The PCCs allow a targeted risk management because the assets comprised in the individual cells are clearly separate from each other and from the core. Their preferred use is for charitable purposes, in the insurance industry or in investment management. This type of organisation also has significant advantages for foundations. By contrast to an umbrella foundation, a PCC makes it possible that small-sized individual foundations act separately from each other in terms of liability and capital, even though they are all managed by one company. Due to the particularities associated with their company type, European companies (SE), European Cooperative Societies (SCE) and European Economic Interest Groupings (EEIG) are not allowed to have protected cells.

Legal entities can have protected cells, if they exclusively pursue one or more of the following purposes:

  • Common-benefit or charitable purposes (article 107 (4a) PGR, German only)
  • Acquisition, management and value maximisation of participations in other enterprises or subsidiaries
  • Exploitation of copyrights, patents, trademarks, designs or models
  • Deposit guarantee and investor protection systems under EEA legal provisions

Formation

A PCC is formed by means of conversion of an existing legal entity. Since a PCC involves a conversion rather than a formation in the narrow sense of the word, the provisions governing the existing type of legal entity apply. For example, this applies to the registered office or the capital requirements. However, each cell must have a statutory reserve in the amount of the minimum capital of the protected cell.

Any PCC is made up of two organisational parts:

  • A core
  • One or more cells which are separate from each other

In addition, each PCC must appoint an audit authority in respect of which the duty of registration is governed by the relevant type of legal entity of the PCC.

However, protected cells cannot be created unless this is provided for in the articles of association. In addition, a special audit and expert report must state that there is full coverage for creditor claims (if any) even despite the conversion. The subsequent creation of protected cells is possible for foundations too, if this is provided for in the articles of association or if the founder has reserved a right of modification in the articles of association. If these requirements are met, the supreme corporate body can pass a resolution on conversion and file it with the Office of Justice together with the above-mentioned audit or expert report. Following the official announcement of the conversion, however, the entry in the commercial register can be made no sooner than after two months, if the creditor claims filed before have been satisfied or sums representing the same have been secured. Proof of compliance with this deadline must be provided to the Office of Justice.

In addition to the provisions required for the relevant type of legal entity of the individual cells, the articles of association of a PCC must contain the following information:

  • The indication that the company is a PCC
  • Provisions on the organisation and representation of the PCC
  • Designation of the names of the individual cells;
  • The areas of activity of the individual cells

Corporate name

The name of a PCC must include either the addition “Segmentierte Verbandsperson” or the abbreviation “SV” or the addition “Protected Cell Company” or the abbreviation “PCC”.

Liability and relations with third parties

In the event that contract negotiations are started, the PCC must inform third parties in writing that it is a protected cell company. In addition, it must make it clear what assets are available to meet obligations arising under the legal relationship concerned, whether this is the core assets or the assets of a specific cell. However, this also means that no cell will be liable to meet the claims asserted by third parties against other cells.

Accounting and disclosure provisions

PCCs are required to keep an orderly business accountancy. They must keep books and draw up balance sheets and/or profit and loss accounts. The approved annual accounts and the audit report of the audit authority are deposited with the Office of Justice and are available for inspection by any person at any time.

Pros and cons

  • Clear separation of the assets comprised in each of the cells and from the core which allows a targeted risk management
  • Bankruptcy proceedings can be carried out both in respect of the PCC as a whole and in respect of each individual cell and the assets comprised therein
  • Particularly suited for charitable purposes, in the insurance industry or in investment management
  • Advantages for foundations
  • The individual cells are not endowed with independent legal personality, only the PCC itself is
  • Targeted risk management
  • No liability on the part of the cells among them if claims are asserted by third parties
  • The PCC is subject to disclosure and accounting requirements

Statutory basis (German only)