As its name suggests, the FlexCo is all about flexibility. The FlexCo aims to satisfy the calls for reform of Austria's most popular corporate form, the GmbH, which has frequently been criticised in the start-up ecosystem for its excessive rigidity and formal requirements. The solution now being put forward is a corporate form that combines elements of the existing GmbH and stock corporation (AG), offering unique features and greater flexibility for entrepreneurs and a more founder-friendly corporate structure.
But what exactly does the FlexCo bring to the table? In this article, we will explore the key characteristics of this new legal entity.
Lowering the minimum capital requirement
One of the key changes is a significant reduction in the minimum share capital required for establishment. Instead of the previous EUR 35,000 to establish a GmbH, both the FlexCo and GmbH now require a minimum share capital of EUR 10,000 with a minimum initial deposit of EUR 5,000. For FlexCos, individual shareholder contributions can be as low as EUR 1, while for GmbH shareholders, the minimum contribution remains EUR 70. This difference allows smaller participations in the share capital of a FlexCo.
Streamlining decision-making with the FlexCo
A FlexCo offers a more flexible process in adapting circular resolutions. While GmbHs require unanimous consent by all shareholders to pass circular resolutions, the FlexCo's articles of association allow this to be bypassed. Additionally, the FlexCo permits voting in text form, enabling decisions through e-mail and other simple digital signature solutions. In a GmbH, circular resolutions must be passed in writing, which is more burdensome and hence often ignored.
In addition, FlexCos explicitly permit split voting. This is a notable departure from the GmbH. The possibility of split voting is especially useful in trustee structures that are commonly used in start-ups to pool small investments at one trustee. In a trustee structure, a trustee holds shares for several other indirect shareholders and split voting allows such a trustee to vote as each trustor prefers.
While each shareholder of a GmbH can only hold one share type based on the uniform share concept, FlexCos may issue fractional shares. This enables companies to establish various share classes, granting shareholders the option to hold shares from different classes, each with distinct rights and responsibilities. For instance, investors can now hold shares in start-ups that offer varying levels of liquidation preference based on the financing round during which these shares were issued. It will also be easier to track shares, e.g. in trust structures.
Company value shares
A notable feature of the FlexCo is the ability to issue so-called "company value shares" (CVS), primarily designed for employee participation but also issuable to non-employees. Up to 25 % of the share capital can be issued in the form of CVS, and these shares have a minimum nominal value of only one cent, making them accessible to a wide range of employees. CVS grant participation rights in shareholder meetings but generally do not confer voting rights, except in specific circumstances where shareholder resolutions affect the rights to profits and liquidation proceeds of holders of CVS or convert CVS into regular shares. CVS need to be equipped with a tag-along right in case the founding shareholders sell their majority stake in the company. This new share class is particularly interesting in combination with contemplated tax changes that the legislator has proposed as part of the start-up package alongside the new law on FlexCos.
Simplified transfer of ownership
A significant change coming with FlexCos is that a notarial deed will no longer be required to transfer shares and subscribe new shares. Instead, share transfers and subscriptions can now be documented through a private deed executed by either an attorney or a notary, provided the legality of the transaction is verified and the parties are advised of the legal consequences. Thus, it remains mandatory to engage an attorney or notary for such legal actions. The simplification of formal requirements is, therefore, somewhat limited. An exception to the new rule is that CVS can be transferred in a simple written form without the need to involve an attorney or notary. However, companies must inform their employees in detail about these shares at least two weeks before transferring them to employees.
Flexible capital measures
The FlexCo's expanded flexibility includes the ability to acquire and hold its own shares under specific conditions. This option is particularly advantageous in the context of CVS, since companies may maintain a reserve of these shares and issue them gradually to employees as needed. In addition, the FlexCo offers capital raising instruments analogous to the AG, such as conditional capital, authorised capital and capital reduction through the withdrawal of treasury shares.
One side effect of greater flexibility is that a FlexCo has a lower threshold for establishing a mandatory supervisory board. In addition to the cases where a supervisory board is mandatory for GmbHs, a supervisory board is also mandatory for FlexCos that exceed two of the following criteria: (i) EUR 5m in balance sheet total; (ii) EUR 10m in turnover; or (iii) an average of 50 employees. Start-ups may exceed the criteria under (i) and (iii) quite easily in practice, so the requirement of establishing a supervisory board must be taken into consideration when choosing the FlexCo as a company form.
A FlexCo can either be newly founded or an existing AG. Alternatively, a GmbH can be easily converted to a FlexCo.
The FlexCo brings advantages as well as uncertainties, since it does not constitute a major modernisation of Austrian corporate law but merely a mixture of existing concepts. Nevertheless, the introduction of the FlexCo is a positive step for the Austrian start-up landscape toward greater flexibility and international competitiveness. Will the FlexCo be a gamechanger for entrepreneurs in Austria? Only time will tell.
authors: Thomas Kulnigg, Niklas Kerschbaumer, Gabor Kulcsar