Get ready for 2024

1. Act to Modernise the Law on Civil Law Partnerships (MoPeG)

The act to modernize the law on civil law partnerships ("Personengesellschaftsrechtsmodernisierungsgesetz”, “MoPeG") has been publicized in the Federal Law Gazette on 17 August 2021, but comes into force on 1 January 2024. It mainly adapts the existing legislative text with respect to partnerships to case law and contractual practice developed over a long period. In particular the provisions in the German Civil Code ("Bürgerliches Gesetzbuch”, “BGB") concerning civil law partnerships have been completely revised. A fundamental change is the statutory recognition of legal capacity for civil law partnerships (“Gesellschaft bürgerlichen Rechts”, “GbR"), as previously confirmed by the courts. It follows from the recognition of legal capacity that the partnership itself can hold assets and that these assets are no longer regarded as "joint assets of the shareholders".

In addition, starting next year, civil law partnerships with legal capacity will be entitled to register in the newly established public civil law partnership register. This register is similar to the commercial register. The entry in the register is generally voluntary, however it becomes mandatory before a right is entered for the GbR in other registers (in particular land register, list of shareholders, share register). Once registered, the GbR may only be deregistered in case of liquidation. In the future, a registered civil law partnership will also be capable of conversions (such as mergers, splits, spin-offs etc.) within the meaning of the German Transformation Act (“Umwandlungsgesetz”). The new regulations furthermore allow for an identity-preserving change between different forms of partnerships.
The most important change with respect to general and limited partnerships regards the contestation of partners’ resolutions, which will be regulated based on the legislation pertaining to the contestation of resolutions adopted by general meetings of stock corporations. Insofar, resolutions have to be contested within a period of one month; only in exceptional cases resolutions are null and void. The new legislation on the contestation of resolutions applies to GbRs only if expressly agreed upon in the partnership agreement.
With respect to the general partnership, the limited partnership and the GmbH & Co KG the new regulations contain an opening for these legal forms to members of the liberal professions (“Freie Berufe”) comprising, amongst others, lawyers, chartered accountants, advisors, architects, teachers, and other professions requiring a higher education, however, subject to the permissibility under the relevant professional laws.

2. Foreign Subsidies Regulation

On 12 January 2023, EU Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market (Foreign Subsidies Regulation, "FSR") entered into force, being the first EU regulatory instrument designed to eliminate the distortive effects of subsidies from outside the EU so that businesses can compete on a level playing field when acquiring companies and participating in EU public procurement procedures. This shall be achieved by providing the EU-Commission with new investigative tools to examine and, where necessary, redress the distortive effects of foreign subsidies granted to companies doing business in the EU. The scope of the FSR covers mainly companies with financial support from non-EU countries involved in mergers (“concentrations”) or public tender procedures, requiring prior notification (since 23 October 2023) if certain thresholds are met.

As regards concentrations, the acquisition of direct or indirect control of all or parts of one or more undertakings, a merger or the creation of a full-function joint venture, are considered to be concentrations which require notification in case (i) at least one of the merging undertakings, the target or the joint venture is established in the Union and generates an aggregate turnover in the Union of at least EUR 500 million; and (ii) the investing companies have received combined total financial contributions of more than 50 million euros from non-EU countries in the previous three years.

Undertakings participating in public tenders are required to notify the contracting authority of foreign financial contributions received if: (i) the contract value is at least 250 million euros (or 125 million euros per individual lot); and (ii) the economic operator has been granted financial contributions of at least 4 million euros per non-EU country in the three years prior to notification.

The term "financial contribution" is very broad (in line with state aid provisions) and includes, inter alia, grants, loans, guarantees, tax incentives, loss compensation, debt forgiveness, tax exemptions, provision or purchase of goods or services.

The Commission may, in any case, initiate an ex officio investigation or request notification of foreign financial contributions made by non-EU countries in the previous three years, regardless of the value of the contract or grants received. If, at the end of an in-depth investigation (generally following the notification), the Commission verifies that the economic operator has benefited from a foreign subsidy distorting the internal market, the consequence may be (i) a commitments/redressive measure decision; or (ii) a decision prohibiting a concentration or the award of a public contract. Notifiable concentrations may not be implemented before Commission clearance; however the public procurement procedures may be continued during the examination of the authorities.

3. Whistleblower Protection Act

The Whistleblower Protection Act (“Hinweisgeberschutzgesetz”, “HinSchG”) came into force on 2 July 2023, serving to transpose the EU Whistleblowing Directive into German law. The aim of the law is to provide better protection for whistleblowers in a professional context in future if they wish to discover and disclose wrongdoing within the company. It obliges companies with 250+ employees to introduce a whistleblower system. For companies with between 50 and 249 employees, there was a transition period until 17 December 2023, after which companies with 50+ employees must also set up a whistleblower system/internal reporting office. The HinSchG applies to all persons (including external persons) who have obtained information about violations "in connection with their professional activity or in advance of a professional activity" and report them. The broad personal scope of application also covers board members of the company, regardless of whether the specific board member is covered by the definition of employee under European law.

