Reserves

Reserves under German GAAP: Kapitalrücklage and Gewinnrücklagen

German equity distinguishes sharply between reserves paid in by owners and reserves built from profit. This page explains the capital reserve (Kapitalrücklage, § 272 Abs. 2 HGB) and the revenue reserves (Gewinnrücklagen, § 272 Abs. 3), and the mandatory statutory reserves that an AG (§ 150 AktG) and a UG (§ 5a Abs. 3 GmbHG) must build.

Two kinds of reserve

HGB splits reserves by where the money came from. The capital reserve (Kapitalrücklage) holds amounts contributed by shareholders over and above the nominal capital. The revenue reserves (Gewinnrücklagen) hold profit the company earned and chose to retain rather than distribute. The two sit in separate positions of the equity section (§ 266 Abs. 3 A II and III) precisely because the rules on using them differ.

The line matters for distributions and for creditor protection: contributed capital is locked in more tightly than retained profit, and some reserves can only be released for specific purposes.

Kapitalrücklage (§ 272 Abs. 2)

The capital reserve captures owner contributions that are not nominal capital. § 272 Abs. 2 HGB lists them: the premium on issuing shares or bonds above nominal (Agio, Nr. 1), amounts from convertible bonds and warrants (Nr. 2), additional payments for preference rights (Nr. 3) and other payments shareholders make into equity (Nr. 4).

Because this reserve is contributed rather than earned, it is not freely distributable and is typically released only to offset losses or, under company-law rules, for a capital increase from reserves. It is a common landing spot for a shareholder's cash injection made to strengthen equity without raising the registered capital.

Gewinnrücklagen (§ 272 Abs. 3)

Gesetzliche Rücklage

The legal reserve required of an AG (and KGaA) under § 150 AktG. A GmbH has no general legal-reserve duty, but a UG must build a special statutory reserve under § 5a GmbHG.

Satzungsmäßige Rücklagen

Reserves the company's own articles of association require it to build. Their size and use are governed by the articles rather than by statute.

Andere Gewinnrücklagen

Other revenue reserves formed voluntarily from retained profit, at the discretion of management and shareholders. This is where most retained earnings of a GmbH accumulate.

The AG legal reserve (§ 150 AktG)

An AG or KGaA must allocate 5% of its annual net income, reduced by any loss carried forward, to the legal reserve each year. The duty continues until the legal reserve together with the capital reserve reaches 10% of the share capital (or a higher figure set by the articles).

Once that threshold is met the top-up stops, and § 150 Abs. 3 and 4 AktG restrict what the reserve may be used for — essentially covering losses rather than funding dividends. The rule builds a capital cushion that protects creditors, in keeping with the HGB's overall orientation.

The UG statutory reserve (§ 5a Abs. 3 GmbHG)

A UG (haftungsbeschränkt) is a GmbH variant that can be founded with as little as €1 of subscribed capital, so the law makes it build capital over time. Under § 5a Abs. 3 GmbHG it must place one quarter (25%) of its annual net income, less any loss carryforward, into a statutory reserve.

That reserve may only be used to increase capital from reserves, to cover a loss carried forward or to cover a current-year loss. Once the accumulated reserve plus subscribed capital lets the UG raise its capital to the full €25,000, it may convert into an ordinary GmbH and the special reserve duty falls away.

Frequently asked questions

What is the difference between Kapitalrücklage and Gewinnrücklagen?

Kapitalrücklage (§ 272 Abs. 2 HGB) is the capital reserve, made up of amounts contributed by shareholders above the nominal capital, such as share premium. Gewinnrücklagen (§ 272 Abs. 3) are revenue reserves built from retained profit. One is contributed by owners, the other earned by the company.

Does a GmbH have to build a legal reserve?

An ordinary GmbH has no general statutory legal-reserve requirement; retained earnings go into voluntary revenue reserves. The mandatory reserve duties fall on an AG or KGaA (§ 150 AktG) and on a UG (haftungsbeschränkt), which must retain 25% of profit under § 5a Abs. 3 GmbHG.

How much must an AG put into its legal reserve?

Under § 150 AktG an AG allocates 5% of annual net income, reduced by any loss carryforward, to the legal reserve until the legal and capital reserves together reach 10% of share capital (or more if the articles require). After that the top-up stops and the reserve's use is restricted.

How much reserve must a UG build?

A UG (haftungsbeschränkt) must place one quarter of its annual net income, less any loss carried forward, into a statutory reserve under § 5a Abs. 3 GmbHG. The reserve can only be used for a capital increase from reserves or to cover losses, and it helps the UG grow towards the €25,000 needed to become a full GmbH.

Can reserves be paid out as a dividend?

It depends on the reserve. Voluntary revenue reserves can generally be released and distributed, but the capital reserve and the statutory reserves of an AG or UG are restricted — usable mainly to offset losses or increase capital, not to fund dividends. This protects the company's capital base for creditors.