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In the past, registered shares have only been issued by a very limited number of German stock corporations. Instead, the vast majority of listed companies in Germany used to issue bearer shares. It was only in 1998/99 that the issuance of registered shares began in earnest, when modern information technology enabled the central Germany clearing house, Clearstream Banking, to overcome difficulties in handling registered shares. Since then, a number of big DAX-listed corporations have changed from issuing bearer shares to registered shares. In doing so they intend to get a better picture of their shareholders, improve their investor relationships and obtain an acquisition currency for takeovers of US companies by directly listing the shares on US stock markets without having to implement an American depositary receipt program.

As a consequence, the German government decided to adapt the Stock Corporation Act in a number of technical aspects to address this recent trend towards issuance of registered shares. Although the proposals have been widely accepted by German commercial practice, some of the draft provisions are still criticized.

The draft proposals will also adapt the German Stock Corporation Act to take into account modern communication technologies with respect to the preparation of shareholders' meetings, casting of votes and powers of attorney. For instance, it will be permissible to grant powers of attorney for the casting of votes via email, fax, electronic banking portals or other internet technologies. Meetings of the supervisory board may also be held via video conference instead of having all members assemble in one place. Although the legislature is not yet prepared to allow the complete replacement of traditional shareholders' meetings by virtual shareholders' meetings over the internet, the draft proposals already suggest that this scenario may become reality in the not-too-distant future when the technology becomes more reliable.

Finally, the draft proposals will amend one of the provisions in the German Stock Corporation Act which most hindered start-up companies from investing money during the first two years after registration as a stock corporation. Until now, German stock corporations that wanted to enter into agreements having a value of more than 10% of their stated capital (for instance, agreements relating to acquisitions of technical equipment) during this two-year period needed to comply with the strict rules applicable to the increase of the stated capital against contributions in kind. As a consequence, a certified accountant has to audit the acquisition, the supervisory board has to examine the related agreements and render a written report, the shareholders' meeting has to approve the acquisition and finally the agreement needs to be registered in the commercial register of the company. According to the draft proposals, these rules will be restricted to agreements entered into between the company and the founding shareholders or other important shareholders during the first two years after registration as a stock corporation and having a volume of more than 10% of the stated capital.

Dietmar Helms

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