Philipp Kapl
Binder Grösswang, Vienna
kapl@bindergroesswang.at

Thomas Schirmer
Binder Grösswang, Vienna
schirmer@bindergroesswang.at

Introduction

The introduction of the Flexible Capital Company (Flexible Kapitalgesellschaft, FlexCo) as a new form of company, as of 1 January 2024, constitutes a landmark moment in the history of Austrian corporate law. The FlexCo has many similarities to the Gesellschaft mit beschränkter Haftung (GmbH), which is the standard domestic private limited liability company (LLC) that was introduced over a century ago. In fact, the FlexCo Act contains a general reference to the provisions applicable to the GmbH for all matters not regulated therein. After five years of political negotiations over several legislative periods, Austria introduced the FlexCo to provide a dynamic, ‘flexible’ alternative to the GmbH, in particular, to address the needs of the entrepreneurial founder community. In addition, the introduction of the FlexCo has also prompted a number of changes to other Austrian regulations.

The benefits

The introduction of the FlexCo does not merely redefine the wheel, but instead offers a blend of elements from existing Austrian company forms, most importantly the GmbH and the Austrian joint stock company (AG), combined with features to make it attractive overall, but specifically to startup and scaleup companies.

Some of the features of a FlexCo are detailed below:

1. A FlexCo requires a share capital of €10,000, which is a major reduction from the €35,000 share capital that was previously required for a GmbH. The share capital requirement for a GmbH was also reduced to €10,000 when the FlexCo was introduced, following the general trend of easing access to limited liability companies.

2. Another feature is that a FlexCo permits the co-existence of different share classes with different rights (eg, A shares, B shares) that can be held by the same shareholder simultaneously, affording shareholders greater flexibility in structuring their investments and allowing them to be more precise when implementing the strategic objectives of their investment.

3. A new key element of a FlexCo is the introduction of specific provisions regarding employee participation. In a GmbH, such a matter was typically addressed in the form of virtual or employee stock ownership programmes (VSOPs/ESOPs). Shareholders of a FlexCo may now offer enterprise value shares. Enterprise value shares grant the respective shareholders profit (and liquidation proceeds) participation, as well as a mandatory tag-along right in case of certain exits. In addition, the holders of employee participation rights have reporting and information rights and the permission to participate (but not vote) in the general meeting, which is the most important corporate body from a governance perspective. This novelty was implemented as a commitment and an answer to vociferous calls from the startup community. Although the original (also political) idea was to provide for the participation of employees, enterprise value shares may also be issued to other shareholders.

4. Borrowing respective concepts from the AG and recognising the permanent need for flexible capital measures, especially in startup companies, a FlexCo provides for capital measures (which does not exist for GmbHs), including conditional capital and authorised capital.

5. The most controversial feature of a FlexCo is the possibility to transfer shares without establishing the relevant deed in the form of a notarial deed, with the form requirement applicable to share transfers in a GmbH. The advantages and disadvantages of a notarial deed requirement were widely discussed and, ultimately, such a requirement was omitted.

The drawbacks

While the FlexCo may be considered a breakthrough in some respects, it also contains some stricter provisions that make it less appealing at second glance. A FlexCo for example provides for stricter requirements regarding the mandatory establishment of supervisory boards, ie, the criteria that apply in addition to the existing rules for a GmbH supervisory board. In addition, the concept of enterprise value shares seems initially attractive; however, enterprise value shares are defined by law and provide for less flexibility than contractual ESOP/VSOP programmes: their holders participate in the general meetings of the FlexCo, enjoy pre-defined profit (and liquidation proceeds) participation rights and have a mandatory tag-along right in certain exit situations. Such a concept may (or may not) be less appealing to investors, complicating a structured exit process. The improved tax treatment of enterprise value shares was also quickly extended to other forms of employee participation.

Conclusion

It remains to be seen whether the FlexCo will turn out to be a success in practice. Current figures show approximately 3,700 GmbHs established since the beginning of 2024 compared to a modest 160 FlexCos. However, the FlexCo is not yet internationally known, and even Austrian investors (alongside legal scholars) are still becoming familiar with this new form of company, its advantages and disadvantages. Recognising that there is still significant potential for growth in terms of FlexCos, one must also acknowledge that the successful implementation of a new form of company in Austria has initiated a discussion about reforming other company forms in Austria, most importantly the GmbH.