Corporate law Summary
Corporate Law: The area of private law that governs the law of corporations is called corporate law. This includes commercial law, company law (partnership and capital company law), transformation law and commercial law as far as it relates to companies.
Read a summary of all the important information on the subject of corporate law on this page. Would you like advice on legal issues in the areas of corporate law, commercial law, trade law or (UN) sales law, or on the legal particularities in connection with the Sales Law Reform 2022?
The lawyers of the Herfurtner law firm will advise you comprehensively.
Table of contents
- Corporate law: what does it regulate?
- Germany: Legislation on corporate law
- Entity of the enterprise
- A company as an economic asset
- Business Valuation Explanation
- Company: Legal Protection & Liability
- Tax Obligations of Enterprises
- Going out of business Meaning
- Company participation
- Austria: Corporate Law
- The Inner Workings of a Company
- Business Law and Company Law – Interrelationships
- Corporate law lawyer – legal advice for companies
Corporate Law Definition
An essential subject matter of corporate law is the legal interactions between companies “internally and externally”. Thus, corporate law includes essential company-related topics such as the:
- Group law
- Competition law
- Company law
- Contract law and labour law
- Tax law
- Commercial law and
- Commercial law and the law of sale
The need for legal and advisory support for entrepreneurs is therefore very high.
Corporate Law – Legal Situation in Germany
In German company law, the term “enterprise” is not uniformly defined. What is decisive, however, is the corresponding legal purpose. According to commercial and company law, a company is generally a legal entity with a specific purpose.
The purpose can be commercial or freelance, but also creative, scientific or philanthropic.
Article 14 of the Basic Law, the property guarantee, protects enterprises. As long as the business is not based exclusively on illegal activities, state intervention is not justified and thus worthy of compensation. The terms “enterprise” and “entrepreneur” as defined in § 14 BGB are not synonymous.
According to § 14 BGB, an entrepreneur is someone who works for an enterprise, i.e. an enterprise bearer.
Enterprise law: bearer of the enterprise
The person who is responsible for the management of the enterprise is called the owner or bearer of the enterprise.
The owner of an enterprise can be a natural person (e.g. a sole trader or a small entrepreneur), a partnership (e.g. a civil law partnership, a general partnership or a limited partnership) or an organisation. E.g. a limited liability company, a joint stock company or a legally registered cooperative (for example a municipality).
It is disputed whether a community of heirs can be a business owner. A dormant partnership as well as the group as a whole, on the other hand, are not legal persons.
The business in its function as an economic good
It is a fact that a business is a type of economic entity that can be used as collateral in legal transactions. The transfer of an enterprise can take place in 2 ways:
- individually through the transfer of all or part of the company’s assets (e.g. production facilities and objects) – a so-called asset deal – or
- indirectly through the sale of the shares in the enterprise – a so-called share deal.
Sections 433 et seq. of the German Civil Code (BGB) in conjunction with Section 453 (1) apply to the purchase of a company, and this also applies to liability for defects. Cartel law or other competition law issues may prevent an acquisition under certain circumstances.
The parties may participate in a variety of ways, including by entering into an “enterprise agreement”, which may take the form of a domination agreement, a profit transfer agreement, a partial profit transfer agreement or a transfer agreement.
The usufruct of a company, the leasing of a company and the inheritance of a corporation are further possibilities. The transfer of ownership by agreement or pledge alone is not considered a business transaction. It cannot therefore be enforced by compulsion.
It is not the company but the owner that is subject to insolvency proceedings.
Business valuation according to corporate law – explanation
The value of a business can be calculated using various business methods. Generally used for this purpose are:
- Capitalised earnings value,
- Stock market value,
- Market value,
- Value of the net assets or
- Liquidation value.
The dividend discount model , the Discounted cash flow methodthe residual profit approach and the multiplier method play a role in practice.
Combinations of the above-mentioned methods are also considered, in particular so-called mean value methods such as the Stuttgart method, which combines the capitalised earnings method with the net asset value method.
The law does not provide for a specific procedure.
Corporate law: What does the legal protection say?
The constitutional guarantee of property protects the company from liability. In this way, the rights of industrial property and the right to an established and practised enterprise are safeguarded.
Tax obligations Legal position
The company owner bears the tax burden, not the company. Value Added Tax (VAT) is the largest source of revenue for companies. The idea of a uniform corporate tax rate throughout Europe is not yet fully developed.
The demise of a company
The extinction ends the existence of the company. The insolvency proceedings of the company owner, the dissolution of the company and the closure of the company (“suspension”) do not lead to the demise of the company. Rather, the enterprise system must be dismantled.
Enterprise participation – definition and function
Corporate law: Participation in an enterprise belongs to the legal field of company law. Persons acquire shares in a company through participation. The shareholders thus also share in the profits. In certain cases, they are given the opportunity to influence the management of the enterprise through the shareholding.
