The FlexCo: a New Corporate Form in Austria

Background

In its programme for 2020 to 2024, the Austrian federal government announced the establishment of a new corporate form based on international precedents. It is intended to offer an innovative and internationally competitive option for start-ups and early-stage founders.

On 15 December 2023, the National Council of the Austrian Parliament adopted the Federal Act on Flexible Companies (Flexible Kapitalgesellschafts-Gesetz, "FlexKapGG") as part of the Corporate Law Amendment Act 2023 (Gesellschaftsrechts-Änderungsgesetz 2023, "GesRÄG 2023"), according to which a new corporate form, the Flexible Company (FlexCo), was introduced in Austria. The GesRÄG 2023 passed the Federal Council of the Austrian Parliament on 20 December 2023 and came into force on 1 January 2024.

The FlexCo is structured as a flexible company tailored to the unique requirements of start-up founders in the early stages of their business.

On the one hand, the FlexCo has notable similarities to an Austrian stock corporation (Aktiengesellschaft, "AG"). The well-known flexible capital measures for AGs, such as conditional capital (bedingtes Kapital) and authorised capital (genehmigtes Kapital), can be implemented in FlexCos. In addition, FlexCos can acquire and hold their own shares without the strict requirements of the GmbH. It is also possible to redeem shares (Einziehung) in a FlexCo, allowing shareholders' rights of withdrawal and exclusion to be implemented smoothly. At present, this is typically implemented via share transfers at the shareholder level.

On the other hand, the provisions for Austrian limited liability corporations (Gesellschaften mit beschränkter Haftung, "GmbH") apply to FlexCos on a subsidiary basis. Hence, due to its unique flexible structure, the FlexCo can be considered a hybrid between the AG and the GmbH.

Approximately 70% of all companies in Austria are GmbHs. Consequently, it is practically relevant to examine the key features of the FlexCo and the main differences from the GmbH.

• Capital contributions: Capital contributions by individual shareholders of a FlexCo must be at least EUR 1 (and not EUR 70 as in the case of a GmbH). Hence, the FlexCo allows smaller participations in total share capital.
• Enterprise value shares: Among the most significant alterations are the different share classes in a FlexCo. The FlexCo has two classes of shares, namely "conventional shares" and "enterprise value shares" (Unternehmenswertanteile).
• Circular shareholder resolutions: The articles of association of a FlexCo may stipulate that the consent of all shareholders is not required for a written voting procedure. In this case, all shareholders must at least be allowed to participate in the voting procedure for a valid written resolution (in the GmbH, however, each shareholder can block the written voting procedure). In addition, shareholders can cast votes in simple text form, allowing for digital voting methods.
• Supervisory board: A supervisory board must be established for "medium-sized" FlexCos (there is a lower threshold for a mandatory supervisory board). Accordingly, a supervisory board is mandatory if at least two of the following requirements are met: (i) EUR 5m balance sheet; (ii) EUR 10m turnover; (iii) average of 50 employees in the FlexCo.
• Capital measures: Flexible capital measures for AGs such as conditional capital and authorised capital are accessible for FlexCos. FlexCos may also acquire and hold own shares or redeem shares.
• Fractional shares: In contrast to GmbHs, FlexCos allow the issuance of fractional shares with a nominal value of at least EUR 1. This allows shareholders to hold several shares and dispose of them separately. In addition, different share classes can be created.

As already pointed out, the FlexCo introduces enterprise value shares. Enterprise value shareholders are entitled to their portion of the balance sheet profit and liquidation proceeds. However, with a few exceptions, they are not entitled to voting rights at the annual general shareholders' meeting.

In an exit event, enterprise value shareholders have a statutory tag-along right. Hence, enterprise value shares are specifically designed for third parties (e.g. employees) to participate in the FlexCo.

The articles of association may provide for the issuance of enterprise value shares, but only to an extent that does not exceed 25% of the share capital.

In contrast to a GmbH, share transfers do not require a formal Austrian notarial deed. For the transfer of conventional shares, a private deed executed by an attorney or notary is sufficient. Simple written form suffices for the transfer of enterprise value shares (neither a formal Austrian notarial deed nor a private deed executed by an attorney or notary are required).

The GesRÄG 2023 not only established the FlexCo but also reduced the regular share capital of Austrian GmbHs from EUR 35,000 to EUR 10,000, which is now the minimum share capital for both the GmbH and the FlexCo.

The great flexibility of the FlexCo is currently countered by significant legal uncertainty. It therefore remains to be seen whether the FlexCo will be accepted in practice.

The article was first published by ICLG, read it here.

Find more information on corporate governance in Austria in our contribution to ICLG - Corporate Governance 2023 here.

authors: Roman Perner, Gabriel Ebner