From the Accounting Duty to the Publication Duty in Germany

All merchants (German: “Kaufleute”) within the meaning of the [German] Commercial Code (German: “Handelsgesetzbuch” or “HGB”) are under the accounting duty. Special additional duties are imposed on corporations (e.g. the AG (public limited company) and the GmbH (private limited company)). Such duties vary depending on the size of the company: duty to prepare the accounts, duty to audit the accounts, duty to publish the financial statements. A breach of these duties constitutes an administrative offence.

According to the Commercial Code (HGB), all merchants are under an accounting duty. Persons under an accounting duty must prepare their annual financial statements by a certain date and must preserve the accounts for a certain length of time. The HGB contains supplementary provisions for corporations and for certain commercial enterprises in relation to their size. These provisions contain more extensive rules for preparing and auditing the accounts and for publishing the financial statements. The legal representatives of the companies are responsible for fulfilling these duties, breaches of which may be punishable with penalties.

Section 238 HGB defines that basically all merchants and certain entities are under a duty to keep proper accounts:

Some other professional businesspeople may be under an accounting duty pursuant to tax law.

Proper accounting means that the party with the duty must report on the state of its commercial business and its financial situation. This means that the merchant, in addition to the annual inventory, must prepare financial statements that show, as per the close of the respective financial year, the relationship between assets and liabilities (balance sheet) and a comparison of expenses and income (income statement). The balance sheet and the income statement form the annual financial statements (Section 242 HGB). The annual financial statements must be prepared in accordance with German accepted accounting principles and within a period that is consistent with orderly business conduct (Section 243 HGB). The merchant must preserve the annual financial statements for ten years (Section 257 HGB).

The two main types of German corporations are the AG (public limited company) and the GmbH (private limited company). Special rules apply to them depending on the size of the company. The Commercial Code (HGB) distinguishes between three size classes:

small corporations (Section 267 (1) HGB), which may only exceed one of the following criteria:

medium-sized corporations (Section 267 (2) HGB), which may only exceed one of the following criteria:

All others are considered large corporations (Section 267 (3) HGB).

The provisions on corporations apply analogously to certain types of commercial enterprises, particularly the GmbH & Co. KG (limited partnership with a GmbH as general partner). The broader duties do not apply to those commercial enterprises in which at least one personally liable partner is:
- a natural person, or
- another commercial enterprise with a natural person as the personally liable partner or where the latter situation continues on through a connected chain of companies.

Corporations must supplement the annual financial statements with notes and with a management report (Section 264 HGB).
The notes (Section 284 ff. HGB) must explain the annual financial statements, for example they must explain the accounting policies applied to the balance sheet and the income statement or the ratio of current liabilities to total liabilities. The management report (Section 289 HGB) must describe the course of business and the position of the company.
These documents must be prepared by the legal representatives of the corporation. This is the management board (German: “Vorstand”) in an AG and the managing director (German: “Geschäftsführer”) in a GmbH. The deadline for preparing the statements is three months after the close of the financial year.
Certain exceptions apply to small corporations. They do not have to prepare a management report, and the deadline for preparing the statements is six months after the close of the financial year provided that this is consistent with orderly business conduct.

The annual financial statements and the management report must be audited by an auditor (Section 316 ff. HGB). The duty to audit does not apply to small corporations.
The auditors must be elected by the shareholders prior to the end of the financial year to which their audit activities relate (Section 318 HGB). If the shareholders are late in electing an auditor, then the auditor must be appointed by the competent court upon application [of the legal representatives, the supervisory board, or a shareholder].
The auditor must prepare an audit report (Section 321 HGB) and must accompany the annual financial statements with an auditors’ report that summarizes the findings of the audit (Section 322 HGB).
It is important to note that anyone who participates in the preparation of the annual financial statements is not allowed to be an auditor.

The duty to publish is regulated in Section 325 ff. HGB. The annual financial statements together with the auditors’ report or the non-affirmative auditors’ report must be filed in electronic form with the operators of the online federal gazette called the “elektronischer Bundesanzeiger”. They must be filed by the legal representatives of the corporation without undue delay following submission of them to the shareholders, however no later than the end of the 12th month of the financial year following the balance sheet date. Other documents that have to be published are set out in Section 325 HGB. The legal representatives of corporations must also file these documents in the “elektronischer Bundesanzeiger” without undue delay after their submission to the shareholders.

Small corporations only have to file the balance sheet and the notes. These must be filed in electronic form with the operator of the “elektronischer Bundesanzeiger”. The notes do not have to contain any disclosures relating to the income statement (Section 326 HGB). Section 327 HGB contains exemptions from certain publication obligations for medium-sized corporations. Whether a corporation is classified as small, medium-sized, or large is decided pursuant to the definitions in Section 267 HGB. The operator of the “elektronischer Bundesanzeiger” reviews whether the required documents have been filed on time and in a complete form (Section 329 HGB).

Breaches of these duties are considered administrative offences. Administrative offences are punishable by fines of up to EUR 50,000. The Federal Office of Justice also has the power to prescribe fines to enforce fulfilment of certain duties.

Important: This online information can only provide you with a general overview of the duties owed. There are exceptions for example in the case of consolidated financial statements of parent companies and in the case of consolidated financial statements pursuant to European Union law directives. This online information is no substitute for the individual advice of a member of the legal or accounting professions.