Definition and clarification of the term investor
Ein Investor is a natural or legal person who invests own or third-party capital in assets, participations, or projects with the aim of making a profit. In a legal context, the term investor encompasses various legal roles, obligations, and rights, depending on the form of investment, the participation model, and the relevant national and international law. The legal definition and classification of the investor are derived from various regulatory areas, in particular civil law, company law, supervisory law, and increasingly, tax law and international investment protection law.
Legal status of the investor
Natural and legal persons as investors
Investors can be either natural persons (individuals) or legal entities (corporations, foundations, associations, etc.). The legal framework varies depending on the legal form of the investor:
- Natural persons: Here, investment regulations of the German Civil Code (BGB) apply primarily, as well as specific protective provisions, for example concerning consumer or investor protection.
- Legal entities: Here, company law regulations are the focus, such as those under the Stock Corporation Act (AktG), Limited Liability Companies Act (GmbHG), or international corporate statutes.
Definition in capital markets law
In capital markets law, the investor is sometimes referred to as a investor The distinction between private and professional investors is particularly important in relation to the application of regulatory requirements (for example, MiFID II, WpHG, or KAGB). The qualification as a professional or semi-professional investor influences, for example, the applicability of information, advisory, and disclosure obligations for issuers and financial service providers.
Forms of participation and legal basis for investors
Direct and indirect investments
Investors can invest in various ways:
- Direct investments: For example, the purchase of shares, company interests, or real estate. This usually establishes shareholder rights and obligations.
- Indirect investments: Participation via funds, structured products, or investment vehicles such as investment companies.
The legal framework is defined both by civil law contracts (e.g., purchase agreement, participation agreement) and by special legal provisions (e.g., Investment Act, Asset Investment Act).
Rights and obligations of the investor
The legal position of the investor varies depending on the form of investment and the underlying legal relationship:
- Voting rights: In the general or shareholders’ meeting, where provided for.
- Information rights: Right to information and inspection of documents, which varies depending on the legal structure of the company.
- Profit participation rights: Dividends, interest, profit shares.
- Obligations: Payment obligations, additional funding obligations, duties of loyalty towards the company or other shareholders.
- Liability: Liability limited to the contribution (e.g., in the case of shares or GmbH interests), possibly unlimited in certain partnerships.
Regulatory classification
In certain cases, investors are subject to regulatory requirements, such as under the Banking Act (KWG), Capital Investment Act (KAGB), Securities Trading Act (WpHG), or the EU MiFID II Directive. These regulate, among other things, market manipulation, insider trading, and investor protection.
Protection mechanisms and investor protection
Public investor protection
Legal investor protection mechanisms serve to prevent information asymmetries and limit the risks for investors, especially private investors. Relevant measures include:
- Prospectus requirement: Extensive disclosure obligations in the case of securities issuance (Securities Prospectus Act).
- Product information sheets: Comprehensible description of the essential risks and characteristics of financial instruments.
- Transparency obligations: Regular reporting on investment assets and vehicles.
Private legal remedies
Investors have civil law claims in the event of incorrect, omitted, or misleading information, in particular claims for damages and rescission based on tort, contestation of contract, or in the event of breach of obligations under general civil law principles.
Taxation of the investor
Investment income is subject to income taxation under the Income Tax Act (EStG). Different tax rates and regulations apply depending on the legal form of the investor in respect of withholding tax, corporate tax, solidarity surcharge, or trade tax. Cross-border investments additionally require attention to double taxation agreements and international tax regulations.
International investment protection law
International investors are regularly protected against expropriation or discrimination by international treaties, such as bilateral investment protection agreements (BITs) or multilateral treaties (e.g., Energy Charter Treaty). These agreements govern, inter alia, compensation claims in case of interference with the investor’s property by states, as well as the jurisdiction of international arbitral tribunals.
Distinction from other legal terms
The term investor is to be distinguished from:
- Creditor: Holder of a claim without voting rights, e.g., bondholders.
- Shareholder/partner: Investors become shareholders or partners by acquiring the respective shares, but subsequently hold specific co-determination and control rights.
- Trustor: Investors can act as trustors if shares are held in trust.
Summary
The term Investor encompasses a multitude of legal aspects, ranging from company law classification, regulatory oversight, through to tax and international legal protection mechanisms. The specific status of an investor is determined in particular by the respective form of investment as well as the applicable national and international legal frameworks. The legal treatment of an investor is therefore complex and significantly influences rights, obligations, risks, and protection mechanisms.
Frequently Asked Questions
What legal obligations does an investor have when participating in a company?
An investor is subject to various legal obligations in the context of a company participation, which arise in particular from company law, capital markets law, and, if applicable, tax law. These obligations include, for example, compliance with notification requirements under the Securities Trading Act (WpHG) once certain thresholds of voting rights in listed companies are exceeded. For minority or majority holdings in companies such as a GmbH or AG, the investor may also need to be registered as a shareholder or shareholder in the commercial register. In addition, there is an obligation to observe the relevant contractual regulations, such as additional funding obligations, confidentiality clauses, or non-compete agreements. Lenders are also legally required to comply with the requirements of the Banking Act (KWG) and European banking regulation, provided their participation exceeds regulatory thresholds. Furthermore, investors may be legally required to comply with anti-money laundering due diligence obligations and to prove the origin and legitimacy of funds.
