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Company law

Corporate law is a field of law dealing with the formation, organization, management and dissolution of legal entities. It regulates the rights and obligations of shareholders, directors, supervisory board members and creditors of companies.

As a law firm specializing in corporate law, we advise and represent our clients in all matters of corporate law, such as:

  • in the choice of the appropriate legal form
  • the drafting of articles of association
  • the implementation of transformations or
  • the settlement of shareholder disputes

Topics in our legal advice

Table of Contents

  1. What is company law?
  2. Company forms and their characteristics
  3. Company law: formation of companies
  4. Company members: entry, inheritance and dismissal
  5. Liability and representation in companies
  6. Memorandum and articles of association
  7. Shareholders’ meeting and decision making
  8. Profit and loss sharing
  9. Transformation and merger of companies
  10. Dissolution and liquidation of companies
  11. Advice and legal services in company law

What is company law?

Company law is a central area of law in business law and is based on various laws and regulations, such as the German Civil Code (BGB), the German Commercial Code (HGB), the German Stock Corporation Act (AktG), the German Limited Liability Companies Act (GmbHG) and the German Transformation Act (UmwG).

These laws form the basis for the regulations relating to the formation, trading and dissolution of companies. In addition, case law has developed a large number of important principles and precepts that shape corporate law.

Legal sources of company law

Corporate law is based on a variety of legal sources, which together form the foundations for the various aspects of corporate law:

Civil Code (BGB): Here, in particular, the regulations on civil law partnerships (GbR) can be found in §§ 705-740 BGB.
Commercial Code (HGB): The HGB contains regulations on general partnerships (OHG) in §§ 105-160 HGB, limited partnerships (KG) in §§ 161-177a HGB and silent partnerships in §§ 230-240 HGB.
German Stock Corporation Act (AktG): The AktG regulates the formation, organization and liability of stock corporations (AG) and partnerships limited by shares (KGaA).
GmbH Act (GmbHG): The GmbHG contains the regulations on limited liability companies (GmbH) and entrepreneurial companies (haftungsbeschränkt) (UG).
Cooperatives Act (GenG): The GenG regulates the formation, organization and liability of cooperatives.
Transformation Act (UmwG): The UmwG contains regulations on the conversion, merger, division and transfer of assets of companies.

Principles and rules in company law

Company law is governed by various principles and precepts derived from statutes and case law. Some of the most important principles are:

  1. Numerus Clausus Principle: corporate forms are limited to those provided by law to ensure legal certainty.
  2. Principle of raising and maintaining capital: corporations must raise a minimum amount of capital and maintain this capital to ensure creditor protection.
  3. Principle of fiduciary duty: The management, the board of directors and the supervisory board members of corporations are obliged to act in the best interests of the corporation and its shareholders.
  4. Principle of liability: the liability of shareholders depends on the form of company chosen and can vary from unlimited personal liability to limited liability to the amount of the contribution.
  5. Principle of transparency: companies must publish certain information to ensure transparency for shareholders, creditors and the public.

Relevant changes in company law

Corporate law is constantly changing and legislative changes can have an impact on existing and future companies. One example is the Act to Modernize the Law on Partnerships, which is scheduled to come into force on January 1, 2024. This law is primarily intended to adapt the legal status of the civil law partnership (GbR) to the case law of the Federal Court of Justice and give it greater flexibility and legal certainty.

Company forms and their characteristics

The choice of the right corporate form is crucial to the success of a company, as it has a significant impact on liability, tax burden, capital procurement and entrepreneurial flexibility. It is therefore important to understand the different corporate forms in corporate law and to choose the one that best fits the needs and objectives of the business.

Criteria for choosing the corporate form

There are several criteria to consider when choosing the right corporate form:

  • The liability of the shareholders varies depending on the form of company and can range from personal, unlimited liability to limited liability to the amount of the contribution.
  • The tax burden can vary depending on the form of company. Partnerships are subject to income tax, while corporations are subject to corporate income tax. In addition, corporations can avoid trade tax under certain conditions.
  • The formation of a corporation usually requires more formal steps and higher formation costs than the formation of a partnership.
  • Corporations often have more opportunities to raise capital from investors because they can issue shares.
  • Partnerships usually offer more flexibility and control for the partners, while corporations are subject to stricter legal requirements.

