jurisdiction

1. Are members of the armed forces permitted to hold shareholdings in private companies, including startups, provided that they do not participate in management?

Participation in startups or the holding of shares is not prohibited as such. The relevant assessment is primarily made under the secondary-activity regime set out in Sec. 20 of the German Soldiers Act (Soldatengesetz – "SG"), together with the Federal Directive on Secondary Activities (Bundesnebentätigkeitsverordnung – "BNV").

The German framework focuses less on formal corporate designations, such as shareholder, advisor or board member, and more on whether the individual's actual role may impair official interests or give rise to a conflict with military duties.

Active participation

For career soldiers and soldiers serving fixed terms, any remunerated secondary activity generally requires prior approval unless it falls within one of the statutory exceptions under Sec. 20 para. 6 SG.

In addition, prior approval is required for unpaid commercial or freelance activities and for appointments to corporate bodies. As a result, active involvement in a startup, including operational support, consultancy work, entrepreneurial activities or formal management and supervisory functions, will generally require approval from the Federal Ministry of Defence.

Approval must be refused where the proposed activity may impair official interests. Under Sec. 20 para. 2 SG, this includes situations where the activity may:

  • interfere with the proper performance of military duties;
  • create a conflict with official responsibilities;
  • adversely affect the reputation of the Bundeswehr;
  • compromise impartiality; or
  • materially reduce deployability or availability for service.

Particular scrutiny applies to activities in the financial services sector, where conflicts with military duties are often presumed.

Passive participation

Purely passive participation is treated differently. Sec. 20 para. 6 no. 1 SG excludes the management of personal assets from the approval requirement. A passive shareholding that is limited to investment activity will therefore generally not require prior approval.

However, the distinction is functional rather than formal. Where a shareholder's role extends beyond ordinary investment activities and becomes operational, advisory, entrepreneurial or governance-related, the participation may no longer qualify as asset management and may instead constitute a secondary activity requiring approval under Sec. 20 para. 1 SG.

As a practical benchmark, where the individual's involvement does not exceed ordinary shareholder rights and can be exercised during their personal time, prior approval will generally not be required.

2. Is notification or approval required before acquiring a shareholding or establishing a company?

There is no general obligation to notify or disclose passive shareholdings.

However, where a shareholding may create conflicts of interest or affect a soldier's official duties, broader duties arising under military service law may require disclosure.

Particular caution may be required in relation to shareholdings in German limited liability companies (GmbHs) operating in the defence or armaments sector. Because shareholders in a GmbH are often more closely involved with the company than shareholders in publicly traded companies, conflict-of-interest concerns may arise more readily.

Where the soldier's duties involve defence procurement, access to sensitive information or other security-related functions, voluntary disclosure may be advisable, particularly if the individual's involvement extends beyond passive investment.

3. Are there any notable limitations, thresholds or conflict-of-interest rules?

Yes. Additional restrictions arise in the context of public procurement and defence-related tenders.

Under Sec. 6 of the German Procurement Regulation (Vergabeverordnung – "VgV"), members or employees of a contracting authority may not participate in a procurement procedure where a conflict of interest exists. A conflict of interest includes any direct or indirect financial, economic or personal interest capable of impairing impartiality and independence.

Accordingly, where a soldier has a financial interest in a bidder, provides consultancy services to a bidder or holds a management or supervisory position within a bidder, conflict-of-interest concerns may arise, particularly where the soldier is involved in procurement-related decision-making.

Further restrictions may arise under Sec. 124 para. 1 no. 5 of the Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen – "GWB"), which permits contracting authorities to exclude bidders where conflicts of interest cannot be effectively mitigated through less intrusive measures.

These considerations are particularly relevant in defence and security procurements, where the connection between a soldier's official duties and the commercial activities of the relevant company may be especially close.

Accordingly, while a purely passive shareholding will generally be less problematic, any management role, board appointment, consultancy engagement or comparable involvement should be assessed in advance under Sec. 20 SG. Where procurement or defence-sector activities are involved, proactive disclosure and documented conflict-management measures should be considered.