in the Commercial Register will lead to a significant acceleration of the formation process. In practice, delays usually have other causes, for example the extensive regulatory requirements in connection with the opening of a bank account.

_{Published: June 2023}