Examples of company forms and their advantages and disadvantages

Some common types of companies and their respective advantages and disadvantages are explained in more detail below:

1. GbR (Gesellschaft bürgerlichen Rechts):

    • Simple formation
    • No minimum capital requirement
    • Personal and unlimited liability of the partners
    • Income tax

2. OHG (general partnership):

    • Simple formation
    • No minimum capital requirement
    • Personal and unlimited liability of the partners
    • Income tax
    • Commercial register entry required

3. KG (limited partnership):

    • Simple formation
    • No minimum capital requirement
    • Limited liability for limited partners, personal and unlimited liability for general partners
    • Income tax
    • Commercial register entry required

4. GmbH (limited liability company):

    • Minimum share capital of 25,000 euros required
    • Limited liability of partners
    • Corporate income tax
    • Formation expenses (notary, commercial register entry)

5. UG (limited liability) (entrepreneurial company):

    • Minimum share capital of 1 euro
    • Limited liability of the partners
    • Corporate income tax
    • Formation expenses (notary, commercial register entry)
    • Obligation to form reserves

6. AG (stock corporation):

    • Minimum share capital of 50,000 euros required
    • Limited liability of shareholders
    • Corporate income tax
    • Formation expenses (notary, entry in commercial register)
    • Stricter legal requirements
    • Issue of shares possible

7. KGaA (partnership limited by shares):

    • Combination of KG and AG
    • Minimum share capital of 50,000 euros required
    • Limited liability for limited partners
    • Personal and unlimited liability for general partners
    • Corporate income tax
    • Formation expenses (notary, entry in commercial register)
    • Issue of shares possible.

8. Cooperative

    • Democratic membership structure
    • Minimum capital of 1,000 euros required
    • Limited liability of members
    • Corporate income tax
    • Formation expenses (notary, entry in commercial register, approval by cooperative association)

Company law: Formation of companies

The formation of a company is a complex process that depends on various factors, such as the legal form chosen, the legal requirements and the individual needs of the founders. The following is a detailed explanation of the framework of corporate law and requirements for the establishment of various types of companies.

Formation of partnerships

GbR (Gesellschaft bürgerlichen Rechts): The formation of a GbR requires a partnership agreement, which can be concluded in writing, orally or even by implication. There are no formal requirements for the partnership agreement. Entry in the commercial register is not required.

OHG (general partnership): The formation of a general partnership requires a written partnership agreement that regulates the essential points, such as the company’s object, registered office, duration and purpose. Entry in the commercial register is mandatory.

KG (limited partnership): Similar to the OHG, a written partnership agreement is required for the formation of a KG. The KG must also be entered in the commercial register. This requires information on the company, the partners and their limitation of liability.

Formation of corporations

GmbH (limited liability company): The formation of a GmbH requires a notarized partnership agreement (articles of association), which regulates, among other things, the company’s purpose, registered office, duration, share capital and management. The minimum share capital is 25,000 euros. Entry in the commercial register is mandatory.

UG (limited liability) (entrepreneurial company): The formation of a UG is similar to that of a GmbH, but the minimum share capital is only 1 euro. The UG must also be notarized and entered in the commercial register.

AG (stock corporation): The formation of an AG requires a notarized partnership agreement (articles of association), a minimum share capital of 50,000 euros, the appointment of a management board and the establishment of a shareholders’ meeting. Entry in the commercial register is also mandatory.

KGaA (partnership limited by shares): The formation of a KGaA requires compliance with the regulations for both the KG and the AG, such as a notarized partnership agreement, a minimum share capital of 50,000 euros, the appointment of a personally liable partner and the formation of a general meeting. The KGaA must be entered in the commercial register.

Formation of special forms

Cooperative: The formation of a cooperative requires a notarized partnership agreement (articles of association) and the establishment of a general meeting. At least three members are required for formation. The cooperative must be entered in the register of cooperatives and is required to have its business activities audited by an auditing association.

European Company (Societas Europaea, SE): The establishment of an SE requires the fulfillment of certain requirements under European law, such as a minimum share capital of 120,000 euros and incorporation in at least two EU member states. The SE must be registered in the commercial register and is subject to the national company law provisions of the country in which it has its registered office.

The formation of a company requires a detailed examination of the legal requirements and the individual needs of the founders. In order to minimize legal risks and find the best possible solution for the company, expert legal advice is essential. In this regard, our law firm can provide valuable assistance in corporate law and guide the founders in the implementation of their plans.

