Already in June 2020, when an independent working group presented a draft law on a limited liability company "in responsible ownership", we reported on this blog. Since then, the proposal has been the subject of controversial discussion both in the specialist literature and in the media. The working group has responded to the criticism raised by taking up a number of points and incorporating them into a recently published revised draft bill. It is therefore time for an update on this exciting project for corporate lawyers, entrepreneurs and founders alike.
The basic idea remains the same in draft 2.0: Profits earned by the company may not be distributed. However, the name has changed: the GmbH "in responsible ownership" has become the GmbH "with tied assets". This is to prevent the misunderstanding that the company must pursue a charitable purpose and that other forms of companies do not operate responsibly.
Another new addition is the control of the "asset lock" by an independent auditor. According to the first version of the draft law, it would have been sufficient for the managing director to report once a year to the shareholders on compliance with the asset lock. A measure that would have come to nothing if - as is often the case in the GmbH - the managing director is at the same time the sole shareholder. The use of the auditor is flanked by further regulations that are intended to make it impossible to circumvent the asset lock, for example through profit transfer agreements. In addition, creditors of a shareholder or founder whose claims arose before the asset lock was announced are now to be granted the right to demand security. This is because a seizure of shares in the "GmbH with tied assets" can no longer access the assets tied up in the company.
The working group has found sensible answers to many justified points of criticism. In this respect, the revised draft is a step in the right direction.
However, there is one important point to consider: the "GmbH with tied assets" is by no means the right vehicle for all companies. For example, a start-up financed by venture capital investors with tied assets is unthinkable. This is because the acquisition of shares in such a company is economically extremely unattractive if profits may not be distributed. However, a scenario in which shareholders can neither get their contributions back nor a lucrative exit market exists will rightly scare off yield-driven investors. So if founders in particular are flirting with this new concept, they must be clear about the course they are setting.
In the event of a crisis, the choice of this legal form could also have repercussions, as successful restructuring often requires a financial backer who must be offered a corresponding countervalue apart from loans and interest.
There are cases in which an asset commitment is interesting, for example in social enterprises, the transfer of family businesses or socio-political projects. For these, however, the foundation and the (non-profit) limited liability company offer solutions that have been used and tested many times in practice - which only lag behind the idea of the "limited liability company with tied assets" in the finality of the asset commitment. Whether the proportion of entrepreneurs for whom these solutions do not go far enough is large enough to justify the legal introduction of the "GmbH with tied assets" may therefore be questioned. Ultimately, these entrepreneurs are more likely to be concerned with the responsibility they want to assume with their company. In this respect, "responsible ownership" might not have been a bad term after all.