Energy transition meets corporate law reform: Is the FlexCo ideal for energy communities?

Among the statutory models available for energy communities (ECs) in Austria – which are particularly active in the collective generation, sale, and consumption of renewable energy – both so-called renewable energy communities (RECs, local and regional grid levels) and so-called citizen energy communities (CECs, nationwide networks) must be organised as independent legal entities. Pursuant to the Austrian Electricity Industry and Organisation Act (Elektrizitätswirtschafts- und -organisationsgesetz, ElWOG 2010), possible legal forms of ECs are associations (Vereine), cooperatives (Genossenschaften), corporations (Kapitalgesellschaften) and partnerships (Personengesellschaften).

In practice, cooperatives have generally been the preferred legal entity for ECs so far – but why is that, and will it change with the introduction of the Flexible Company (FlexCo) as a new type of legal entity in Austria?

Retrospective – A look at the legal basis sheds light on the current status: As can be seen in the Act on Cooperatives (Genossenschaftsgesetz, GenG), the main purpose of a cooperative is to benefit its members; accordingly, the purpose of an EC is precisely to supply energy to its members. The flexibility due to the rather uncomplicated process for entering and exiting a cooperative is also consistent with the nature of an EC. In contrast, the classical Austrian corporations – the limited liability company (GmbH) and the stock corporation (AG) – are not equally well-suited for ECs, mainly due to their formalism and rather strict capital maintenance rules. At this point, one could affirm that cooperatives are the best practice for ECs in general, BUT:

Curtain-up for the FlexCo – A new type of corporation was introduced in Austria as of 1 January 2024: the Flexible Company (Flexible Kapitalgesellschaft), FlexKapG or FlexCo for short. In a nutshell, it combines several elements of the limited liability company (GmbH) and the stock corporation (AG). The FlexCo seems destined to become an attractive alternative to cooperatives for the organisation of ECs, in particular due to the flexibility, transparency, and control it offers.

Flexibility: The articles of association of a FlexCo may allow the issuance of a special type of shares, so-called company value shares (Unternehmenswert-Anteile) with a nominal value of at least one eurocent each, for up to less than 25% of the FlexCo’s total share capital. Basically, company value shares do not confer general assembly voting rights on their holders (see also below). They also do not entail liabilities and obligations for additional capital contributions statutorily connected with ordinary shares. However, questions of capital maintenance still remain and will have to be settled in practice. In general, transfers of such company value shares must only meet the written form requirement (handwritten signature, qualified electronic signature). Furthermore, the FlexCo may acquire its own company value shares (to a certain extent) and may thus make an exit possible. This contrasts with the limited liability company (GmbH), where transfers of shares require rather cumbersome notarial deeds, and where – in principle – the acquisition of own shares is not permitted.

A further reason to choose the FlexCo as a legal entity for ECs is that the entry of new members into an EC may also be facilitated by the flexibilization of capital increases already known from joint stock companies. Specifically, this means that the shareholders may authorise the management to issue additional shares by means of an ordinary capital increase (so-called authorised capital) for a limited time (5 years) and amount (up to 50% of the share capital). This allows the management to get new shareholders (e.g. EC participants) on board more quickly and efficiently.

Transparency: Company value shares come with limited information rights compared to ordinary shares. However, a FlexCo may voluntarily appoint a supervisory board, and is in fact obliged to do so when passing certain thresholds set out in the Austrian Act on Limited Liability Companies (GmbHG). Moreover, a FlexCo is also obligated to appoint a supervisory board if it exceeds the size criteria for a medium-sized company under accounting standards as stipulated in the Austrian Companies Act (UGB). This expanded requirement to appoint a supervisory board is sometimes referred to as a “poison pill” since a supervisory board comes with administrative expenses and limits the management’s entrepreneurial discretion in decision-making. Furthermore, a supervisory board may also have to include worker representatives. Nevertheless, and most importantly, a supervisory board (voluntarily appointed, as the case may be) might also have benefits for an EC: After all, its duty is to monitor the legitimacy, expediency, and economic efficiency of management. Therefore, a FlexCo can also satisfy transparency requirements imposed by its members.

Control: In general, holders of company value shares are not entitled to voting rights. However, any interference – to put it broadly – with their economic rights (e.g. the claim to a proportional share of net profit) is subject to the approval of the affected company value shareholders. The articles of association may also set out further approval requirements. This structure is suited to ECs specifically because it means that its members can be granted (additional) rights of approval for actions relevant to the EC in the articles of association (e.g. purchase or sale of energy generation plants, change of relevant contractual partners). In practice, ECs are often headed by political municipalities. If a municipality holds an ordinary share in the EC as its (main) shareholder, and the EC members hold company value shares, the municipality can make operational decisions more efficiently. However, when matters concerning essential aspects of the EC need to be decided, for which the articles of association grant company value shareholders rights of approval (e.g. generation plants, external contracts), then the EC members must be involved in the decision-making process.

Conclusion – All in all, a FlexCo appears as a valid alternative to a cooperative as an organisational structure for ECs. Due to the special statutory provisions governing the FlexCo (in particular, the option of issuing company value shares and rather high flexibility), the FlexCo has the potential to establish itself as a legal entity for ECs.

→ Outlook: The rules governing ECs are essentially based on ElWOG 2010, which has been the basis for liberalising the Austrian electricity market for more than a decade. The federal government is now planning to replace ElWOG 2010 with the Electricity Industry Act (Elektrizitätswirtschaftsgesetz, ElWG) in order to transpose EU legislation (i.e. Directive (EU) 2019/944), clear up ambiguities, and remedy deficits. A draft bill has already been published, which is now open for comments until 23 February 2024. The draft (rather favourable overall) also includes interesting amendments with regard to ECs.

Among other things, the ElWG will allow the formation of so-called holding RECs. As a result, it will no longer be necessary to establish a separate legal entity for each REC. The ElWG stipulates that a legal entity can act as the holding vehicle for several RECs, provided that all included RECs are located in the same grid operator’s concession area and the same political district. This aspect further highlights the FlexCo as a suitable alternative to cooperatives, since the rights of approval of each REC’s members can be set out precisely to apply only when the respective REC members are affected by a decision to be taken in the holding REC.