The material scope of application of the HinSchG includes, on the one hand, areas prescribed by Union law, such as legislation to combat money laundering and terrorist financing, product safety, environmental protection, radiation protection, food safety, consumer protection and data protection and, on the other hand, violations that are punishable by law and violations that are subject to fines, insofar as the violated provision serves to protect life, limb or health or to protect the rights of employees or their representative bodies.

The establishment of the reporting office, which is further stipulated in the HinSchG, is subject to co-determination in accordance with Sec. 87 para 1 No. 1 German Works Constitution Act (“Betriebsverfassungsgesetz”, “BetrVG”) and the company data protection officer must also be involved. Within the company, "whistleblower officers" must be appointed (one or more persons or a department) to receive the reports, confirm receipt of the report to the whistleblower within a 7-day period, check the report, initiate appropriate follow-up measures and inform the whistleblower of any follow-up measures taken within 3 months. The so-called confidentiality requirement is of central importance: The internal reporting channels must be designed in such a way that the identity of the whistleblower, the persons who are the subject of a report and the other persons mentioned in the report are protected. However, confidentiality does not mean anonymity: there is no obligation to set up anonymous reporting channels.

Whistleblowers can choose between internal and external reporting offices, but may prefer internal offices if the violation can be dealt with internally and they do not have to fear reprisals. A central external reporting office has been set up at the Federal Office of Justice (BfJ). In addition, the existing reporting systems at the Federal Financial Supervisory Authority (BaFin) and the Federal Cartel Office will continue to operate as an additional external reporting office with special responsibilities.

The HinSchG protects persons from reprisals who pass on information covered by the HinSchG insofar as the reported information is correct or that the whistleblower had sufficient reason to believe that the information he reported or disclosed was true at the time of the report or disclosure.
Violations of the main provisions of the HinSchG are punishable as administrative offenses with a fine. The amount of the fine is set at EUR 10,000 or EUR 20,000 for violations in the institutional area (e.g. failure to set up an internal reporting channel) and EUR 100,000 (reprisals, violation of the confidentiality requirement).

4. Future Financing Act

On 15 December 2023 the "Act on the Financing of future-proof Investments" (Future Financing Act – “Zukunftsfinanzierungsgesetz”, “ZuFinG”) generally entered into force. The ZuFinG aims at mobilizing more private capital and making Germany more attractive to the financial sector as a place to do business.

The ZuFinG also focuses on promoting start-ups and small and medium-sized enterprises, for example by lowering the minimum market capitalization for IPOs from EUR 1.25 million to EUR 1 million by amending Sec. 2 para 1 sentence 1 of the Stock Exchange Admissions Regulation (“Börsenzulassungs-Verordnung”). Furthermore, the new legal form of a "Börsenmantelaktiengesellschaft" (“BMAG”, also known as Special Purpose Acquisition Company – SPAC), which intends to facilitate companies' access to the capital market and is essentially based on stock corporation law, is introduced by the ZuFinG. The business purpose of a BMAG is the management of its own assets, the preparation and implementation of the IPO and the search for a suitable company to be listed on the stock exchange through an acquisition/takeover by the BMAG. Various ways of acquiring the target company are possible, such as an acquisition of shares (share deal), acquisition by way of an asset deal or a merger, which must have taken place within a deadline specified in the articles of association of BMAG. Until the target transaction is carried out, the deposits must be held by a suitable trustee (a notary or a credit institution). The approval of the target transaction requires a majority of at least ¾ of the shares represented at the respective shareholders’ meeting.

A step towards further digitalization is the introduction of the possibility to issue registered and bearer shares as electronic shares. Bearer shares can be securitized electronically if they are entered in a central register – these are called central register securities. In case of central register custody, the electronic shares can be held either as an individual or collective (as it is the case with a global certificate) entry. Registered shares can also be issued as electronic shares as central register securities. However, they can also be issued as crypto securities, for example using blockchain technology. Issuing registered shares as crypto securities opens up new design possibilities (e.g. tokenization), i.e. in particular the facilitated transfer of shares from shareholder to shareholder from one electronic wallet to another.

Furthermore, the ZuFinG removes the existing ban on multiple voting rights (at least for registered shares) by allowing that the articles of association may provide for registered shares with multiple voting rights and thus, allocate more voting rights to a shareholder than he is supposed to have according to his share capital. However, the ZuFinG does not want to permit multiple voting rights without limits. They may not exceed 10 times the "normal" voting rights and require the consent of all shareholders. In the case of listed companies, the multiple voting rights expire upon transfer of the share, but no later than 10 years after listing.