Company members: entry, inheritance and dismissal

The members of a company are the persons involved in the establishment or continuation of a company. They have rights and obligations under the company agreement and the law. Membership in a corporation may arise and terminate in various ways. Some examples are:

1. Entry of new partners: the entry of a new partner into a partnership is made by a separate partnership agreement between all existing partners and the new partner. The entry of a new partner into a corporation may be based on the acquisition of a business share or on transformation processes.

In this case, the admission is usually subject to formalities and results in full membership with a share in the total assets and liability for company debts.

2. Withdrawal of partners: The withdrawal of a partner from a partnership generally causes its dissolution, unless a continuation clause has been agreed. The withdrawing partner is entitled to the return of the objects which he has left to the partnership for use and to a monetary compensation.

In addition, the withdrawal of a shareholder from a corporation may be based on the sale or redemption of his share in the business or on grounds for exclusion. The withdrawing party loses its membership rights and, if applicable, receives a severance payment.

3. Inheritance of company shares: The inheritance of partnership shares is governed by the partnership agreement and the law. In the case of partnerships, a continuation clause, a simple succession clause or a qualified succession clause may be agreed upon, which determines whether and under what conditions the heir enters or is excluded from the company.

In the case of corporations, the share in the company generally passes to the heir unless transfer restrictions or grounds for exclusion are provided for.

Membership in a company is therefore a complex legal relationship that depends on various factors. The rights and obligations of the members are primarily governed by the articles of association and the applicable law. Members must promote the common purpose of the company and support the company’s interests.

The dismissal of a shareholder or managing director from a limited liability company, on the other hand, is a complex issue that touches on aspects of corporate law as well as employment law and taxation. The following points must be taken into account:

1. The dismissal of a shareholder may be effected by termination, resignation, exclusion or redemption of his share. The prerequisites and consequences of these measures are regulated in the articles of association, in the GmbH Act and in case law. As a rule, the withdrawing shareholder is entitled to a severance payment, the amount of which depends on the valuation of the company.

2. the dismissal of a managing director first requires the dismissal from his office as a body of the GmbH, which is effected by a resolution of the shareholders’ meeting. The dismissal may be for cause or without cause, depending on what is agreed in the articles of association.

However, the dismissal does not terminate the employment contract of the managing director, which must be terminated separately. The dismissal may also be for cause or ordinary, subject to the notice periods and protection rules.

3. the dismissal of a shareholder or managing director may lead to liability issues if, for example, the shareholder or managing director has breached his fiduciary duty or caused damage to the GmbH. In such cases, the GmbH or the co-shareholders may claim damages. 4.

4. In addition, you may face tax consequences, for example for income tax, trade tax or value added tax. In particular, the tax consequences of the severance payment to the departing shareholder or managing director must be taken into account.

Liability and representation in companies

The liability and representation of shareholders differs depending on the form of company chosen. In the following, the liability and representation regulations of the individual company forms are explained in more detail from the perspective of company law:

1. Partnerships

Civil law partnership (GbR): The partners are jointly and severally liable, i.e. each partner is liable for the entire liabilities of the company with his personal assets. As a rule, all partners are jointly responsible for representing the company, unless otherwise stipulated in the partnership agreement.

General partnership (OHG): The liability of the partners is unlimited and joint and several. This means that each partner is liable with his entire assets for the liabilities of the general partnership. The OHG is represented by the managing partners.

Limited partnership (KG): In a KG, there are two types of partners – general partners and limited partners. General partners have unlimited and joint and several liability, while limited partners are only liable up to the amount of their liability contribution. The KG is represented by the general partners.

Silent partnership: The silent partner is liable only up to the amount of his contribution and has no power of representation. The owner of the commercial business with which the silent partnership was entered into represents the silent partnership externally.

2. Corporations

Joint stock company (AG): The shareholders are not personally liable, but only up to the amount of their contribution. The company is represented by the management board, which is accountable to the general meeting of shareholders and the supervisory board.

Limited liability company (GmbH): The shareholders are not personally liable, but only up to the amount of their capital contribution. Representation is assumed by the managing directors, who are accountable to the shareholders’ meeting.

Unternehmergesellschaft (haftungsbeschränkt) (UG): Liability is the same as that of a GmbH, but with a lower minimum share capital. Representation is also carried out by the managing directors.

