Equity Capital Market:

In Germany, the equity capital market is governed by both EU and German law.

Its landscape depends on the stock exchange in Germany on which a company’s shares are (to be) admitted to trading. There are some regional stock exchanges, but the main stock exchange in Germany is the Frankfurt Stock Exchange (“FSE”) – the FSE will be the stock exchange referred to throughout this article. The FSE operates the EU-regulated market and the Open Market segments, which both provide for sub-segments (e.g. Prime Standard and General Standard on the EU-regulated market) with different admission requirements and post-admission obligations.

The most important sets of rules at the European level are the prospectus regulation (“Prospectus Regulation”), the delegated regulations based thereon and respective ESMA Guidelines as well as the market abuse regulation (“MAR”). At the German level those are the German Stock Exchange Act (Börsengesetz, “BörsG”), the German Stock Exchange Listing Regulation (Börsenzulassungsverordnung, “BörsZulV”), the German Securities Prospectus Act (Wertpapierprospektgesetz), the German Securities Trading Act (Wertpapierhandelsgesetz, “WpHG”), the German Stock Corporation Act (Aktiengesetz, “AktG”), the German Transformation Act (Umwandlungsgesetz, “UmwG”) and the German Corporate Governance Code (“GCGC”; Deutscher Corporate Governance Kodex) as well as the respective rules and regulations of the relevant stock exchange in Germany (e.g. Exchange Rules for the FSE, “FSE-Rules”; Börsenordnung für die Frankfurter Wertpapierbörse).

In general, a company’s shares may be admitted to trading on the FSE if (i) a securities prospectus has been approved (“Prospectus Approval”) and (ii) the admission of the shares to trading on the FSE has been decided upon positively (“Admission Decision”) (for exemptions see no. 2). The Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, “BaFin”) is the competent authority for the Prospectus Approval and the management (Geschäftsführung) of the FSE is the competent body for the Admission Decision.

Debt Capital Market:

The regulatory framework applicable to the debt capital market in Germany is very similar to the framework for equity capital markets described above. There are, however, a number of differences, both from a legal and a market practice perspective.

A prospectus must be prepared in accordance with the Prospectus Regulation for the public offer or admission to trading on a regulated market of debt instruments. In contrast to equity instruments, the most relevant stock exchanges for debt instruments in the German market are the Irish Euronext Dublin and, in particular, the Luxembourg Stock Exchange.

To avoid the time-consuming prospectus approval procedure with a competent authority, wholesale debt securities are often only admitted to trading on an unregulated market (for example the Euro MTF market of the Luxemburg Stock Exchange). The stock exchanges themselves are responsible for reviewing the admission prospectuses drawn up for this purpose; the Prospectus Regulation does not apply.

The most important German law specific to debt securities is the German Debenture Bond Act (Schuldverschreibungsgesetz, “SchVG“). The law regulates general principles applicable to German law governed debt securities such as the equal treatment of holders and contains an optional procedure for majority resolutions of holders, which only applies if the terms and conditions of the securities contain an explicit reference to the SchVG.

The common statutory exemptions are:

• private placement with institutional investors, e.g. offering only to qualified investors (e.g. professional clients);
• offers with a high subscription volume per investor, e.g. an offer with a minimum denomination of EUR 100,000.00;
• certain exchange offers, e.g. securities in the context of an exchange public takeover offer;
• certain offers to management bodies or employees; or
• offers by credit institutions or by already listed issuers, if the total value of all securities offered in the EEA does not exceed EUR 8 million, calculated over a period of 12 months – note, however, that such an offer below the threshold of EUR 8 million in said period originating from a non-credit institution or a non-listed issuer requires the publication of a securities information sheet (Wertpapier-Informationsblatt) with prior approval by BaFin.

The admission of shares to trading on a stock exchange may also benefit from statutory exemptions from the prospectus requirement, such as:

• offering of new securities of the same class as securities already listed on a stock exchange, provided that they account for less than 20% of the number of securities already listed over a period of 12 months – note that, in Germany, since the entry into force of the German Future Financing Act (“GFFA”; Zukunftsfinanzierungsgesetz) at the beginning of 2024, capital increases may be carried out by a listed company to the extent of up to 20% of its share capital, both without a prospectus and under exclusion of subscription rights; or
• offering of new securities of the same class as already listed securities on a stock exchange to management bodies or employees – note, however, that the requirement of the same class of securities already listed on a stock exchange makes this exemption narrower than certain prospectus-free public offerings to management bodies and employees.

