LLCs and Stock Corporations in Austria A Comparison

1. Introduction
The Austrian legal system offers a broad variety of company types for individuals and legal entities. Austrian law recognizes civil partnerships, general and limited partnerships, silent partnerships, commercial cooperatives as well as companies with limited liability (LLC) and joint Stock Corporations. In addition there are company types like the Societies European (SE) or the European Economic Interest Grouping (EEIG), which are based on European Union Legislation.
Furthermore, private foundations which under fiscal law aspects are an attractive vehicle for high net-worth individuals to invest in Austria are quite popular.
Foreign individuals and legal entities may operate under any of these business forms in Austria.
The two most popular forms of companies are the Joint Stock Corporation and the LLC. According to numbers provided by the Austrian Federal Economic Chamber (WKO), there were a total of 52.380 LLC registrations at the Austrian Commercial Register between 1993 and 2008. The LLC is relatively easy to establish and to run; furthermore, the shareholders can issue binding instructions to the managing directors, thereby ensuring a parent company with substantial control over its subsidiary.
Below is the basic information that will be important for you when establishing a business.
2. Limited Liability Company
General:
The LLC is a suitable company type for small and medium sized businesses and is often also registered as Austrian Subsidiary for internationally organized groups. It may undertake any legal or trading activity except the insurance business, mortgage banking, equity funds, and political activities. Depending on the companys activity a business license may be required. Upon its registration in the Austrian companies register the LLC as well as Stock Corporations come into existence.
Requirements:
An LLC may be incorporated by one or more shareholders. They may be individuals or legal entities, resident or non-resident, Austrian or foreign citizens.
The minimum share capital amounts to EUR 35.000 divided into shares with a minimum value of EUR 70. At least half of the share capital must be raised in cash, whereas the remaining part may be raised in assets other than cash (contribution in kind). Each shareholder has only one share and must pay up in cash at least one quarter of his share. The total of all cash contributions must be at least EUR 17.500.
The companys registered office has to be located in Austria.
The cost for establishing an LLC in Austria in principle depend on the amount of share capital.
Corporate Bodies:
a) An LLC is represented by at least one managing director. None of them needs to be resident or Austrian citizen. For practical reasons, it can be advantageous if one of the managers is a resident of Austria. The management authority can be restricted by the shareholders, who can exercise their right to fix guidelines and instructions regarding any particular business matters.
b) A supervisory board is required by law only in certain cases, for example if the LLC controls other companies (group) and if the aggregate number of their employees exceeds 300. The supervisory board consists of a minimum of three members appointed by the shareholders.
The supervisory board exercises control over the management of the company and performs other duties as provided by law and by the companys articles of association. Unlike the supervisory board of a Joint Stock Corporation, it may not appoint or remove managers. The supervisory board must meet at least four times per year.
c) The shareholders meeting (general assembly) is the supreme body of the LLC. Shareholders appoint and recall managing directors and determine their remuneration as well as their terms of employment and approve the annual financial statements. The general assembly may deal with any matter and give the managing directors binding instructions on any management issue. The annual shareholders meeting must be held at least once a year, within the first eight months of the financial year, to review and approve the annual financial statements, distribute the companys net profit etc.
3. Joint Stock Corporation(JSC)
General:
Like the LLC, the JSC is a corporation and shareholders are not personally liable for the debts of the company. The JSC is the most complex legal entity, suitable for businesses which require larger amounts of capital. The most important advantage of the JSC is the flexibility in transferring its shares and the ability of the JSC to raise funds on capital markets.
It is also possible to start a single-person JSC. Shareholders can be individuals or corporations. This type of company can have any object of activity.
Requirements:
The minimum share capital of a JSC amounts to EUR 70.000. The stock capital is divided either into stock with a par value of at least EUR 1 or into stock representing a percentage of the stock capital without a par value. Stock can be issued in the form of registered stock or bearer stock. While stock may be issued at a premium, it must not be issued below par value. At least one quarter of the par value and the full premium must be paid up prior to registration of the JSC in the commercial register. If the stock is not fully paid up, it must be issued in the form of registered stock. Up to one third of the stock capital of the AG may be non-voting preferred stock, which grants a right to a preferred dividend without voting rights.
