Reforming German Corporate Law for Startups: Clear Ambitions and Skewed Vision

For some time, German lawmakers have been trying to modernise the local legal framework to support the startup ecosystem, including through corporate law reforms. This post looks at the latest reforms of German corporate law to argue that their impact may be limited and that lawmakers willing to leverage corporate law for the benefit of startups should focus on addressing other, more pressing issues these firms face.

Pro-Startup Actions in Germany

German lawmakers have been trying to foster more local innovation and stop the steady migration of national champions to the US for a while. In 2021, the Merkel administration started releasing more capital than ever into the startup ecosystem via the so-called Future Fund. With the launch of the ‘Startup Strategy’ in 2022, the Scholz government began taking a more holistic approach to pro-startup policymaking, thus identifying ten fields of action, including strengthening funding for startups by, inter alia, amending corporate law (broadly defined).

The ‘Future Financing Act’ of 2023 sought to implement these policy objectives by amending the regime for stock corporations (Aktiengesetz), including the reintroduction of shares with multiple voting rights (MVRS). According to the lawmakers’ narrative, this should enable founders to have disproportional voting power and thus retain control of their companies beyond an IPO, thereby ultimately mitigating their alleged reluctance to go public. 

Continuing on this track, the Merz government’s ‘Act to Promote Private Investment and the Local Financial Market’ delineates additional corporate law-related measures, including allowing stock corporations to issue ‘penny stocks’. 

Is This Really What Startups Need?

These initiatives show that German lawmakers appreciate the role of corporate law in supporting the development of the local startup ecosystem, which deserves praise. Yet, the amendments they have passed and proposed are of limited actual importance for it and leave some critical items untouched.

Take, for instance, MVRS. Their reintroduction aims to allow founders to be insulated against undue minority pressure and thus implement their own idiosyncratic vision of the business (Goshen & Hamdani, 2016). Yet, evidence suggests that dual-class shares meet neither founders’ nor investors’ demand. On the one hand, at the IPO stage, most founders have already left (Broughman & Fried, 2020). On the other hand, investors are unlikely to seek out such arrangements actively. Practitioners share our scepticism.

Overall, while we cannot rule out that the reintroduction of MVRS might generally add value and induce a marginal increase in the number of IPOs, this amendment will most likely be of limited importance for the largest part of the startup population. For one reason or another, most startups are, in fact, far from an IPO.

What Else Can (and Should) Be Done?

The issues that most startups face are different. To begin with, startups typically incorporate as private companies (that is, GmbH) (Enriques, Nigro, & Tröger, 2025c). Modernising corporate law for the benefit of startups would thus require policymakers to shift their focus to the relevant legal regime. Reforms could chiefly concern two key aspects. 

First, German corporate law ‘in action’ (that is, as interpreted by scholars and then applied by legal gatekeepers, such as notaries, and courts, in their respective capacities) can be rigid and can thus impede designing optimal governance structures for startups and eventually constrain their access to external finance (Enriques, Nigro and Tröger, 2025a). Generally, startup financing requires complex contracts. In the US, entrepreneurs and sophisticated financiers, such as venture capitalists (VCs), leveraged Delaware corporate law’s flexibility to design contracts that approximate economists’ predictions and are regarded as the best real-world solution to the problems inherent in startup financing. They have thus emerged as the benchmark for governing deals with other non-traditional startup financiers and for transactional practice in many other jurisdictions. Yet, in Germany, a rigid corporate law can stand in the way of adopting that contractual framework. If not barring the adoption of optimal ‘Delaware-style’ arrangements (or functionally equivalent solutions) altogether, German corporate law can decrease their functionality or increase the risk that they may be declared void (Enriques, Nigro and Tröger, 2025a). 

Take, for instance, conversion rights, which, in the US startup financing, are key to engineering contingent control mechanisms, ie, contractual solutions that enable a VC to, eg, seize board control if the firm performs poorly (Kaplan and Strömberg, 2003). According to German scholars, the charter, which is publicly accessible, is instrumental in informing outsiders of the shareholders’ rights and obligations within the firm. Therefore, they are largely opposed to ‘conditional’ charter provisions, alleging that they create undue legal uncertainty (cf. Kuntz, 2016). Conversion rights clash with this view because they imply that a shareholder’s rights can change at their will and are thus substituted with alternative arrangements that are less functional (Enriques, Nigro and Tröger, 2025a). Other examples could follow (see, eg, Enriques, Nigro and Tröger, 2025b). But the bottom line is that a rigid corporate law can increase the cost of contracting while reducing the functionality of the contractual technology governing startup financing, thus possibly emerging, at the margin, as an obstacle to it (Enriques, Nigro and Tröger, 2024a). Yet, when it comes to how to implement reforms that would expand the room for private ordering, the risk is that reforming blackletter law may not be the most effective option on the table (Enriques, Nigro and Tröger, 2024c).

