Guide to Germany’s Future Financing Act for Startups and SMEs

6th March 2024

Introduction

 On 17 November 2023, the German Parliament (Deutscher Bundestag) passed the Future Financing Act (Zukunftsfinanzierungsgesetz) (the “Act”) to make it easier for startups and small to medium-sized enterprises (“SMEs”) to access the German capital market. The Act introduces changes to existing laws with the goal of making Germany more appealing to international investment companies and investors. Key features of the Act include measures to digitalise the capital market, reduce regulatory bureaucracy, and allow the use of English in certain documents and communications with the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin“).  

The changes to existing German law made by the Act are designed to enhance the investment environment and facilitate smoother interactions for businesses seeking funding and growth opportunities in Germany. 

Overview 

Ease of access to the capital market for start-ups, growth companies and SMEs 

 To make it easier for businesses to access the German capital market, the requirements for start-ups, growth companies and Small and medium-sized enterprises (“SMEs”) looking to go public have been streamlined. Now, the minimum capital needed for an initial public offering (“IPO“) has been reduced from EUR 1.25 million to EUR 1 million. 

 To support the raising of equity capital, companies are now allowed to issue shares with multiple voting rights. This change comes with disclosure and notification requirements, such as updating the company register and notifying shareholders when calling a meeting. The  German Securities Trading Act (Wertpapierhandelsgesetz – “WpHG“) has been updated,  and BaFin has made corresponding amendments to the WpHG transparency obligations FAQs. Additionally, BaFin has released an updated reporting template for the publication of the new total number of voting rights under  Section 41 of the WpHG. These adjustments aim to create a more flexible and accommodating, environment for businesses navigating the capital market landscape.  

 In addition, the Act includes modifications to the German Stock Corporation Act allowing for simpler capital increases of a stock corporation as well as an increase in the quota for simplified subscription rights from 10 % to 20 %. 

Digitalisation of the German Financial Supervisory Authorities communication  

 Communication with BaFin will now by law be possible in English. The Act provides for amendments to several laws to ensure the electronic communication and submission of certain documents and information. 

 Examples of the aforementioned amendments are Articles 21 and 22 of the Act which introduce changes to the German Holder Control Regulation (Inhaberkontrollverordnung – “InhKontrollV”) and the German Financial Services Supervision Act (Finanzdienstleistungsaufsichtsgesetz – “FinDAG”). One notable change is in Section 2 (3) of the InhKontrollV stating that notifications, documents, notices, and declarations about holder control can now be submitted in English, making it more accessible. Additionally, the new Section 4j of the FinDAG allows for the submission of applications and information to BaFin in English. However, please note that BaFin can still require German translations. In this case, only the German version is the legally binding or official document.  

 Moreover, BaFin is obliged to publish its ordinances, forms, and administrative regulations, relevant for both the local and foreign market participants, available in English within six months of their publication in German. This ensures transparency and accessibility for a wider audience. 

 Furthermore, electronic communication with the German authorities and the submission of documents are now necessary, especially in cases like acquiring securities under the German Securities Acquisition and Takeover Act or submitting prospectuses under the German Securities Prospectus Act  

 Introduction of electronic stocks 

 The Act implements the possibility to issue stocks in Germany on the basis of blockchain technology. Where an issuer decides to issue electronic shares, these must be entered in  either  a so-called central register or in a crypto securities register. As with existing electronic bonds, electronic shares will therefore be divided into central register shares and crypto shares, each of which is subject to different rules in detail. While central register shares can be structured as both bearer and registered shares, crypto shares can only be issued as registered shares.1  

 Entry into force and impact 

The Act has been passed in November and the amending provisions of the Act have been implemented in respective legal acts, such as the amendments to the Holder Control Regulation and the Financial Services Supervision Act. 

For international firms, the Act facilitates the access to the German market by way of changing the acceptable language of communication with BaFin to English. In addition, the introduction to issue stocks based on blockchain technology emphasises Germany’s strategy to become an even stronger financial market centre, adding to Germany’s modern laws with respect to cryptocurrencies. 

 How can Zeidler help? 

 If you have any questions or require support to market your investment fund vehicles in Germany, the Zeidler Legal Team is here to help. Our global team of professionals remains up to date on the latest legal, regulatory and compliance changes affecting the asset management industry. For bespoke guidance or general queries, please get in touch.

Author

Patricia Nitschke