GmgV – Company with Tied Assets Planned

Framework for New Legal Form Available

The legislator is planning to introduce a new legal form: the “Company with Tied Assets” (GmgV). This would create a model in German company law that focuses entrepreneurial actions more on continuity, stability, and long-term development. A framework has been presented by the Federal Ministry of Justice and the Federal Ministry of Finance; however, a final legislative proposal and the specific timing of enactment have not yet been determined.

The core of the GmgV is the asset tying: Profits are generally intended to remain within the company and not be distributed to members. This is intended to ensure that entrepreneurial decisions are less influenced by short-term profit expectations and more geared towards sustainable corporate goals.

Note: The following contents reflect the status of the published framework. Changes during the further legislative process are possible.

Asset Tying as a Central Component

Asset tying means, first of all, that assets tied up in the GmgV should remain permanently within the company. Unlike traditional corporations (e.g., GmbH or AG), where profit distributions to shareholders are common, the GmgV is intended to provide a structurally secured distribution prohibition. Profits would thus have to remain within the company and are typically used for investments, building reserves, or further business development.

The aim is to decouple corporate management from short-term profit interests, to promote long-term stability.

Comprehensive Registration of Circumvention Scenarios

According to the framework, asset tying is not only intended to capture open profit distributions but also hidden profit withdrawals. This refers to arrangements where funds effectively flow out of the company without being labeled as a distribution, for instance through:

• unreasonably high salaries or bonuses,
• excessive consultancy or licensing agreements with related parties,
• loan arrangements that economically amount to a distribution.

This is intended to make the asset commitment practically effective and prevent it from being undermined by contractual constructions.

Immutability of Asset Commitment

Particularly far-reaching is the principle outlined in the concept that the asset commitment cannot be revoked by amendment of the articles of association, or by any other corporate law measures. A conversion into a different legal form domestically is generally to be excluded. A relocation or conversion into a legal form within the EU should only be possible if there is a comparable asset commitment in place.

The asset commitment should also apply for the entire lifecycle of the company – meaning not only during the ongoing business operations, but also when:

• Members leave,
• liquidation,
• insolvency.

Departing members should, according to the concept, regularly only receive their paid-in contributions back, and not participate in any increase in the company’s value. This serves the purpose of permanently assigning asset growths to the company.

Adherence to Cooperative Structures

Organizationally, the GmgV should be aligned in essential points with the registered cooperative. Accompanying control mechanisms are planned, in particular a mandatory audit by audit associations. With the registration in a register, the GmgV is to attain its own legal personality; personal liability of the members is fundamentally excluded according to the concept..

Further structural features according to the framework concept:

• The number of members should generally be open; however, admission requires the approval of the company.
• The membership should not be transferable to make it difficult for investors to acquire memberships (“buyouts”).
• From 20 members onwards, a board with at least two members and a supervisory board should be provided.
• Decisions should be made in the general meeting of members; in principle, the one-member-one-vote principle should apply (one vote per member – regardless of the capital contributed).
• Nevertheless, exceptions should be possible, such as multiple voting rights or veto rights, provided that the design of the bylaws allows for it and it does not undermine the asset commitment.

Unlike in a cooperative, the GmgV should not have a mandatory promotional purpose. Additionally, the concept does not stipulate a minimum number of members; a founding should also be possible by a single person.Taxes: no privileges, but special rules may be considered in the event of inheritance

The framework concept envisages that the GmgV should

neither be tax-privileged nor disadvantaged. In principle, the tax regulations that apply to cooperatives should be transferred to the GmgV.In the area of

inheritance and gift tax, the concept addresses regular substitute taxation of the wealth accumulated in the GmgV. Background: Since the assets do not “classically” pass on to the next generations of members due to the commitment, taxation at regular intervals is intended to provide a balance. The exact details (frequency, assessment bases, allowances, deferral or liquidity protection regulations) are left to a later legislative process.Foundation and scope of application: also intended for smaller companies

The establishment should, according to the legislator’s plans, be

easily accessible and not necessarily require high initial capital. This could make the GmgV not only suitable for established companies but also for smaller ones.Start-ups as well as small and medium-sized enterprises that are considering keeping profits within the company long-term and ensuring a stable ownership structure.

Classification and Outlook

So far, there is no law yet for the GmgV, only a framework concept. For interested companies, it may still be worthwhile to monitor further developments, as the GmgV – depending on its final design – could be an option for business models that wish to combine growth, stability, and long-term responsibility.

Legal Notice: This article is for general information purposes only and is not a substitute for individual advice. The specific application always depends on the circumstances of the individual case and the later legislative design.

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