Germany: 136. Corporate Law And Accounting Legislation

Last Updated: 8 July 1998
KPMG Germany Webpage
Click on the above link to visit the KPMG Germany webpage on the Mondaq website
For disclaimer and copyright see end of this article.

In March of this year, the German Parliament and Federal Council ratified two major pieces of legislation which have since been promulgated and taken effect. The Law on Corporate Control and Transparency (Gesetz zur Kontrolle und Transparenz im Unternehmensbereich - KonTraG) makes extensive changes primarily in the provisions of the Stock Corporation Act (Aktiengesetz) to improve corporate accountability. This bill also liberalises the provisions relating to the issuance of stock options to senior executives and other employees. Certain of the new provisions may be applicable by analogy to limited liability companies. Most provisions either take immediate effect or apply to fiscal years beginning in or after 1999.

The Law to Facilitate the Raising of Capital (Kapitalaufnahmeerleichterungsgesetz - KapAEG) permits German corporations to prepare their year-end consolidated financial statements according to U.S. GAAP or International Accounting Standards (IAS) and makes other changes in accounting law intended to address the needs of modern multinational enterprises.

Neither bill modifies the tax laws, but both will be of considerable interest to foreign-based corporate groups operating in Germany. Selected highlights of the new legislation are noted below.

1. Law on Corporate Control and Transparency

1.1 Management must implement a risk monitoring and management system designed to give timely warning of developments which could threaten the existence of the corporation or, in the case of parent companies, the corporate group (sec. 91 (2) AktG). Application by analogy to large limited liability companies appears likely. The year-end financial statements must contain management's assessment of future risks facing the corporation (sec. 289 (1) and 315 (1) HGB). The auditor is required to evaluate this assessment and the quality of the risk management system (sec. 317 (2), 321 (4) and 322 (3) HGB).

1.2 The notes to the financial statements must disclose information on stock option plans, including the number of options outstanding. Stock options issued to members of the board of management and the supervisory board must be disclosed, as must, for publicly traded companies, the positions held by such persons on the supervisory or oversight boards of other corporations (sec. 160 (1) no. 5, 285 nos. 9a and 10, 125 (1) sent 3 HGB).

1.3 The issuance to corporate and group employees of so-called "naked options" for purchase of corporate stock is permitted for the first time (sec. 192 (2) AktG). Previously, a German corporation could only issue options on its own stock to its management and employees as an accessory feature of corporate debt (convertible bonds or option bonds). The issuance of options attached to bonds required shareholder approval (contingent increase in capital). Now, the shareholders may also authorise management to issue pure stock options without the complications caused by embedding such options in a debt instrument. The authorising resolution may exclude shareholder pre-emptive rights. A 10 % limit applies (par value of the options compared to par value of stock outstanding at the time of the shareholder resolution). There are various disclosure obligations. The shareholder resolution must specify planned allocation of options among members of management and employees, the objectives of the stock option plan, the periods of time during which options can be acquired and exercised, and the waiting period after acquisition for exercise of an option. The minimal waiting period is two years .

1.4 The supervisory board of parent companies within the meaning of sec. 290 Commercial Code is charged with examining the consolidated group financial statements and group situation report (sec. 171 (2) sent. 2 AktG). Previously, its responsibility was limited to the financial statements and situation report of the parent corporation itself.

1.5 The supervisory board will in the future commission the outside auditor (sec. 111 (2) AktG). For parent companies, this includes the outside auditor for the consolidated group. This is expected to give the supervisory board authority over auditor fees as well.

1.6 Section 100 AktG restricts service by certain persons as members of the supervisory boards of German stock corporations. In particular, the same person is not permitted to serve on more than 10 different supervisory boards (10 position limit). However, service by a legal representative of the parent company of a consolidated group on the supervisory boards of up to 5 group companies is not counted for purposes of this person's personal limit (consolidated group exception). The law (sec. 100 (2) AktG) is amended to provide that service as the chairman of a supervisory board will count double towards the 10 position limit. Since the consolidated group exception has not been changed, double counting will not apply to positions falling under this exception.

1.7 Various changes are made in provisions affecting shareholder voting rights (maximum voting rights, multiple voting rights, limitations on voting rights).

1.8 Minority shareholders holding 1/20th of a corporation's stock or stock with par value of DM 1 million or more can under certain conditions secure court appointment of special representatives to probe management misconduct or special auditors to investigate alleged misuse of influence by a controlling enterprise (sec. 147 (3) sent 3 and sec. 315 sent. 2 AktG).

1.9 Restrictions are relaxed on acquisition by a corporation of up to 10 % of its own shares by par value (sec. 71 (1) no. 8 and (3) and sec. 71d AktG).

1.10 Starting with fiscal years beginning in 2002 or thereafter, an outside auditing company is not qualified to audit a corporation if the fees derived from the audit client exceed 30 % of its total income (previous limit 50 % - sec. 319 (2) no. 8 HGB). Furthermore, the same individual auditor may not sign the audit report of an officially listed corporation if he or she has done so six times in the last ten years (sec. 319 (2) no. 9 and (3) no. 6 HGB). Official listing (amtliche Notierung) is one of three types of German stock exchange listing. In addition, stock corporations have the options of listing their stock for trading on the regulated market (geregelter Markt) or on the so-called new market (neuer Markt). The listing and disclosure requirements differ for each segment.

1.11 The outside auditor is in the future required to attend plenary or committee meetings of the supervisory board which deal with the year-end financial statements and to report on his or her findings (sec. 171 (1) sent. 2 AktG). It is at present not clear whether the supervisory board can release the auditor from this obligation. Since the new statute contains no express provision on point, it would for the time being appear prudent to assume that such dispensation is not permissible.

1.12 The statutory liability limits for auditors and persons involved in the audit are increased from DM 500,000 to DM 2 million. This limit is further increased to DM 8 million for audits of publicly traded stock corporations with officially listed stock (sec. 323 (2) sent. 2 HGB).

2. Law to Facilitate the Raising of Capital

2.1 German publicly traded corporations which are the parent corporation of a consolidated group may elect to prepare their consolidated financial statements according to internationally accepted accounting principles (essentially, U.S. GAAP or IAS) instead of German GAAP starting, in many cases, with the first financial statements prepared after the law takes effect. The election is subject to certain conditions and at present limited to fiscal years ending on or before 31 December 2004 (sec. 292a (2) HGB).

2.2 Furthermore, German subsidiaries belonging to consolidated groups can be exempted from the requirement of preparing their own financial statements with the consent of all shareholders provided the parent corporation has agreed to assume any losses generated by the subsidiary. Accounting and disclosure for the subsidiary must occur under group consolidated financial statements. The tax accounting of the subsidiary will, however, continue to follow German GAAP, as modified by specific German tax accounting rules (sec. 264 (3) HGB).

2.3 The new law provides that the provisions of the law on limited liability companies on equity substitute loans (sec. 32 (3) GmbHG - see in general article no. 17) shall not apply with respect to GmbH shareholders holding 10 % or less of the company's stated capital provided they are not members of its management. Furthermore, a related amendment in the Law on Corporate Control and Transparency provides that existing or newly granted loans are also exempted from treatment as substitute equity if the lender acquires shares in the GmbH for the purpose of aiding it in overcoming a financial crisis.

Disclaimer and Copyright
This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions