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The EU Digitalization Directive and implications for Germany

Businesses around the world are increasingly expecting to set-up and do business online. In an effort to streamline online processes involved in the business lifecycle and modernize company law to fit the digital age, the European Union has adopted the so-called ‘Digitalization Directive’ (the Directive).

The Directive came into force on the 20th of June, 2019, amending Directive (EU) 2017/1332 with regards to the use of digital tools and process in company law. An initial deadline of the 1st of August, 2021 was given for legislators to transpose the Directive into national law, with some member states being granted a one-year extension upon their request – and some provisions were given until the 1st of August, 2023.

What does the Directive entail?

Online-formation of companies

The Directive allows for the complete online formation of companies, without having to register physically with authorities (currently it is possible only for limited liability companies). The time to complete registration has been reduced to ten business days and, if a company is founded exclusively using incorporation templates, the timeframe may be decreased to five business days.

Disclosure of documents

Another new possibility is the disclosure of public company information via one unique Registry. This will allow easy access to publicly filed documents. Access costs are not expected to exceed the administrative costs of the registers and some basic company information – such as name, registered office, company number, status, object, authorized body, and registered branches – will be available for no cost.

Online notarization

One significant introduction is online identification for remote notarization. The process of identification may vary from one EU member state to another, but will generally be included audio and/or videoconference authentication, removing the need for the applicant to appear in person before local authorities.

Cross-border information exchange

The Directive’s introduction of a single unique Registry paired with the European Unique Identifier (EUID) – which enables the identification of companies and their branches in other member States – means that cross-border information access and exchange between EU Member states has never been easier.

How will the Directive affect Germany?

The centerpiece of the new Directive’s implementation in Germany relates to the significant amendments to Germany’s Commercial Register Ordinance (Handelsregisterverordnung) providing a new timeframe for registration of limited liability company, Gesellschaft mit beschränkter Haftung (GmbH) companies and the process for online formation of GmbH companies.

Notarization

Prior to the adoption of the directive, it was necessary to complete articles of association in notarial form, read out in the physical presence of a notary. For GmbH companies, this process can now be completed online. For other types of companies, this option is not yet possible with local acts still requiring a certificate of attendance.

Disclosure

Further to the directive’s implementation, all financial statements will solely be submitted via Germany’s Business Registry (the Unternehmensregister). Up to now, the companies financial statements were published in Germany’s Federal Gazette (the Bundesanzeiger), which is a separate portal from the Business Registry.

Information exchange

Finally, as of the 1st of August 2022, it is possible to retrieve documents from the ‘Handelsregister’ and any previous costs are levied. This means information about German entities is freely accessible to other EU member states, contributing to cross-border information exchange and mitigating against the risk of corporate fraud.

Kseniya Cheshyk
Senior Legal Officer, Mercator by Citco

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