The EU Listing Act will introduce some extensions to the above-mentioned exemptions (e.g. increase of the threshold from 20% to 30%) and require a standardised and limited prospectus (maximum 300 DIN A4 pages) for initial issues. The aim of the EU Listing Act is to facilitate access to capital markets in order to increase the attractiveness of the EU capital market.

The insider trading regulation in Germany are those of the MAR and respective implementing and delegated regulations of the commission. BaFin has issued Guidelines for Issuers (Emittentenleitfaden), which contain BaFin’s administrative practice regarding the interpretation and application of the MAR. Besides, the WpHG governs potential sanctions.

The MAR defines an insider information as an information of (i) a precise nature, (ii) which has not been made public, (iii) relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and (iv) which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments.

The MAR governs:

• insider trading and exemptions thereto,
• unlawful disclosure of insider information,
• market sounding,
• market manipulation,
• ad hoc notification (as soon as possible) or delay of ad hoc notification (so-called self-exemption),
• insider lists, and
• managers’ dealings.

A public company would in general take an approach on both on board level as well as on company/group level to comply with insider trading rules: On board level, the management board is responsible for insider trading items and only in very narrow cases the supervisory board. Typically, the management board delegates insider trading items to an insider committee, which continuously monitors the existence of an insider information and decides upon its disclosure via ad hoc notification or upon a self-exemption. On company/group level, besides the mandatory drawn up insider lists (mostly electronically) the management board typically issues insider and capital markets law guidelines. Sometimes, in large groups, particularly where more than one entity is a listed entity, a central clearing committee/position is introduced to which potential insider law relevant matters from within the group are reported. This body then decides on a central level whether the matter (i) qualifies as insider information, (ii) an ad hoc notification is required, or (iii) a self-exemption may be resolved upon.

The EU Listing Act will also (as in prospectus law, see no. 2) bring about facilitations in insider law, such as specifying the criteria for a self-exemption and abolishing the ad hoc notification requirement for information related to intermediate steps (the insider trading prohibition remains in place for intermediate steps). The latter facilitation is particularly relevant for M&A transactions.

The shareholders of a listed German stock corporation have the following key remedies:

• any shareholder has the right to propose candidates for the court-appointed supervisory board if the board is incomplete or below the minimum number for decision-making;
• shareholders with 1% of the share capital or a pro rata amount of EUR 100,000.00 have the right to ask a court to appoint a special auditor; and
• shareholders with 10% of the share capital or a pro rata amount of EUR 1 million have the right to ask a court to appoint a special representative to pursue damage claims of the company against board members.

There are no specific remedies for holders of debt securities apart from the normal civil law / insolvency law procedures to enforce their claims under the instrument.

Equity Capital Market:

2024 started with two promising listings in Germany, the listing of RENK Group AG and the IPO of Douglas AG. Both were expected to be ice breakers for IPO activities in Germany but ended up not to serve as such due to the difficult macroeconomic environment and volatility in the market as seen in 2023, which continued in the first half of 2024. Nonetheless, against the background of ECB’s recent decision to lower the reference rate on the one hand and the strong IPO pipeline on the other hand, the IPO activity in Germany could increase in the second half of 2024 and beyond.

Debt Capital Market:

Despite global crises and a difficult economic situation in Germany, the market for debt issues in Germany was very active in the first five months of the year 2024. In addition to many re-financing transactions, there were also some large-volume issuances to finance M&A activities as well as a number of first-time issuers. The development of the market in the second half of the year will depend significantly on further macroeconomic trends, the interest rate environment and global political events. No legal or regulatory changes are expected that could have a material impact on the market.

A company that applies for the admission of its shares to trading on the FSE must meet the admission requirements of the BörsG, the BörsZulV and the FSE-Rules. The essential admission requirements on the FSE are:

• a valid and approved prospectus;
• the existence of the company and a three year financial statement track record (see no. 17);
• a probable total value of the shares floated of at least EUR 1 million;
• a total of at least 10,000 shares to be admitted to trading; and
• a free float of at least 25% of the total issue, whereby as an exception a lower percentage (e.g. 10%) may be sufficient if orderly trading is ensured owing to the large number of shares.