In addition, capital increases will be facilitated by the ZuFinG, decreasing the hurdles for a simplified exclusion of subscription rights in the case of a capital increase against contribution in cash. Until now the exclusion of subscription rights in the case of such capital increase was permissible for listed companies if the share capital was increased by up to 10 %. In the future, such capital increases are supposed to be permissible with the exclusion of subscription rights by up to 20 %. The actual advantage is only indirect: If shareholders' subscription rights are excluded, the issue of the new shares is not a public offering, so no prospectus is required; this is also not necessary for the admission of the new shares if the capital increase is below 20 %.
The ZuFinG furthermore raises the thresholds for conditional capital as follows: Sec. 192 para. 3 sentence 1 Stock Corporation Act (“Aktiengesetz, AktG”) stipulated that conditional capital for the preparation of mergers may amount to a maximum of 50% of the share capital and for the granting of subscription rights to employees and members of management to a maximum of 10%. The ZuFinG raises these upper limits to 60% and 20% respectively.

The changes of the ZuFinG with respect to taxation in particular aim at strengthening employee participation by increasing the tax-free allowance for the free or discounted transfer of participations (such as shares in stock corporations and limited liability companies) in the employer's company in Sec. 3 no. 39 sentence 1 Income Tax Act (“Einkommensteuergesetz”, “EStG”) from the current EUR 1,440 to EUR 2,000 p.a. In addition, the regulation of Sec. 19a EStG has been amended, in particular with respect to the relevant thresholds for companies being classified as SME, which have been doubled. Sec. 19a EStG contains provisions according to which, under certain conditions, the non-cash benefits from employee participations transferred from the employer to the employee are not initially taxed for the employee (so-called deferred taxation). According to the new regulation, taxation will only take place at a later point in time, namely upon disposal (in particular upon sale), termination of the employment relationship or after fifteen years at the latest (previously twelve years).

5. Supply Chain Due Diligence Act

The Supply Chain Due Diligence Act (“Lieferkettensorgfaltspflichtengesetz”, “LkSG”) has been in force since January 1, 2023. With the LkSG, the legislator is pursuing the goal of improving the human rights situation along supply chains by requiring companies to comply with far-reaching human rights and environmental due diligence obligations. Currently, it only applies to companies that have their registered office or head office or main or branch office in Germany with 3000+ employees. From 1 January 2024 it will also apply to companies with 1000+ employees in Germany. In fact, however, the LkSG may also affect SMEs with (significantly) fewer than 1,000 employees if and because they are a supplier to a company that falls within the scope of the law and are contractually obliged by the latter to comply with the due diligence obligations.

The LkSG obliges companies to act in the interests of human rights and the environment, however, not obliging them to any guarantee that no human rights or environmental obligations are violated in their supply chains or success. Irrespective of this, the LkSG nevertheless obliges companies to take specific process-oriented measures to review their supply chain and identify and assess so-called human rights and environmental risks, consisting mainly of the following measures:

• Establish a risk management system with the aim of identifying, preventing, ending, or at least minimizing risks to and infringements of human and environmental rights along its supply chains, including setting clear responsibilities within the company for the purpose of monitoring the risk management system
• Conduct a risk analysis for the purpose of identifying, assessing, and prioritizing relevant human rights and environmental risks
• Adopt a Management Board policy statement on the company’s human rights strategy and communication with its employees, the Works Council, direct suppliers, and the public
• Establish appropriate preventive measures for its business activities and its direct suppliers for the purpose of implementing the human rights strategy set out in its policy statement
• Take remedial actions if an infringement of protected legal positions is identified in the company’s business area or at a direct supplier
• Establish a company-internal complaints procedure to enable reporting of human rights and environmental law infringement
• Continuous documentation and reporting requirements with regard to the measures implemented.

Such due diligence obligations cover not only the activities of the company’s own business operations, but also the actions of direct and to a certain degree even indirect suppliers. In this respect, companies falling under the scope of the LkSG are also required to obtain contractual assurances from their direct suppliers that these will comply with certain standards, including relevant control mechanisms for their enforcement.

A breach of the obligations arising from the LkSG expressly does not give rise to civil liability. However, any civil liability established independently of this remains unaffected. In order to assert civil law claims due to the violation of an overriding important legal position under Sec. 2 para 1 LkSG, affected parties can authorize permanently active, non-commercial domestic trade unions and non-governmental organizations based in Germany.

Compliance of the described requirements by the LkSG is controlled by the German Federal Office of Economics and Export Control (BAFA). Violations of the LkSG are subject to severe sanctions (fines of up to 2 % of the average annual turnover of the companies acting as an economic unit). In addition, there is the threat of exclusion from participation in award procedures.