Kommanditgesellschaft auf Aktien (KGaA): Liability and representation is a hybrid of KG and AG. General partners have unlimited liability, while shareholders are only liable up to the amount of their contribution. Representation is by the personally liable partner and/or the board of directors.

3. Special forms

Cooperative: As a rule, members are liable only up to the amount of their shares. Representation is by the board of directors, which is accountable to the general meeting of members and the supervisory board.

European Company (Societas Europaea, SE): The liability of the shareholders is limited to the amount of their contribution. Representation is assumed by the board of directors or the executive board, depending on which management system has been chosen.

Memorandum and articles of association

A memorandum of association or articles of association are the basic legal documents that define the framework for cooperation between shareholders and the organization of the company. The form of these documents may vary depending on the type of company, but should be in accordance with legal requirements.

Important legal aspects, examples and court rulings relating to the memorandum and articles of association are discussed below:

Minimum content of the memorandum and articles of association: for each type of company, there are statutory minimum requirements regarding the content of the memorandum and articles of association. These may include, for example, stating the object of the company, specifying the limitation of liability, and regulating the management of the company.

Shareholder rights and obligations: The partnership agreement or articles of association should clearly define the rights and obligations of the shareholders in order to avoid misunderstandings and disputes. This includes, for example, regulations on capital contributions, voting rights, profit and loss sharing, and information and control rights.

Management and representation: The management and representation of the company should be clearly regulated in the articles of association or partnership agreement. This includes the appointment and dismissal of managing directors, their powers and duties, and regulations on representing the company vis-à-vis third parties.

Shareholders’ meeting and decision making

The shareholders’ meeting is the central decision-making body of a company and serves to form the internal will of the shareholders. The structure and decision-making in the shareholders’ meeting can vary depending on the type of company, but should comply with the legal requirements and the regulations in the articles of association or partnership agreement.

Important aspects of corporate law relating to the shareholders’ meeting and decision-making are discussed below:

Convening and conducting the shareholders’ meeting: The articles of association or bylaws should include provisions regarding the convening and conduct of the shareholders’ meeting. These include, for example, the setting of deadlines, the form of the invitation, the agenda and the chairing of the meeting.

Adoption of resolutions and voting rights: The provisions governing the adoption of resolutions and voting rights at the shareholders’ meeting should be clearly set out in the articles of association or partnership agreement. These include the determination of majorities for resolutions, the weighting of voting rights and the possibility of veto rights for individual shareholders.

Shareholders’ information and control rights: The shareholders’ information and control rights should be defined in the articles of association or partnership agreement. These include, for example, the right to review the management and financial situation of the company and, if necessary, to take remedial action.

Profit and loss sharing

The profit and loss sharing of the shareholders is an essential aspect in corporate law, which can be structured differently depending on the type of company. In this context, the profits and losses of the company are distributed among the shareholders in accordance with the provisions in the articles of association or partnership agreement.

In this context, the shareholders can structure the distribution in a largely flexible manner, for example by specifying profit distributions, reinvestments or special payments. Otherwise, in the absence of an express provision in the partnership agreement or the articles of association, the statutory distribution rules apply. These differ depending on the form of company:

  • GbR: § 722 BGB stipulates that profits and losses are distributed equally among the partners.
  • OHG: According to § 121 HGB, profits and losses are distributed among the partners in proportion to the capital contributions, unless the partners have agreed otherwise.
  • KG: The distribution of profits and losses is governed by the provisions in the partnership agreement or, in the absence of a regulation, by § 168 HGB.
  • AG and KGaA: Pursuant to § 60 of the German Stock Corporation Act (AktG), the distribution of profits is generally based on the shareholdings. However, exceptions provided for in the Stock Corporation Act may be agreed.
  • GmbH and UG: The distribution of profits and losses is governed by the provisions in the articles of association or, in the absence of a regulation, by § 29 GmbHG.

The shareholders may agree on special regulations for the distribution of profits and losses in the partnership agreement or the articles of association. These include, for example, advance profits for certain shareholders, minimum profit distributions or the determination of retained earnings.

