Establish safely with individual statutes

The rule of thumb when founding a company is as follows:

If a shareholder sets up, then with a sample protocol (unless there are exceptions here as well). Establish several shareholders, then it is better to establish an ordinary statute.

If there is only one shareholder, the formation of a model protocol is usually suitable. With 300€ for a notary and commercial register, you do little wrong and this is also true for around 95% of cases. With several shareholders and ordinary articles of association, the costs are slightly higher, but the cost savings do not justify the waiver of rights or rules of the game among themselves, or even in relation to the company, in particular in the case of managing directors and powers of representation.

WHAT IS A STATUTE?

The articles of association are the term for the shareholder agreement, which is required as a document for the formation of a corporation. The company is established through the merger of shareholders (or even a shareholder). The partnership agreement (or even articles of association) determines the cooperation of the shareholders and the action and action of the company.

The minimum requirements are:

• the name and registered office of the company;
• the subject matter of the company;
• the amount of share capital;
• the number and nominal amounts of the shares that each partner acquires in return for a contribution to the share capital (common investment).

WHY MORE THAN THE MINIMUM REQUIREMENTS?

This minimum legal requirement is generally not sufficient for normal business operations. Founders and shareholders are well advised to include further clauses in the shareholder agreement.

1st managing director

For example, the company must have one or more managing directors. As soon as the company is founded, it makes sense to make comprehensive regulations for the future in order to be able to operate the business in the long term — without changing the articles of association — and to be able to appoint and remove managing directors.

Although the managing director is appointed by resolution by the shareholders and there is no need for a mandatory provision in the articles of association, it makes sense to regulate certain rights or procedures or restrictions on management in the articles of association, such as the representation regulations, restrictions, exemptions or rules of procedure, since otherwise, under normal legal circumstances, several managing directors can only represent together.

2. Game rules

Rules of the game are very often defined about the interaction and influence of shareholders. This ranges from simple formalities to the convening and holding of a shareholders' meeting, to its resolution, necessary and sufficient voting rights, appeals, to reasons for termination and the exercise and period of termination.

3. Protection of shares

Another, often important point, is the issue of protecting business shares against access by third parties, for example. As a rule, a partner does not want the wife of the co-partner to have access to the share by way of a divorce, or for the share of the business to be transferred to an unwanted third party as a result of an inheritance. Regulation is also advisable in the event of insolvency, foreclosure or pledge, i.e. protection against sale by an insolvency administrator or bailiff.

4. Protection against sale

Without individual regulation, every shareholder can sell their shares to any potential acquirer at any time and at almost any price. In order to protect against this, you usually regulate one of several possible protective mechanisms and pre-acquisition rights.

5. Individual

Points 1 to 4 are not included in the model protocol. As soon as this, or even just a deviation from the model protocol, is compatible, the notarization is no longer considered a privileged model protocol foundation. However, points 1 to 4 are included in most sample statutes. Because of points 1 to 4 alone, it is worthwhile to use a model statute instead of a sample protocol. Although this costs more for notarization, it does not cost more when it is created. Other topics, should the founders wish — and it is advisable — are usually prepared by lawyers. It is not the draft contract that is important here, but prior consultation and coordination and the draft individually tailored to it, such as:

a) Severance payments

Confiscation of shares, pre-acquisition rights, and termination result in the departure of the shareholder. However, this is not done without replacement. If no regulation has been made, the company owes the common value of the share (even in the event of termination and collection), which quickly leads to an outflow of liquidity. For this reason, individually coordinated exit and severance scenarios are available, which regulate which severance payment the departing shareholder receives.

b) Language

In an international context, it makes sense to draw up a bilingual statute right away. If a founding partner does not speak German, this would usually even be necessary, but also with a view to future investors who are not only German-speaking, it is advisable to have a articles of association that every potential investor or co-founder can read.

c) More

Points a and b are only presented by way of example, there is room for all regulations among shareholders, which provide individual advice and make sense in a coordinated manner, with regard to the venture. Such as vesting, deadlock mechanisms, competition regulations, individual obligations, etc.

THE MOST IMPORTANT REASON FOR AN INDIVIDUAL STATUTE TO START

A sample protocol set up by several shareholders shows investors inexperience. Although the shareholder agreement can be amended or supplemented at any time retrospectively, this is always associated with costs. It should be noted that for every amendment or new version of the articles of association, followed by a shareholder resolution, the resolution and the amendment to the articles of association must be notarized, and the amendment must be entered in the commercial register. This means that the costs are twofold.

‍The most common reasons for an amendment to the statutes are

• Establishment of an ordinary statute after incorporation with a model protocol
• Supplementary regulations on the managing director, such as individual power of representation
• Exclusion of bodies
• Addition of a pre-emption right
• Protection regulations such as confiscation, consent requirements
• Compensation and company valuation regulation
• Deadlock mechanisms
• Comprehensive regulation on shareholder determination
• Capital increase
• Rules for retirement/standstill/illness of shareholders
• Game rules
• lingua

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