Term and legal definition of “Corporate”
The term “Corporate” is used extensively in the legal context and primarily refers to companies, corporations, and organizations with an organized legal structure. “Corporate” is a loanword from English (corporation) and is used in numerous contexts as a synonym for legal entities, particularly for capital companies and other business forms. In German law, there is no independent legal definition of the term “Corporate”; however, it is used in various laws, administrative guidelines, and publications to denote company-related matters.
Use in corporate law
Types of entities
Within German corporate law, the term “Corporate” typically includes capital companies such as the stock corporation (AG), the limited liability company (GmbH), and the partnership limited by shares (KGaA). Other company forms, such as the European Company (SE – Societas Europaea), also fall under this general term. The legal framework for these forms is detailed in the Stock Corporation Act (AktG), the Limited Liability Company Act (GmbHG), and other special statutory provisions.
Public law corporations
Apart from its use in the private sector, “Corporate” in a broader sense also refers to public law corporations, such as chambers of industry and commerce or public enterprises. These organizational forms obtain their own legal capacity through public law regulations and function as independent holders of rights and obligations.
Legal characteristics of corporates
Legal capacity
A central feature of any corporate structure is its own legal capacity. Legal entities and corporations are considered independent legal subjects under the German Civil Code (BGB) or specific laws. They can thus bear rights and obligations, acquire assets, sue and be sued in court.
Liability structure
The liability of corporates is primarily shaped by the separation principle between company assets and shareholders’ assets. Thus, shareholders of a GmbH are generally only liable up to the amount of their contribution, while the company as a legal entity is liable for its obligations with its own assets. The concept of limited liability is one of the essential distinguishing features compared to partnerships.
Governing bodies and representation
Corporate structures are represented by various governing bodies, typically regulated by law and the respective articles of association. These include, for example, the management board, the supervisory board, and the general meeting in the case of an AG, as well as the management and, if applicable, a supervisory body in the case of a GmbH. These bodies are responsible for managing, representing, and supervising the company according to statutory requirements and internal regulations.
Corporate Governance
The term “Corporate” appears in corporate governance, which encompasses all principles of corporate management and supervision. The legal framework for corporate governance is determined in particular by the German Commercial Code, the Stock Corporation Act, the German Corporate Governance Code, and relevant EU directives and regulations. The aim is to strengthen transparency, control, and accountability in companies and groups.
Compliance in the corporate context
Compliance refers to the observance of all legal and internal company regulations. Corporates are required to take appropriate measures to prevent violations of law and economic crime. These obligations extend to various areas of law, such as criminal law, competition law, data protection, labor law, and tax obligations. Company management is legally required to establish suitable risk management and compliance systems and to ensure their effectiveness.
Tax classification and particularities
For tax purposes, corporates are treated as independent tax subjects. They are subject in particular to corporate income tax, trade tax, as well as further tax obligations such as value added tax and capital gains tax. The tax treatment and the obligations regarding accounting, finalization, and disclosure are stipulated in the Corporate Income Tax Act (KStG), Trade Tax Act (GewStG), Value Added Tax Act (UStG), and other regulations.
Disclosure and publicity obligations
Corporates are required by the German Commercial Code and special statutory provisions to prepare annual financial statements, in some cases have them audited, and disclose them in the electronic Federal Gazette. Compliance with these publicity obligations serves creditor protection, transparency, and the provision of correct information to market participants.
International law and cross-border aspects
In the international context, “Corporate” especially refers to the corporation under Anglo-American legal systems, which differs in many respects from German business forms. The formation, liability, and management of a corporation are subject to the respective national corporate laws. For cross-border business activities, the regulations of private international law and relevant EU provisions (such as the freedom of establishment and the European Company) are decisive.
Distinction from other terms
Difference from partnerships and sole proprietorships
While corporates (in the narrower sense, capital companies and corporations) are characterized by their own legal capacity, limited liability, and independent governing bodies, partners in partnerships (e.g., general partnership – OHG, limited partnership – KG) are typically also liable with their private assets. Sole proprietorships are likewise not considered corporates in the narrow sense, as there is no separation between the business and the owner.
Conceptual extensions: Corporate Finance, Corporate Law, Corporate Social Responsibility
Numerous other terms are derived from the basic concept of “Corporate,” covering various branches of law and economics:
- Corporate Law refers to corporate law and all legal provisions relevant for corporates.
- Corporate Finance concerns all financial transactions, structural issues, as well as capital management in companies/groups.
- Corporate Social Responsibility (CSR) is the umbrella term for voluntary social responsibility and sustainable business conduct.
Practical significance
The term “Corporate” has become indispensable in legal and economic practice as well as in case law. Due to the continuous development of corporate law and increasing internationalization, the legal aspects of corporates are becoming ever more significant, particularly against the background of cross-border mergers, acquisitions, compliance requirements, and publication obligations.