Second, corporate law prescribes notarization requirements that render it ‘unduly formalistic’, thus imposing significant costs on startups while often adding little-to-no-value. Some such requirements rest on outdated rationales. For instance, corporate law mandates the notarization of share transfers and obligations thereto—regularly resulting in a notarization requirement for shareholders’ agreements in the VC space. This requirement has a well-known history. In the aftermath of an inflated stock market during Germany’s Gründerzeit and the panic of 1873, the 1892 lawmaker brought in this notarization requirement chiefly to impede ‘speculative trading’ of GmbH shares. Nowadays, however, there is arguably no (longer any) perceivable notorious threat stemming from the free tradability of such shares that notarization should aim at preventing, as shown by the fact that shares in stock corporations and even in partnerships now trade freely without any notarization requirement (Harbarth, 2016).

Other notarization requirements rest on questionable rationales. And yet, they apply even beyond what black letter law prescribes. For instance, corporate law mandates the notarization of capital increases. Scholars and courts have effectively seen this requirement as crucial to, inter alia, ‘warn’ prospective shareholders about the consequences of acquiring an equity stake and accurately inform the public of the company’s shareholder structure (Lieder, 2018). Yet, while there is arguably no general need for such information and warning, particularly when it comes to sophisticated contracting parties, scholars and courts unduly emphasize these rationales to extend the same notarization requirement to ancillary acts, such as powers of attorney (Lieder, 2018) and even other ‘similar’ financing transactions, such as convertible loans (Harenberg, 2023). 

The extensive scope of these notarization requirements is arguably unjustified from both a traditional doctrinal and functional perspective, as it is challenging to identify a net benefit given their significant costs on startups. Notarial bills absorb considerable fractions of startups’ scant financial resources and eventually compel them to reduce investments accordingly. Further, the associated red tape can substantially delay urgently needed capital infusions, requiring some to resort to bridge financing to stay afloat. These examples suggest that there is room to reconsider several notarial requirements that affect the costs of startup financing. (This is not to question the economic function of notaries in general, but rather to highlight that the rationales invoked for these requirements no longer appear convincing in the startup context.)

Every startup must unavoidably deal with the issues sketched above throughout its lifecycle, which in the aggregate are plausibly at least as significant as those that German lawmakers are now trying to tackle. And yet, these issues have, so far, attracted relatively little attention on the policy level. 

Contemplating reforms aimed at addressing them would denote a real commitment to pro-startup corporate lawmaking with the potential to benefit a far larger segment of the local startup population. Developing such reforms is undeniably challenging, due, for instance, to the likely resistance of influential stakeholders concerned with protecting their rents (Enriques, 2005) through various channels (e.g., Towfigh, 2020) and the locally predominant legal culture (Enriques & Nigro, 2025). But implementing such reforms is the only way to fully unleash corporate law’s potential in supporting startups. Some of the initiatives of the current government explicitly aim to ‘subject the entire start-up financing architecture to an efficiency check’, ‘simplify notarial procedures’ and to ‘continue improving the framework conditions for start-ups’. This gives legitimacy to some (cautious) hope. Yet, no tangible proposal is on the horizon to date that may turn that hope into optimism. 

Conclusion

Eager to help German ‘soonicorns’ to leap, German lawmakers have been reviewing and are planning to refine, inter alia, domestic corporate law. Although valuable to some extent, the latest reforms focus mainly on the IPO stage, thereby leaving crucial issues that affect startups to an at least equally sizeable extent untouched. If willing to leverage corporate law to support VC and startups, German lawmakers should address the core challenges that corporate law creates for these firms from the onset of their existence.

Paul Harenberg is an Associate at YPOG and a Doctoral Candidate at Goethe Universität, Frankfurt am Main. The statements made herein represent solely his personal views.

Casimiro A. Nigro is a Lecturer in Business Law at the University of Leeds, School of Law.