Concept and Definition of Eigengesellschaft
Die Eigengesellschaft is a special organizational form under public law. It refers to legal entities that are established and controlled by the public sector, particularly by municipalities, federal states, or the federal government, to independently fulfill public tasks in an entrepreneurial manner. In contrast to delegated bodies or institutions, an Eigengesellschaft operates in its own name and at its own risk, but remains entirely or predominantly owned by the public sector.
Eigengesellschaften are among the instruments of so-called functional privatization, in which tasks remain under the responsibility of public bodies, but are carried out by a legally independent company.
Legal Framework and Forms of Eigengesellschaft
Public Legal Foundations
Eigengesellschaften can operate in various legal forms. Most commonly, they appear as a limited liability company (GmbH), stock corporation (AG), or—more rarely—as a registered association (e. V.) or cooperative. The statutory basis for these can be found especially in the:
- German Civil Code (BGB)
- German Commercial Code (HGB)
- Limited Liability Companies Act (GmbHG)
- Stock Corporation Act (AktG)
- Municipal Law of the Federal States
The establishment and operation of Eigengesellschaften is always based on relevant authorizations in municipal law (e.g., municipal codes and main statutes), public budgetary principles, and specific purpose provisions.
Legal Forms of Eigengesellschaft
The most common forms of municipal/public Eigengesellschaften are:
- GmbH (Limited Liability Company): Widespread due to the flexible structure and limitation of liability.
- AG (Stock Corporation): Suitable for larger shareholding structures.
- AöR (Institution under Public Law): Contains hybrid features, but is strictly distinguished from Eigengesellschaften, as in an AöR ownership does not transfer to a legal entity under private law.
The choice of organizational form affects rights and obligations, particularly in terms of tax law, accounting, procurement law, and municipal financial oversight.
Ownership Structure and Shareholding Relationships
An Eigengesellschaft exists when the public sector holds at least a simple majority of the shares (more than 50%) and thereby controls the company. Mixed forms with private participation are known as mixed-economy enterprises. Pure Eigengesellschaften are owned exclusively by one or more public authorities.
Tasks and Objectives of the Eigengesellschaft
Purpose of the Eigengesellschaft
Eigengesellschaften are established to provide public services in an organizationally and economically optimized manner. Typical areas of responsibility include:
- Supply (water, electricity, gas, district heating)
- Waste Management (waste, sewage)
- Public Local Transport (ÖPNV)
- Housing Construction and Urban Development
- Cultural, Leisure, and Sports Facilities
The objective is generally not profit generation, but rather the efficient, flexible, and sustainable fulfillment of public functions. Surpluses are usually reinvested or returned to the public sector.
Legal Status and Supervision of Eigengesellschaften
Legal Status
Eigengesellschaften are legally independent entities. They have their own bodies (management, supervisory board, if applicable general meeting) and act in their own name. Liability is usually limited to the company’s assets, which allows for a clear distinction between the public sector and the company.
Supervision of Public Eigengesellschaften
Although Eigengesellschaften are organized under private law, they are subject to extensive supervision and special transparency requirements. Supervision is carried out by:
- Supervisory board or comparable bodies, staffed by representatives of the public sector
- Audit and external auditing
- Municipal company oversight in accordance with the respective municipal codes and local government laws
- In some cases, specific reporting obligations to municipal representative bodies (e.g. municipal council)
Budgetary and Procurement Law
Eigengesellschaften are usually subject to the public sector’s budgetary law. In addition, (European and national) public procurement law applies as soon as they perform public contracts or act as public contracting authorities.
Tax Law Aspects
In contrast to municipal departments or municipal enterprises, Eigengesellschaften are generally subject to taxation like private companies (in particular corporation tax, trade tax, and value added tax). Tax exemption applies only for sovereign, non-commercial activities.
Distinction from Related Organizational Forms
Difference to Institution and Municipal Enterprise
- Institution under Public Law (AöR): Remains a public part of the administration, is not an Eigengesellschaft.
- Municipal Enterprise: Non-independent organizational unit of the municipality without its own legal personality, also not an Eigengesellschaft.
Difference to Mixed-Economy Enterprises
Eigengesellschaften must be distinguished from mixed-economy enterprises, in which both public and private capital providers are involved. In an Eigengesellschaft, all (or at least the controlling) ownership remains with the public sector.
Advantages and Disadvantages of Eigengesellschaften
Advantages
- Flexibility due to organizational structure under private law
- Limited liability for shareholders (municipality/state/federal government)
- Independence in economic decisions
- Possibility of economic activity in competition
Disadvantages
- Risk of detachment from the public welfare mandate
- Possible deficits in transparency and control
- Competition with private companies could lead to conflicts of interest
- Potentially increased tax burden
These aspects must be carefully weighed during establishment, organization, and operation.
Literature and Further References
- Wilke, S. (Ed.): Municipal Companies and Eigengesellschaften, Kommunalpraxis, 2023.
- Federal Ministry of the Interior, Guide to the Organization of Public Enterprises.