The EU Listing Act will also (as in prospectus law, see no. 2) introduce some relief in the area of admission requirements: the minimum requirement for free float will be reduced from 25% to 10%. Since this will be an amendment to the MIFID II, it remains to be seen when the reduction will be implemented in German law.

In case of a dual listing, the issuer must meet the admission requirements of both the FSE and the foreign stock exchange. Accordingly, the preparation of the transaction and marketing documents must be carried out in compliance with the legal requirements of both jurisdictions.

A listed German stock corporation may issue ordinary shares with voting rights (Stammaktien), preference shares without voting rights (stimmrechtslose Vorzugsaktien) as well as, since 2024 as introduced by the GFFA, registered shares (not bearer shares) with multiple voting rights (Mehrstimmrechtsaktien), which may be endowed with up to a maximum of ten times the voting power measured in ordinary shares.

The EU Listing Act will introduce the Multiple Voting Rights Directive. However, since this has already been reflected in Germany since 2024, the EU Listing Act will not bring about a change in Germany in that regard.

In general, the principle of equal treatment applies in a German listed stock corporation. This means that granting special rights to certain shareholders is an exception that is permissible if it is objectively justified and not arbitrary.

The AktG establishes some legal justifications, on the basis of which the articles of association may, for example, grant the following rights:

• delegating a member to the supervisory board;
• receiving preference in the distribution of the retained profit; and
• receiving preference in the distribution of the liquidation proceeds.

In addition, a special right may be granted on an ad hoc basis in a special exceptional situation, which must be permissible under both corporate and capital market law in the specific individual case: for example, the receipt of (insider) information in preparation of a general meeting at which resolutions are to be passed on structural measures of particular magnitude in the interest of the stock corporation (see no. 13).

Yes, in Germany a SPAC’s shares may be admitted to trading on the FSE. Examples in the recent past include 468 SPAC I SE, in April 2021, or 468 SPAC II SE, in January 2022.

The requirements to admit a SPAC’s shares to trading on the FSE are the same as for regular issuers. However, a SPAC typically does not exist at least three years prior to its listing and it does not have the required financial statement track record (see no. 17). Therefore, it is in the discretion of the management of the FSE to decide upon an exception. According to the FSE, the criteria for granting such exception include:

• payment of the IPO proceeds into an interest-bearing escrow account;
• detailed description of the intended use of the proceeds in the approved prospectus; and
• proof of (i) the limited period of existence of the SPAC, (ii) mechanics of repayment to the investors upon the liquidation of the SPAC regarding the amount in the escrow account, and (iii) requirement of a shareholders’ approval with at least 50% regarding the use of the trusted assets by the SPAC.

The issuer and listing agent(s) are both liable for any material misstatement or omission of essential information in the prospectus, by law. But they can avoid liability with due diligence if they did not act with intent or gross negligence. Managers are usually not liable for the prospectus. In the underwriting agreement, the company usually represents and warrants vis-à-vis the underwriters that the prospectus, marketing materials, and other business aspects are true and complete. Selling shareholders, who are also typically a party to the underwriting agreement, make fewer representations and warranties.

The key minority shareholder protection mechanisms in a German stock corporation are:

• the rights in the preparation of the convocation, during and after a general meeting, e.g. request to supplement the agenda, right to speak and to ask questions, filing actions for rescission and nullity;
• the right to initiate a special audit and to apply for judicial appointment of a special auditor (see no. 4);
• the right to apply for the judicial appointment of a special representative (see no. 4); and
• special protection mechanisms in the context of transformation measures and squeeze-outs, e.g. the right to legal proceedings to examine the appropriateness of the conversion ratios or the cash compensation (Spruchverfahren).

Any type of public offer pursuant to the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz, “WpÜG”) vis-à-vis the shareholders of a listed German stock corporation requires the publication of an offer document and, therefore, the scrutiny by BaFin (similar to the Prospectus Approval). The WpÜG distinguishes three types of public offers: (i) tender offer, i.e. voluntary public offer not aimed at gaining control, (ii) takeover offer, i.e. voluntary public offer aimed at gaining control, and (iii) mandatory offer, i.e. public offer required by law after control has been obtained (see no. 15).

Besides, any type of M&A transaction can trigger in particular:

• a merger control,
• foreign direct investment control,
• foreign subsidies regulation scrutiny,
• holder control procedures and/or
• in case of a US link – a control by the Committee on Foreign Investment in the United States (CFIUS).

