The scope of the Act: seat and headcount criteria
Article 1 of the Act sets out which companies fall within its scope. Whatever their legal form, the Act applies to companies that:
1. have their central administration, principal branch, administrative headquarters, or the seat designated in their articles of association located domestically; and
2. as a rule employ at least 3,000 workers domestically, including workers posted abroad.
Notwithstanding sentence 1 number 1, the Act also applies, again whatever the legal form, to companies that:
1. have a domestic branch pursuant to Article 13d of the German Commercial Code (HGB); and
2. as a rule employ at least 3,000 workers domestically.
How the headcount is calculated: threshold, temporary workers and group companies
As of January 2024, the minimum headcount threshold is 1,000 workers.
Where a company uses temporary workers, they count towards its headcount if their employment contracts run for more than six months.
For the parent of a group of affiliated companies (Article 15 of the German Stock Corporation Act (AktG)) (paragraph 1, sentence 1, number 2), the headcount takes in the employees of all companies belonging to the group and of the domestic (German) companies, including workers posted abroad.
How the EU Directive’s scope differs from the Act
The European Union Directive defines the companies that bear the obligation more broadly. Following the Omnibus I amendment of February 2026 it sets a considerably higher threshold than the Act, but it catches not only companies established within the European Union but also companies in non-Union countries that trade with EU member states.
Accordingly (Article 2 of the Directive):
1. Companies for Which Work Is Performed
The German Supply Chain Due Diligence Act (LkSG) works with the concept of the “company for which work is performed“. The Directive takes a different route: it fixes the responsibilities of the companies within its scope in general terms for the environment, human rights and climate protection, and in specific terms in its later articles. Its definitions article defines “Business Relationship (= Geschäftsbeziehung)” and “Established Business Relationship (= etablierte Geschäftsbeziehung)”, and then, in place of the “Supply Chain (=Lieferketten)” of the German Act, uses “Value Chain (=Wertschöpfungskette)”. On that definition the value chain covered the participants at every stage of production, services included: every contribution to production counted as “value-creating” within the chain. The adopted Directive does not use a value-chain concept at all. Its operative term is the narrower “chain of activities”, and “established business relationship” has given way to “business partner” (as of July 2026). The detail follows under the next heading.
The Act defines a company’s own business area as follows: “For the purposes of the Act, the scope of a company’s own business area is any activity it carries out in order to achieve the company’s purpose. It covers any activity for the production and utilisation of products and the provision of services, regardless of whether or not it is carried out at a location domestically or abroad.”
Within a group of affiliated companies, where the controlling company has a decisive influence over a group company, its own business area extends to each company belonging to the group.
The Directive’s definition is simpler. Companies, for the purposes of the Directive (Article 3), are “companies established under EU rules that satisfy the conditions in Article 2(1) of the Directive, together with companies established under the laws of a non-Union third country that satisfy the conditions in Article 2(2) of the Directive, as the companies within the scope of the Directive”. Unlike the Act, the Directive also brings supervised financial institutions within its scope.
Subsidiaries, too, are treated by the Directive as identical to the parent company. Companies controlled within the meaning of EU Directive 2004/109/EU are referred to as subsidiary companies or affiliated undertakings.
2. Companies Included in the Supply Chain
The Act groups the companies included in the supply chain under two concepts: direct supplier and indirect or intermediate supplier.
A direct supplier is a party to a contract for the delivery of goods or the provision of services whose supply is necessary for the company for which work is performed to manufacture its product, or to provide and make use of the service in question.
An indirect or intermediate supplier is a company that is not a direct supplier but whose participation in the production process is necessary for the manufacture of the company’s product, or for the provision of and use of the service in question.
The Directive works from a different pair of concepts. It attaches the duty to the company’s chain of activities and to the business partners within it, rather than to the whole of the company’s value chain.
A “business partner”, on the Directive’s definition, is an entity with which the company has a commercial agreement relating to its operations, products or services — a direct business partner — or which, without being in a contractual relationship with the company, carries out business operations relating to them: an indirect business partner. The duty therefore reaches beyond the company’s own contracting parties.
In summary: direct and indirect relationships alike
Both the Act and the Directive, then, define the companies in the supply chain so as to capture every direct and indirect relationship and every link in the production chain.
Suppliers involved at every stage of production and sale, and their own suppliers, must therefore be taken to be caught by the obligations and controls described in the sections that follow.