What legal differences exist between institutional and private investors?
Institutional and private investors differ from a legal perspective, especially with respect to the regulations and protective measures that apply to them. Institutional investors – such as banks, funds or insurers – are generally subject to comprehensive regulatory requirements under the KWG, the Capital Investment Act (KAGB), or international regulations such as MiFID II. These regulations concern, for example, capital requirements, disclosure obligations, risk management, and investor protection. Private investors (retail investors), on the other hand, benefit from investor protection, such as prospectus requirements or information rights in the case of securities offerings under the Securities Prospectus Act (WpPG). There are also special regulations on the suitability and appropriateness of investment products as well as advisory documentation under the Securities Trading Act (WpHG) to protect private investors against erroneous decisions.
What legal risks does an investor face in direct investments in start-ups?
An investor who takes a direct stake in a start-up assumes specific legal risks. These often include additional funding obligations under an articles of association or shareholder agreement, meaning the investor may need to provide additional capital in cases of insolvency or liquidation. There is also liability risk, especially if the investor acts as a managing director or exercises controlling influence. In such roles, there may be a risk of personal liability – for example, in the case of insolvency delay or compliance violations. Additionally, there is a risk of breaching information and participation obligations, especially in connection with the sale of shares (exit). Another legal risk arises from the issue of anti-dilution protection: Without appropriate clauses, the percentage shareholding of the investor may decrease in subsequent financing rounds.
What statutory requirements must be observed in cross-border investments?
For cross-border investments, investors must comply with a variety of legal provisions both in the country of origin and in the target country. These include, in particular, investment control laws, such as the Foreign Trade and Payments Act (AWG) and the Foreign Trade and Payments Ordinance (AWV) in Germany, which may require notification or even approval for investments from third countries. Sanctions regulations and embargoes must also be observed. Furthermore, tax aspects such as withholding tax, double taxation agreements (DTAs), and transfer pricing documentation have to be taken into account. Compliance with data protection law, for example the GDPR, may become relevant in case of entrepreneurial influence, as well as antitrust regulations, which subject investments that exceed certain thresholds in turnover or market share to merger control.
What rights of participation do investors have in a GmbH or AG by law?
By participating in a GmbH or AG, investors acquire statutory rights of participation. In a GmbH, these include in particular the right to vote in the shareholders’ meeting (§ 47 GmbHG), the right to information and inspection of books and records (§ 51a GmbHG), as well as the right to appoint or remove managing directors. In an AG, investors in the form of shareholders are entitled, pursuant to the Stock Corporation Act (AktG), in particular to voting rights at the general meeting (§ 134 AktG), the right to information (§ 131 AktG), participation rights at the general meeting, the right to dividends, as well as other property and management rights. The structure of these rights can be supplemented by articles of association or shareholder agreements, but may also be limited to the extent permitted by law.
What notification requirements apply to investors when acquiring significant company holdings?
When acquiring significant holdings in companies, investors are subject to various notification requirements. In capital markets, § 33 WpHG is particularly relevant, according to which the acquisition, exceeding, or falling below certain thresholds (e.g., 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50%, and 75%) of the voting rights in a listed company must be promptly notified to the Federal Financial Supervisory Authority (BaFin) and the relevant company. Antitrust and competition law provisions may also trigger notification requirements; above certain turnover thresholds, acquisitions must be notified and approved in advance. In addition, investment control laws may require further notifications or review procedures, especially when acquiring stakes in companies from critical infrastructure sectors.
What legal requirements apply to information and investor protection towards investors?
Information and investor protection are comprehensively regulated under German and European law, and concern in particular the prospectus requirement, transparency and disclosure obligations, as well as advisory and documentation requirements. Before the public offering of participations, the prospectus requirement under the Securities Prospectus Act (WpPG) applies, which defines detailed information requirements for the issuer, the securities offered, and the associated risks. With respect to investment advice, the WpHG requires objective information, risk disclosure, suitability and appropriateness assessments. Other key legal sources include the Regulation on Key Information Documents (PRIIP-VO) as well as ESG-related disclosure obligations. For investors in retail funds, additional regulations can be found in the Capital Investment Act (KAGB).
What are the legal limits to the influence of an investor on management and company structure?
The legal limits on the influence of investors on the management and structure of a company vary according to the legal form and level of participation. Under stock corporation law, the principle of separation between management (executive board) and control (supervisory board) is decisive, which is why even large shareholders do not have direct authority to issue instructions to the executive board. In a GmbH, an investor with an appropriate majority may issue instructions to management, but is bound by the company’s interest to prevent abusive interference (§ 43a GmbHG). Furthermore, contractual and statutory restrictions, approval and co-determination rights, as well as legal measures against indirect control and abuse are decisive. Violations can result in liability for damages or nullity of resolutions.