To determine a related party, international accounting standards are to be applied (IAS and IFRS). Companies of the same group (e.g. parent and subsidiary) are related parties. A transaction between such a related party and a listed company is material if the economic value of the transaction exceeds 1.5% of the sum of fixed and current assets of the most recently adopted annual (consolidated) financial statements.

If no exception applies and the relevant value exceeds the 1.5%-threshold, the approval of the supervisory board must generally be obtained before the conclusion of the underlying contract.

A related party transaction must be made public immediately after the entering into the transaction. If the transaction is insider law relevant and there is an ad-hoc notification obligation (see no. 3), the related party transaction information must be included in the ad-hoc notification pursuant to MAR – in this case, a separate publication pursuant to AktG is not required.

The key continuing obligations of a substantial or controlling shareholder of a listed German stock corporation include the duty:

• of loyalty vis-à-vis the AG;
• of loyalty vis-à-vis the minority shareholders;
• to refrain from competition in certain cases as a special expression of the duty of loyalty;
• to publish voting rights notification when thresholds are reached, exceeded or fallen below (i.e. 75%, 50%, 30%, 25%, 20%, 15%, 10%, 5%, or 3%);
• to make a mandatory public takeover offer if the threshold for qualifying as a controlling shareholder is reached or exceeded without being a result of a voluntary public takeover offer (i.e. 30% or more; see no. 15); and
• to comply with the obligations under insider law (mutatis mutandis; see no. 3), provided that the shareholder has exceptionally and permissibly received insider information (see no. 3).

The competences of the general meeting of a listed German stock corporation in relation to corporate actions or transactions include deciding on

• the appropriation of the retained profit;
• the remuneration system and the remuneration report for management and supervisory board (so-called say on pay);
• capital raising and capital reduction measures;
• the transfer of the company’s entire assets outside of a reorganization under the UmwG;
• the conclusion of an intercompany agreement (in particular a domination and/or profit and loss transfer agreement);
• a change of legal form under the UmwG;
• the conclusion of a contract or the preparation of a plan to carry out a (cross-border) division or merger under the UmwG; and
• structural measures (e.g. transfer of important business assets from a subsidiary to a grandchild level; usually more than 50%) that lead to a mediatization of the shareholders’ rights (so-called Holzmüller/Gelatine doctrine).

In addition, the management board may submit management measures to the general meeting in order to obtain the approval of the shareholders before implementing the measure.

Under the WpÜG, a mandatory public takeover offer is triggered if a bidder acquires 30% or more of the target company’s voting rights (“Control”).

The WpÜG provides three exemptions from the mandatory public takeover offer:

• acquisition of Control based on a voluntary public offer – this exception applies by law;
• approval by BaFin (upon request) that certain voting rights attached to the shares of the target company are not considered for determining Control in the context of certain transactions (e.g. intra-group reorganisation); and
• release by BaFin (upon request) from the obligation – among other – to issue a mandatory public takeover offer provided that BaFin exercises its discretion accordingly.

The AktG does not require that a listed German stock corporation engage independent supervisory board members. However, the GCGC recommends that the supervisory board of a listed German stock corporation

• shall have an appropriate number of independent shareholder representatives, taking into account the ownership structure;
• with a controlling shareholder shall have at least two shareholder representatives in the case of a supervisory board with more than six members, and at least one member independent of the controlling shareholder in the case of a smaller supervisory board; and
• shall have a chairperson independent of the company and the management board – the same applies for the chairperson of the management board remuneration committee and the audit committee, whereby the latter shall also be independent of the controlling shareholder.

In addition, the GCGC recommends that

• no more than two former management board members shall be members of the supervisory board; and
• the supervisory board members shall not exercise any executive functions or advisory duties at a major competitor or have a personal relationship with it.

A deviation from the recommendations of the GCGC is permissible. However, this must be disclosed and justified in a declaration of compliance (so-called comply or explain).

In general, audited financial information for the issuer’s last three financial years must be included. Depending on the timing of the offering, the inclusion of quarterly, half-yearly or nine-month financial information may also be required, in particular if such information has been published or is available prior the offering. In addition, in special cases (e.g. spin-off IPO), the inclusion of pro forma financial information or combined financial information may be required.

