Authorised capital in a FlexCo: five-year period and subscription rights

A FlexCo can prepare for future financing without renegotiating the entire articles of association every time new shares are issued. The articles can therefore authorise the management to use authorised capital. This is not an unlimited mandate. Section 21 FlexKapGG limits the period, nominal amount, issue process and treatment of existing subscription rights.

The authorisation must be separated from its later use. First, the articles or an amendment create a defined capital framework. Only afterwards can a decision be made within that framework about the new shares, their issue conditions and the persons who will take them over. The financing documents should connect both levels in a way that can be checked later.

This article covers authorised capital of a FlexCo under section 21 FlexKapGG only. Conditional capital, participation units, treasury shares, an ordinary GmbH cash capital increase and virtual options are separate instruments with separate requirements.

What authorisation should the FlexCo articles contain?

Section 21(1) FlexKapGG permits the articles to authorise management for no more than five years after the company is registered to increase the share capital up to a specified nominal amount by issuing new shares against contributions. The authorisation must therefore relate to a defined capital measure. A general power to create interests whenever management considers it useful is not enough.

The articles should describe the framework so that its later use can be reviewed. This includes a specified nominal amount of authorised capital. The statutory five-year maximum is linked to registration of the company. If the authorisation is created later by amending the articles, the statutory maximum still applies.

The amendment and the later use are separate decisions. The first level concerns the rules for amending the articles and filing that amendment. The second level requires its own preparation for issuing new shares, accepting them and registering the capital increase.

How is the maximum authorised capital calculated?

Under section 21(1) FlexKapGG, the nominal amount of authorised capital may not exceed half of the share capital existing when the authorisation is granted. The reference point is therefore not automatically the share capital at the later financing round. The calculation should be tied to the date of authorisation and recorded in the corporate file.

The authorisation concerns new shares issued against contributions. If the company has several share classes, the articles or authorisation resolution should show which structure is available. The parties should also decide whether only cash contributions or contributions in kind are possible. Shares may be issued against contributions in kind only if the authorisation provides for this.

In practice, the nominal amount, share class, issue amount, any premium, payment and resulting shareholding should be linked in one calculation. An economic cap table can illustrate the transaction, but it does not replace the required resolutions or subscription declarations.

How should subscription rights be addressed?

Subscription rights protect existing shareholders from being diluted by a new issue without a clear basis. Section 21(1) FlexKapGG does allow management also to be authorised to exclude subscription rights. The announcement of the agenda item must expressly refer to this possibility. A later financing plan cannot silently create that exclusion.

The documents should distinguish whether subscription rights remain available, how they may be exercised and under which conditions an exclusion is possible. Section 20 FlexKapGG contains specific formal and content requirements for exercising subscription rights. The declaration must be made as a notarial deed or in the form provided by section 12 FlexKapGG.

An exclusion is not merely an administrative step. It changes ownership percentages and can affect voting power, blocking positions, profit participation and contractual special rights. Existing shareholders should therefore be able to see the nominal amount of the new shares, their takers and the resulting ownership table.

What may management decide when using the authority?

Under section 21(4) FlexKapGG, management decides on the content of the shares and the conditions of issue unless the authorisation resolution has already determined those points. The articles can therefore limit management discretion deliberately. The more economic or governance questions remain open, the more important precise limits in the authorisation become.

If the FlexCo has a supervisory board, its consent is required for the decision on the content and issue conditions and for an exclusion of subscription rights. Shareholders must be informed without undue delay. The communication should follow the form specified in the articles for communications with shareholders.

If the general meeting gives management instructions on the content of the shares or the issue conditions, that instruction requires the same majority as the authorisation resolution. Responsibilities should therefore be recorded not only in an organisation chart, but also in a resolution and information file.

How is the issue completed in the company register?

The authorisation itself does not yet increase the share capital. When it is used, section 21(5) FlexKapGG applies sections 52(3) to (6) and 53 GmbHG correspondingly. The subscription declarations, payment of contributions and filing of the capital increase therefore become central parts of the completion process.

The completion file should contain the authorisation, the concrete issue resolution, subscription declarations, the ownership calculation, payment or contribution-in-kind evidence and the documents required for the company register. If a declaration is made in the form of section 12 FlexKapGG, the instrument prepared for that purpose must also be attached to the company-register filing in its original form.

A financing round is fully documented only when the economic agreements and corporate documents describe the same transaction. After completion, the register position, new capital figure, ownership structure and communications to shareholders should be reconciled.

Which points should the articles regulate expressly?

The maximum nominal amount, the share capital used as the reference point and the five-year period should be part of a clear drafting logic. The articles should also address permitted share classes, cash contributions, possible contributions in kind and the basic structure of the issue conditions.

For subscription rights, define how information, exercise, non-exercise and any permitted exclusion fit together. In a company with a supervisory board, consent and information should match the general communication rules. Instructions by the general meeting should not leave the applicable majority or responsibility uncertain.

Before the resolution, review the current articles and amendments together with the company register extract, ownership overview, financing agreement and draft subscription declarations. This shows whether the planned round fits the authorised framework or whether an amendment or another capital instrument is needed first.

Frequently asked questions about authorised capital in a FlexCo

What should be reviewed next?

A FlexCo preparing for a future financing round should record more than the desired ownership table. The relevant documents are the articles, authorisation resolution, share capital at the reference date, period, subscription rights, issue conditions and later company-register completion.

For a review, collect the current articles and amendments, company register extract, ownership overview, financing documents, draft subscription declarations and planned shareholder communication. We can separate the authorisation from the concrete issue and identify which resolutions and documents are still needed for the planned round. The article on anti-dilution protection in a financing round covers the protection perspective. For the general amendment process, see the overview of majority, notarial deed and company register. The effect of a growing shareholder group is discussed in reviewing the articles as the shareholder group grows.