Transformation and merger of companies

Transformation and merger of companies are important processes that can be used by companies to change their legal form, pool resources or adjust their business strategy. These processes are regulated by the Transformation Act (UmwG) and involve various aspects in corporate law, which are discussed in detail below:

1. Types of transformation: The Transformation Act distinguishes between different types of transformation, such as:

    • Merger: in which two or more companies are merged to form a new or existing company.
    • Demerger: A company is divided into two or more companies.
    • Asset transfer: The assets of one company are transferred to another company while the transferring company continues to exist.

2. Transformation procedures: Conversions and mergers are subject to a multi-stage procedure to be carried out by the companies involved. These include:

    • Conversion resolution: the participating shareholders must draw up a conversion resolution that specifies the type of conversion, the participating companies and the modalities of the conversion.
    • Conversion report: the managing directors of the participating companies must draw up a conversion report setting out the legal and economic basis for the conversion.
    • Audit of the conversion: the conversion may be audited by an external auditor, such as an auditor, to confirm the appropriateness of the conversion.
    • Approval of the shareholders: The shareholders of the participating companies must approve the conversion, whereby different majorities and voting rules may apply.
    • Registration with the Commercial Register: the conversion must be filed with the competent Commercial Register and registered.

3. Legal regulations: The Transformation Act contains numerous regulations that must be observed when transforming or merging companies, such as:

    • Protection of creditors: creditors of the companies involved must be informed about the conversion and have a right of objection under certain circumstances (§§ 30-32 UmwG).
    • Protection of employees: the Transformation Act provides for regulations to protect the employees of the participating companies, for example with regard to works agreements or co-determination (Sections 324-327 Transformation Act).
    • Tax aspects: The conversion and merger of companies may have tax consequences, which are regulated in the Reorganization Tax Act (UmwStG).

Dissolution and liquidation of companies

Dissolution and liquidation in corporate law are legal processes that lead to the termination of a company and regulate the winding up of its affairs and the distribution of its assets. This section discusses in detail various aspects of dissolution and liquidation and their legal basis:

Grounds for dissolution: There are various reasons that may lead to the dissolution of a company, including:

  • Expiration of the term stipulated in the articles of association (§§ 60, 71 GmbHG, § 262 AktG).
  • Resolution of the shareholders (§§ 60, 71 GmbHG, § 262 AktG)
  • Insolvency or over-indebtedness (§ 15a InsO, §§ 71, 73 GmbHG, § 263 AktG)
  • Judicial decision (e.g. at the request of a shareholder if there is good cause, §§ 61, 73 GmbHG, § 262 AktG)

Liquidation proceedings: The dissolution of a company is followed by liquidation, in which the company’s assets are realized and its liabilities are settled. Liquidation involves several steps:

  • Appointment of liquidators: the shareholders or the court appoint liquidators who are responsible for carrying out the liquidation (§§ 66, 74 GmbHG, § 270 AktG).
  • Determination of the asset status: the liquidators prepare a list of assets and liabilities, which shows the financial status of the company at the time of liquidation (§§ 70, 75 GmbHG, § 270 AktG).
  • Fulfillment of liabilities: The liquidators must fulfill the company’s liabilities, e.g. by paying debts or fulfilling contracts (§§ 70, 75 GmbHG, § 270 AktG).
  • Realization of assets: The liquidators sell the assets of the company in order to settle the liabilities and distribute any surpluses to the shareholders (§§ 70, 75 GmbHG, § 270 AktG).
  • Completion of liquidation: After all liabilities have been met and the assets disposed of, the liquidators complete the liquidation and register the termination of the company with the commercial register (§§ 70, 75 GmbHG, § 271 AktG).

The dissolution and liquidation of companies are subject to numerous legal regulations set out in the respective laws, such as the GmbHG or AktG. In addition, there are numerous court rulings which concretize and specify the interpretation and application of these regulations in individual cases. We at the Herfurtner law firm can help you.

Advice and legal services in company law

The formation, trading and dissolution of companies are complex legal matters that require expert legal advice. The Herfurtner Law Firm can help you choose the right corporate form, draft the articles of incorporation or bylaws, minimize liability risks, and advise on the conversion, merger, or dissolution of companies.

It is therefore important to rely on legal advice to avoid legal pitfalls and find the best possible solution for your company. Herfurtner Law Office offers you comprehensive and individual advice in German-speaking countries, based on many years of experience, sound knowledge and current court decisions. Therefore, please contact us.

Lawyer Wolfgang Herfurtner Germany

Wolfgang Herfurtner | Lawyer | Managing Director | Shareholder

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