Regarding the expiration date of financial information, a distinction must be made between the legal requirements and the factual market practice:

• From a purely legal point of view, no more than 15 months must have been elapsed since the balance sheet date of the last audited annual financial statements, whereby it is noteworthy that the reference date for the cap-table must not be older than 90 days.
• Factually, the period of 135 days between the reporting date of the last audited or reviewed financial statement and the planned date of signing the underwriting agreement, i.e. typically congruent with the planned date of publication of the prospectus, is decisive for IPOs. Because the auditors regularly link the submission of their comfort letter, which is a condition precedent of the underwriting agreement and contains a statement regarding their findings, to the 135-day period.

The financial information must generally be prepared in accordance with IFRS. Third country issuers may include financial information in accordance with the accounting standards of their home country if they are comparable to IFRS. Comparability has for example been recognised for US- and People’s Republic of China-GAAP. In addition, BaFin requires from a German issuer intending to list on the FSE that unconsolidated financial statements pursuant to the German Commercial Code (Handelsgesetzbuch) are included.

The key ESG and sustainability requirements relate to the non-financial reporting obligation, including a sustainability report as part of the management report, due diligence obligations in connection with supply chains, disclosure obligations of certain financial investors with regard to the ecologically sustainable investment of the capital they manage, and sustainability aspects of management board remuneration.

A change in the non-financial reporting obligation will be introduced by the implementation of the Corporate Social Responsibility Directive, which expands both the personal and material scope of non-financial reporting. In addition, a draft of the Corporate Sustainability Due Diligence Directive is available, the implementation of which is likely to significantly expand the duties of the management board, particularly regarding supply chains and climate protection. Further, a competence for say-on-climate decision-making is being discussed in Germany, i.e. participation of the general meeting in relation to climate and environmental protection as well as social issues.

Both structures are used in Germany, with direct issues accounting for the vast majority of transactions. The historic trend towards the use of financing subsidiaries based in Luxembourg and the Netherlands has declined significantly. The background to such indirect structures is predominantly favorable tax structuring options.

No. The “trust” concept, as practiced, for example, under English law, is not recognized under German law and no trust structures are used for issuing debt securities.

Credit enhancement structures are not usually required for the issuance of debt instruments by issuers with an investment grade rating or comparable credit standing. In such cases, an irrevocable and unconditional guarantee is only provided by the parent company in the case of an indirect issue.

If the issuer does not have a corresponding rating or standing (“high yield”), upstream guarantees from the main operating subsidiaries and security interests in material assets are typically required.

Debt Instruments of issuers with an investment grade rating or comparable credit standing typically do not include covenants. The real estate sector is an exception here. For issuers which are primarily invested in real estate assets, it is to be required to comply with a number of financial covenants relating to the ratio of assets to indebtedness, the coverage ratio and the ratio of unencumbered assets.

In the high yield segment, most high yield bonds issued by German issuers are governed by New York law and follow the market practice for high yield bond covenants.

If the instruments are kept or administered in a domestic securities deposit account by a German credit or financial services institution which pays or credits the interest, a 25% withholding tax, plus a 5.5% solidarity surcharge thereon, resulting in a total withholding tax charge of 26.375%, is levied on the interest payments. Capital gains from the sale (including the redemption) of the instrument are also subject to the 25% withholding tax, plus a 5.5% solidarity surcharge thereon.

Income derived from the instrument by holders who are not tax resident in Germany is in general not subject to German income taxation, and no withholding tax is withheld, subject to certain exceptions.

The purchase, sale or other disposal of debt instrument does not give rise to capital transfer tax, value added tax, stamp duties or similar taxes or charges in Germany.

For instruments to be admitted to an EU-regulated market, a securities prospectus in accordance with the Prospectus Regulation has to be prepared, approved by the competent authority and published unless certain exceptions are applicable. In case of a base prospectus for the continued listing of debt securities, the issuer will need to ensure that such base prospectus is supplemented if there are new material information concerning the issuer or the instruments.

Issuers with instruments listed on a regulated market are subject to certain follow-up obligations primarily stipulated by the WpHG. Unless certain exceptions are applicable, such issuers are in particular required to prepare and publish annual and half-yearly financial reports.

For instruments to be admitted on an unregulated market, the listing requirements and follow-up obligations will depend on the rules and regulations of the relevant stock exchange.

Issuers of debt securities listed on either a regulated or unregulated market based in the European Union will need to comply with the obligations stipulated under the MAR.