Jakob Molzbichler partner at Fiebinger Polak Leon in Vienna looks at the impact of the change to the regulations surrounding limited liability companies
Due to the Abgabenänderungsgesetz (amendments to Austria’s federal tax law) 2014, all (since March 1 2014) newly established limited liability companies (GmbH) must again meet the minimum share capital requirement of €35,000. At least €17,500 must be paid in upon incorporation. A new implementation is the so-called “Incorporation Privileges”, a favourable treatment for start-up companies (Gründungsprivilegierung). When opting for incorporation privileges initially €5,000 must be paid in cash upon incorporation (instead of €17,500). There are no legal stipulations regarding the ratio between “ordinary” and “privileged” share capital, so in general a very unequal ratio is legitimate. As long as the incorporation privileges are in force the company cannot claim the amount arising from a difference in ordinary share capital and privileged share capital. The decision in favour of the incorporation privileges must be stated in the articles of association upon incorporation – not by means of a subsequent amendment of the articles. Contributions in kind must not be made when exercising this option.
No indication of Incorporation Privileges required
Unlike its German equivalent (Unternehmergesellschaft (haftungsbeschränkt)) the Austrian form of a privileged incorporation does not require any indication in the firm’s name, nor does it require any kind of indication of the limited liability. There is no mandatory retention of earnings or alike. The privileged incorporation must be registered in the commercial register only – an indication must be made for the legal relationship as well as for each shareholder.
Privileged capital contribution separately shown on the balance sheet
The law does not specify the manner, in which a privileged capital contribution must be disclosed on the balance sheet. It will probably have to be shown separately and explicitly designated as such.
Company’s insolvency under incorporation privileges
In the case of insolvency the company’s obligation to pay in capital contributions which have not been paid in full to date will become due upon the opening of the insolvency proceedings – no formal resolution regarding the request for payment is required. The law specifically stipulates that incorporation privileges apply also in the event of the company’s insolvency. Hence in the case of insolvency, creditors can only dispose of a liability fund in the amount of €10,000.
Shareholder’s insolvency under incorporation privileges
In the event of a shareholder’s insolvency the full amount of the capital contribution will become due immediately. The company may cancel the share quota, claim the predecessors’ liability, sell the share quota and hold joint shareholders liable (Sections 66 et sqq of the Limited Liability Company Act).
Privileged capital contribution in the assessment of over-indebtedness in insolvency law
When an assessment of the calculative over-indebtedness based on liquidation values is being conducted in the context of an assessment of over-indebtedness under insolvency law in accordance with § 67 Insolvency Act, it must be pointed out that solely the incorporation privileged share of the capital contribution can be classified an “asset”. This assessment shall give some indication about the likelihood of fully satisfying all creditors in the event of liquidation. Since the capital contribution share, which is not privileged cannot be disposed of in liquidation or insolvency before incorporation privileges being omitted, a value of zero must be allocated to this share.
Transferring company shares
A shareholder may transfer his company share quota also when registered for incorporation privileges. If he plans to assign only a portion of his share quota, a preceding division in accordance with Section 79 Limited Liability Company Act is required to make the transfer. The shareholder – in my judgment – is not free to choose in which manner the privileged capital contribution is allocated. It merges pro rata with the new shares. If a shareholder acquires an additional share quota, this one will increase – even if the amounts of the acquired privileged capital contributions differ – the original share quota (Section 75 para 2 Limited Liability Company Act).
Termination of incorporation privileges
The termination of incorporation privileges may be induced by amending the articles of association. In such case the higher minimum payment on shares must be met (i.e. €17,500).
In any case, incorporation privileges end after a period of ten years after the company’s incorporation in the commercial register.
Increase in share capital of existing limited liability companies
Companies with a share capital of less than €35,000 will have to increase their share capital to hit this exact amount or to exceed it by March 1 2024. It has not been specified yet which sanctions will apply if this obligation is not met.
Fiebinger Polak Leon
About the author
Jakob Molzbichler is an attorney-at-law at Fiebinger Polak Leon Attorneys-at-Law. He studied law at the University of Vienna School of Law (Mag.iur. 2006) and the Columbia University School of Law in New York (LL.M., 2011). Jakob Molzbichler was admitted in Austria and in New York in 2012. Before joining Fiebinger Polak Leon Attorneys-at-Law, Jakob was inter alia CEO at GPP Consulting GmbH and an associate with Dallmann & Juranek Rechtsanwälte GmbH (2007-2008) and CMS Reich-Rohrwig Hainz (after merger; 2008-2010) in Vienna. His main areas of practice include corporate law, M&A and contract law.