Things to watch out for with the GmbH Light
Are you planning to establish your own GmbH, or are you in the process of it already? In any case, make sure to read on, as last week’s lecture organised by Vienna’s IT Cluster seems to have offered quite an introduction to the dos, don’ts and watch-outs of the topic. “Grundzüge des GmbH Rechts” was in a way a crash course on the recent change in legislation and the GmbH Light.
Hermann Schwarz, corporate lawyer in Vienna and cooperation partner of the European Lawyers group, shared his insights into company law, what it means for startups, how it works, and what anyone starting a company has to watch out for.
The GmbH Light at a glance
As of 1 July 2013, the GmbH Light – the new law on limited liability companies has been making headlines. Here’s to quickly rehash some of its main points:
• The minimum tax per year has been reduced to 500 euros (previously 1.750 euros)
• The minimum capital requirement has been reduced to 10.000 euros (previously 35.000 euros)
• The compulsory announcement in the gazette part of the Wiener Zeitung has been abolished. (You can read all the details in our article here).
What Schwarz emphasised in his talk, though, were a few important caveats that startups need to watch out for – issues he encounters frequently in his work as a corporate lawyer.
The partnership agreement – the first steps and the first traps
The devil is very much in the details here, as Schwarz put it. “In essence, all you need to start a GmbH in Austria is a notarial deed on a partnership agreement with the most basic company details [name, headquarters, field of business and capital, note]. If you then register your company, you’re good to go – theoretically.” After establishing a partnership agreement, the only things left to do are register your new company at the local company register and deposit the above mentioned 10.000 euros.
Everything that is not handled in the partnership agreement, however, is governed by the provisions of the Austrian law for limited liability companies, GmbHs. If addressed, many of the provisions contained therein can be disregarded. For example – there’s a section that states that if all partners have been properly notified, as little as 10% of the owners can make legally binding decisions, if the rest fail to attend.
What’s more, unless otherwise specified, no more than a simple majority (of those present) is necessary to terminate a GmbH. That is to say that 5.1% of the owners could theoretically dissolve the company, Schwarz explained.
This is of course only the tip of the iceberg. While the scenario of 5% of the owners dissolving a company seems far-fetched, other questions are rather pressing. Without prior specifications by the partners, it is factually impossible for one of the partners to simply lay down their responsibility of leading the company. In case of a disagreement, there is no “exit strategy”. Neither is there a barrier to one of your partners selling their share of the company to absolutely anyone, potentially leaving you with an undesirable business partner all of a sudden.
The number of implications and loopholes to consider is mind-boggling by itself.
The confusion of legal and natural persons
“Without going into too much legal detail”, and that coming from a lawyer, admittedly sounds a bit like “this won’t hurt at all” coming from a dentist. We will try to keep the technicalities to a minimum here.
Legally, any person of legal age is what the law calls a “natural person”, capable of concluding binding contracts.
A GmbH is what the law refers to as a “legal person”. That is to say, it is treated by the law as an independent entity, very much like a real person. All contracts signed by the general manager are legally concluded not by him or her but by the company itself – the general manager is merely representing the company when signing the papers.
So while he or she is simply “the boss” in day-to-day work life, legally he is both a representative and an employee of the company. General managers, being the representatives of a GmbH, can theoretically be stripped of their executive powers at a moment’s notice, but they remain employees – their employment contract usually cannot be dissolved instantaneously. However, a general manager in such a situation suddenly lacks the executive capacities to actually carry out their work. The company may even end up in breach of contract, not enabling the general manager to do their job – unless, once again, this case has been foreseen and specified in the partnership agreement.
Therefore, Schwarz’s half-joking advice “come to me if you want to start a company” sounded better by the minute.
Registration – the last step to establishing your GmbH
Registration procedures apparently pose more traps than one would guess as well – while a company nowadays can choose almost any name they wish, the company register does not verify if the name of your new company violates any trademark laws. Theoretically, you could try to set up the “Coca-Cola Vienna GmbH” next week. The fine gentlemen at the company register are not obliged to warn you of the gigantic lawsuit that would head your way within weeks. This can be easily avoided however – the Austrian chamber of commerce (WKO) offers a service, free of charge, to certifiably verify the name of your potential company. With this certificate, the registration process can supposedly be sped up (a bit).
Services such as these are not the only helpful service offered by the WKO, apparently. With the new subsidiary for young companies, recently formed GmbHs can reap significant tax benefits in the first year after inception. Detailed facts (in German) you will find here.
It’s fair to say, the wealth of information at this particular “introduction” was quite overwhelming. Suddenly, everything that didn’t include the word “lawyer” in it sounded good. But seriously, Schwarz’s advice stands: Make yourself familiar with the law before you go out to register your company.