The legal form of a public limited company – advantages & disadvantages

What is a public limited company?

The legal form of a public limited company is a form of corporation.

The share capital of a public limited company is contributed to the public limited company by the shareholders. The public limited company is liable for liabilities as a legal entity exclusively with its corporate assets.

The legal form of a public limited company creates reputation, not only for the company but also for its directors. The management of a public limited company has three parts:

  • the Annual General Meeting
  • the Supervisory Board
  • the Executive Board.

A public limited company is managed by the board of directors, which is controlled by the supervisory board. The owners are the shareholders, who can belong to the executive board. The shareholders who do not belong to the executive board cannot give instructions to the executive board and – unlike the shareholders of a GmbH – cannot intervene in the operational business of the company. The board is not bound by the instructions of the shareholders. However, boards must be aware that the public limited company needs the favour of the shareholders in order to be securely financed. Voting procedures require good communication so that important decisions can be made in a reasonable time. The regular general meetings required by law can be helpful for this, but they also require preparation and follow-up work.

Advantages and disadvantages of the legal form of a public limited company

One advantage of stock corporations over GmbHs is that rights to shares are more fungible than rights to GmbH shares. While the transfer of GmbH shares to new shareholders must always be notarised, rights to shares can change ownership informally. A public limited company exists independently of changes in ownership of its shares.

By issuing shares to third parties, joint-stock companies can become more independent of credit institutions than a limited liability company (GmbH) can.

On the other hand, the administrative burden is greater in joint-stock companies than in limited liability companies. Stock corporations must have a supervisory board, which in many cases expects an expense allowance. Duties to document and publish plans and activities are considerably stricter than for GmbHs, which are bound by the GmbH Act (GmbHG), due to the requirements of the Stock Corporation Act (AktG).

In a public limited company, executive and supervisory board members can be held personally liable for breaching due diligence obligations. If you hold an executive or supervisory board position, have yourself included in the company’s D&O insurance. The company will agree to this if only because it allows it to file claims for damages against the insurance company if necessary, where it is easier to get larger sums paid than for a member of the executive board or supervisory board.

Form a public limited company: This is what matters

However, the formation of a public limited company is relatively complex.

If you want to form a public limited company, you need a supervisory board. The division of responsibilities between the supervisory board and the executive board must be carefully worked out.

Due to the formal strictness of the Stock Corporation Act, essential founding documents must be notarised. Fees are incurred for the formation steps, which are usually higher than the fees for the formation of a limited liability company (GmbH).

Shareholders in a public limited company must pay at least EUR 50,000 of share capital into their company, which is made available for creditor protection.

Directors must be appointed (and removed) by the shareholders at the general meeting with a majority defined in the articles of association. Public limited companies with more than 3 MEUR share capital must have at least two directors.

Every public limited company must have at least three supervisory board members (appointed and dismissed) by the general meeting.


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