Literature and further sources
- Stock Corporation Act (AktG)
- Limited Liability Company Act (GmbHG)
- German Commercial Code (HGB)
- Corporate Income Tax Act (KStG)
- German Corporate Governance Code
- European Company Law Directives
Note: This article serves general informational purposes as part of a legal glossary. For specific legal issues in the area of corporates, a thorough review of the relevant statutory texts and case law is recommended.
Frequently Asked Questions
What legal requirements apply to the formation of a capital company in Germany?
The formation of a capital company, such as a GmbH or AG, is subject to a variety of legal requirements. The central starting point is the drafting of articles of association (or statutes), which specify the purpose of the company, the initial share or capital contribution, and the shareholders involved. This agreement must be notarized (§ 2 GmbHG, § 23 AktG). In addition, the required capital amounts (at least 25,000 euros for a GmbH, at least 50,000 euros for an AG) must be paid into a business account. The company must then be registered with the commercial register, with notarized signatures required. Tax registrations (business registration, tax registration at the tax office) and notification to the employers’ liability insurance association, the chamber of commerce and industry, and the relevant municipal or city authority are also required. Legal personality and capacity are acquired only upon entry in the commercial register.
What legal obligations do the managing directors of a GmbH have?
The managing directors of a GmbH are subject to extensive legal obligations. In particular, they bear the so-called legality and duty of care obligation (§ 43 GmbHG), which requires proper management in the interest of the company and compliance with all applicable laws. This includes proper accounting, preparation of the annual financial statements, compliance with tax duties, notification of financial statements to the Federal Gazette, and immediate filing for insolvency in the event of insolvency or over-indebtedness (§ 15a InsO). Violations may lead to civil claims for damages by the company (internal liability) or third parties (external liability) and, in the case of tax evasion, delay in filing for insolvency, or fraud, are also subject to criminal law.
What liability rules apply to shareholders of a GmbH?
Shareholders of a GmbH are generally liable only up to their contribution, i.e., their liability is limited. This means that, apart from their contribution, they are usually not subject to further financial obligations (§ 13 para. 2 GmbHG). In exceptional cases, however, personal liability can arise, for example, in the case of so-called piercing the corporate veil, if the distinction between company and shareholders is not respected in business transactions (e.g., commingling of assets, mixing of spheres, or deliberate destruction of company existence). Shareholders may also be liable for unpaid contributions, supplemental contribution obligations expressly agreed in the articles of association, or under the so-called “existence-destroying liability” if they intentionally ruin the company.
What rights and obligations do shareholders of a stock corporation have?
Shareholders, as the owners of the company, have certain statutory rights and obligations. The most important rights include voting rights at the general meeting (§ 118 AktG), the right to dividends (§ 58 para. 1 AktG), as well as information and inspection rights (§ 131 AktG). They are also entitled to a share in the liquidation proceeds (§ 271 AktG). Their primary obligation is to pay in the subscribed shares to the share capital. Other obligations may arise from the articles of association, but a further payment obligation is only required if explicitly agreed (§ 55 AktG). A continuous duty of loyalty to the AG is stipulated by law and obliges shareholders to act loyally towards the company.
What requirements apply to convening and conducting shareholders’ meetings?
Shareholders’ meetings are central decision-making bodies in capital companies. Their convening must be in due form and within the prescribed periods. For a GmbH, the law generally prescribes a notice period of at least one week (§ 51 GmbHG), for an AG, four weeks (§ 123 AktG). The invitation must specify the purpose and the agenda. Proper minutes must be kept during the meeting, and resolutions documented; for amendments to the articles or key structural measures, notarization is required (§ 53 GmbHG, § 130 AktG). Wrongly convened or conducted meetings can render resolutions voidable or null and void and may have serious legal consequences for the company and its bodies.
When and how is a company required to disclose annual financial statements?
Capital companies are legally required to publish their annual financial statements (§ 325 HGB). The deadline is generally twelve months, but for small and medium-sized GmbHs and AGs, no more than six months after the end of the financial year (§ 264 para. 1 HGB). The annual statements must be submitted electronically to the Federal Gazette. Disclosure serves the protection of creditors, market transparency, and tax compliance. Breaches of the disclosure obligation are subject to fines; the Federal Office of Justice may impose administrative fines, which can be substantial (§ 335 HGB).
What legal requirements apply to the liquidation and dissolution of capital companies?
The dissolution of a capital company (GmbH or AG) generally takes place by resolution of the shareholders (three-quarters majority required, § 60 GmbHG, § 262 AktG) or on legal grounds (insolvency, expiry of the articles’ duration). After the resolution, the company enters the liquidation stage. The liquidators, usually the former managing directors/board members, must publicly invite creditors to file claims (§ 65 GmbHG, § 265 AktG), realize assets, and settle company debts. Only after the end of the blocking year and satisfaction of all creditors is any remaining assets distributed among the shareholders. The entire liquidation process must be reported to the commercial register and the deletion of the company must be applied for there.