- Higher Regional Court Frankfurt a.M., Judgment of 29.05.2018 – 11 U 111/16 (Case law on liability).
- Law on Municipal Cooperation (example NRW).
Due to comprehensive regulation and supervision, the Eigengesellschaft stands at the intersection between efficient corporate management and preservation of the public interest. The legal design varies in details depending on the federal state and range of duties, but in its basic structure always follows the outlined framework.
Frequently Asked Questions
Can a municipality or city establish an Eigengesellschaft, or are specific requirements necessary?
Municipalities and cities are generally authorized under the respective municipal laws of the federal states to establish Eigengesellschaften. An Eigengesellschaft is a company in which the public sector—i.e., the municipality—holds a sole or majority interest. However, certain legal requirements must be met. In particular, the public interest must be safeguarded; that is, the formation of the company must serve the welfare of the municipality and may not pursue purely private business purposes. In many federal states, a so-called ‘transfer of public-law functions’ by resolution of the municipal council is required. In addition, there are notification obligations to the municipal supervisory authority and often their approval must be obtained. Further requirements may arise from the Act Against Restraints of Competition (especially § 99 GWB) and EU state aid law if the company is economically active.
What corporate legal forms are available for Eigengesellschaften?
In legal terms, municipalities are free to choose from various company forms. Most frequently, the limited liability company (GmbH) is chosen, as it offers advantages such as limitation of liability and flexible structuring. A stock corporation (AG) is also possible, though rarely used, or a limited partnership (KG), especially as a GmbH & Co. KG. In exceptional cases, non-profit GmbHs (gGmbH) or public-law institutions and foundations may also be established. The chosen legal form is subject to all provisions of the relevant company law, especially the GmbH Act and the Stock Corporation Act, in which case the municipality, as a shareholder, must observe special public-law obligations, such as transparency and reporting obligations.
What legal control mechanisms must municipalities observe in relation to Eigengesellschaften?
Municipal laws provide for a variety of control mechanisms for shareholdings in Eigengesellschaften. Municipalities are generally required to establish shareholding management that includes reporting and information obligations. Articles of association regularly contain the shareholders meeting’s rights of instruction, and to ensure municipal-political control, representatives of the municipal council are usually appointed to supervisory bodies. The municipal code requires the regular disclosure of the Eigengesellschaft’s economic data, and often the involvement of the audit office is necessary. Significant decisions are also subject to the approval of the council or municipal supervision. Violations of legal provisions can result in personal liability risks for supervisory board representatives under § 52 GmbHG and §§ 116, 93 AktG, especially in the case of economic losses.
Are Eigengesellschaften subject to public procurement law?
Yes, Eigengesellschaften are regarded as public contracting authorities within the meaning of § 99 GWB, provided the municipality exerts significant influence or holds a majority of the shares. They are therefore generally obliged to comply with procurement law, in particular the provisions of the Act Against Restraints of Competition (GWB), the Procurement Regulation (VgV), and possibly sector-specific special regulations. This entails the obligation to conduct tenders openly on a European or national level and to observe the principles of transparency, equal treatment, and non-discrimination. Violations can lead to review procedures, claims for damages, and annulment of procurement procedures.
What special features apply with regard to liability in Eigengesellschaften?
Liability in Eigengesellschaften depends significantly on the respective legal form. In the case of GmbHs, liability is generally limited to the company’s assets. However, there are increased levels of care required for executive bodies (e.g. managing directors, supervisory board members). In the context of municipal shareholdings, they must consider not only the interests of the company but also the concerns of the municipality and special statutory regulations (e.g., procurement law, data protection). Liability may arise in particular in the event of breaches of duty pursuant to § 43 GmbHG or § 93 AktG. In certain cases (e.g., unauthorized cross-subsidization or loss assumption), the municipal shareholder may exceptionally be required to make additional contributions. Criminal consequences (e.g., embezzlement) are also possible in the event of gross breaches of duty.
How is the taxation of Eigengesellschaften regulated?
Eigengesellschaften are subject to taxation just like private companies. They are therefore liable to corporation tax, trade tax, and value added tax unless exemptions apply, particularly under § 4 Nos. 15 or 18 UStG or under the provisions on non-profit status (§§ 51 ff. AO). In relation to the municipality, hidden profit distributions may be problematic for tax purposes. The prohibition on the offsetting of losses must also be observed, i.e., losses and profits from different activities of the same company may not be offset at will for tax purposes. The Eigengesellschaft is required to keep its own accounts in accordance with commercial and tax law.
What participatory rights do municipal representative bodies have in Eigengesellschaft decisions?
The main municipal body—usually the municipal council—has extensive participatory, informational, and supervisory rights in relation to Eigengesellschaften. Certain measures, such as the acquisition or sale of company shares, major investments, or fundamental decisions, are subject to the council’s approval. These areas of decision should be defined in the articles of association as so-called approval-requiring transactions (‘catalog of approval-requiring transactions’). Furthermore, there must be regular reporting on economic development, opportunities, and risks. The municipal representative body can also influence the appointment and dismissal of managing directors to ensure the implementation of municipal interests.