Corporate Bodies:
The Austrian Stock Corporation Act is based on a two-tier management system (management board, supervisory board).
a) The representative corporate body of JSC is the management board, consisting of one or more members. The management board not only represents the JSC, but also runs the day-to-day business. Its members are subject to statutory non-competition rules. Members of the board can only be appointed for a maximum term of five years, however, reappointments are permitted. In contrast to the LLC, the instructions and directions from the supervisory board or the stockholders assembly are not binding for the management board. But the management board has a duty to report to the supervisory board. Financial statements must be prepared by the management board, and, regardless of the
JSC s size, be audited and approved by the supervisory board and presented for approval to the general assembly.
a) In contrast to the LLC, a supervisory board is always compulsory. Supervisory board members are appointed by the general assembly. The supervisory board consists of at least three members who are elected by the general assembly. According to a specific Labour Act, member(s) of the labour council are delegated to the supervisory board as representatives of the employees. The main functions of the supervisory board are to appoint and remove the members of the management board, to give pre-approval (for specific transactions of major interest to the company), to supervise and, as appropriate, give advice to the management board, to safeguard the shareholders interest and to give the corporations employees some participation in management matters. The supervisory board must approve the audited annual financial statements. The supervisory board checks the management report and the distribution of profits and must give a report to the general assembly.
b) The general assembly must be held at least once a year, within eight months after the end of each financial year. The stockholders decide, inter alia, on the distribution of profits, formal approval of certain actions of the supervisory board and board of directors and on the appointment of auditors. For certain fundamental decisions, e.g. the increase or reduction of Share Capital, other changes to the articles of association, mergers, liquidation, etc., a qualified majority of 75% of the votes is required. All decisions of the general assembly must be certified by a notary public in order to become legally effective.
4. Comparison between LLC and Joint Stock Corporation:
Organization:
- LLC - More shareholders orientated with a higher degree of statutory control.
- JSC - Complex organization, less direct control from the shareholders.
Transfer of Shares:
- LLC - Requires notarial deed.
- JSC - Usually, may be transferred without a notarial deed.
Supervisory board:
- LLC - Mandatory if the aggregate/average number of employees exceeds 300.
- JSC - Always mandatory.
Senior:
- LLC - Managing directors appointed by shareholders for indefinite periods of time, management: and can be removed at any time (without cause).
- JSC - Executive board members are appointed by the supervisory board for a maximum of five years and can be revoked only for cause.
Binding instructions:
- LLC - The shareholders may give binding instructions regarding all management issues to the management board.
- JSC - The shareholders and supervisory board do not have a right to give a binding
instructions to the management board.
Shares:
- LLC - Each shareholder has only one share. No share certificates issued. Quotation on stock exchange not possible.
- JSC - The shares must have a nominal value of 1 or multiple thereof. The shareholders may hold more than one share. Share certificates may be issued. Quotation on stock exchange possible. Shareholders can remain anonymous.
Minority protection:
- LLC - 10% of capital stock required for exercising minority rights.
- JSC - 5% of capital stock entitle share-holders to exercise certain minority rights.
Voting rights:
- LLC - Each shareholder must have at least one vote. The Voting rights and the rules of profit allocation may be laid down in the articles of association.
- JSC - Up to one third of the shares may be non-voting shares (the so-called preference shares without a voting right provide a right to a preference dividend).
Quota of profit:
- LLC - Usually proportional with the paid-in capital.
- JSC - Dividends, proportional with the contribution to the share capital.
Majority requirements for shareholders decisions:
- LLC - Usually a simple majority, although specific majorities are stipulated by the law for certain matters (eg. for the change of the articles of association); some decisions require unanimity of the shareholders (change in line of business).
- JSC -Usually a simple majority, although specific majorities are expressly required by the law for certain matters (eg. changes of the articles of association).
ABOUT THE AUTHOR: Graf Patsch Taucher Attorneys at Law LLC
Graf Patsch Taucher Attorneys at Law LLC - business attorneys specialised in Real Estate, Banking, Corporation Finance, M&A and Corporate and CEE. We communicate in German, English, French, Russian and Polish.