Reflections on the legal form after the crisis
Strengthening the equity base through third-party participation while at the same time securing control by the previous owners
The current crisis is eating away at the equity capital of numerous German companies. Many of them will in the medium term need additional financial resources, whether to replace state-backed loans from KfW or other state loans and thus restore their ability to pay dividends, to finance investments or simply to strengthen their equity base again. Also, it is conceivable, that acquisitions shall be made without impairing liquidity and that in view of the current slump in share prices other companies shall be taken over - because the opportunity is favorable or circumstances require it (rounding off the portfolio, acquisition of digital competence, securing and making the supply chain more flexible, insourcing, etc.).
From businesses' point of view, pure debt financing is often not an option in this situation. Rather, companies are forced to in addition consider not only hybrid financing instruments but (at least in part) also equity financing, which often cannot be raised from the existing shareholders. In these cases, the funds must therefore come from new, outside investors.
Especially in German Mittelstand companies, the shares are often wholly or mainly in the hands of a single or only few (family) shareholders. The family shareholders have control over their company and it is often important to them to secure this control permanently and to preserve it for future generations. In their belief, management and control powers should usually also remain secured if external third parties (must) participate in the company in order to strengthen the equity capital base.
Our working paper (download) discusses the following issues:
- Initial situation: Interest in securing control of the company despite the need for equity
- The partnership limited by shares (Kommanditgesellschaft auf Aktien) as a solution
- What is the KGaA?
- What makes the KGaA so unique?