Shareholders own an equity stake in a public limited company. Owners of limited liability companies (GmbH) are called partners or shareholders. Co-entrepreneurs hold shares in a partnership. As a rule, these shareholdings are acquired through contributions in kind or cash contributions.
Examples of corporate shareholdings
There are various possibilities for corporate shareholdings. In the following we will give you examples and explain them to you.
In the case of an open or genuine participation, natural or legal persons acquire shares in companies. This acquisition is published in the commercial register. As shareholders in the company, they have a say and information rights and share in the profits. Liability is assumed for losses.
A dormant partner participates in another person’s company with a capital contribution. A partner can be a natural or legal person. In the case of participation in a company in the form of a dormant partnership, the partner is generally not visible to the outside world.
Atypical silent partnership
In the case of an atypical silent partnership, the silent partner has extensive control and asset rights. In these cases he is referred to as a co-entrepreneur. The atypical silent partner can participate in profits and losses. A participation in the assets of the company (incl. fixed assets), the hidden reserves and the goodwill is also possible.
If contractually agreed, the silent partner may also be liable for losses. This type of participation can be structured very differently in individual cases, depending on the interests of the parties.
As a rule, an atypical silent partnership is a form of investment in which the investor has to pay a monthly instalment to the investment company until a certain payment amount is reached. A common form of investment is participation in limited partnerships.
Obligations of the adviser, intermediary or financial broker to provide information
Corporate law: Since there may be obligations to make additional contributions, liability and reimbursements, the legal structure of the participation is usually complex. Investors are sometimes misled by initiators of silent partnerships by concealing the fact that the investors will become co-partners.
This means that they are liable for the full amount of the investment and may be obliged to inject further funds.
In the worst case, there is a risk of total loss of the invested money.
Atypical silent partnerships thus entail high risks for investors, which are often not adequately presented by advisers, agents or financial brokers. In the case of instalment savings plans with a one-time investment, the financial burden may not seem too high at first.
However, the total loss can be considerable, since an obligation to make additional contributions has often been agreed for this type of participation. If investors do not know at the beginning what the fund will invest in, this is called a blind pool. Since the investor has no influence on the investments, the entire investment may be lost.
If the investment in the company was financed in whole or in part by a loan, there is often only a rude awakening at the end. This is especially true if the loan is to be repaid from the projected profits of the participation in the enterprise, but these fail to materialise.
- AKURA Group of Companies
- ALAG Auto Mobil GmbH & Co KG
- Bema Investment and Holding Company
- CSA Participation Fund
- Deltoton GmbH
- DEF German Natural Gas Fund GmbH Co. KG
- German Asset Fund
- Dubai Sports City GmbH Co. KG
- GENO Bioenergy Leasing Fund Erste GmbH Co. KG
- Munich Fund
- System Protect Vermögensverwaltungs AG
- Trend Capital AG
Corporate investment lawyer – services of the Herfurtner law firm
If you as an investor have doubts about your investment, we offer to examine the validity of the contracts concluded. An exit or a reversal of atypical silent partnerships may be the right option for you. The Herfurtner law firm will assert your claims for you in extrajudicial and judicial proceedings. Please contact us.
Austrian Commercial Law & Corporate law
Any directive directed at entrepreneurs is referred to as objective legislation in Austrian company law. Before the Commercial Law Amendment Act (HaRG) of 2007, the legal field was called commercial law.
Historical development of company law
As early as the 19th century, there was a General Commercial Code in Austria that regulated trade. The German Commercial Code was created in 1938 and came into force in 1939 as a result of the Anschluss to the German Reich.
Although it was repealed, the Austrian General Civil Code (ABGB) remained in force and the German Civil Code (BGB) was not replaced by it. The 4th Introductory Ordinance to the Commercial Code (4th EVHGB) remedied this shortcoming by incorporating relevant sections from the dBGB into the HGB adopted by the German legislature.
The HGB was not adapted to the ABGB, but the ABGB was adapted to the HGB.
This meant that individual sections of the Commercial Code did not always correspond to the systematics of the ABGB.
Commercial reform Commercial Code
In the years before 2007, commercial law was a separate branch of private law that applied only to merchants. In the course of a major reform of commercial law, the convoluted concept of a merchant was abolished in favour of the simpler Commercial Code.
Complete repeal of the 4th UCC. The UGB came into force on 1 January 2007. Everyone who runs a business is now subject to the rules of company law. This has greatly expanded the scope of application, while at the same time reducing the complexity, casuistry and narrowness of the merchant concept.
As a result, company law is increasingly being addressed as a key legal issue. Thus, members of the liberal professions and farmers can now also obtain the title of entrepreneur, which was previously reserved for tradesmen.
In other words, the concept of entrepreneur, as previously applied in consumer protection or tax law, remained untouched. However, the definition of entrepreneur and enterprise contained in Section 1 (1) and (2) UGB will have an impact through interpretation even if the legal provisions applicable to entrepreneurs do not change.
Corporate law deals with the inner workings of a business enterprise
Corporate law comprises the laws that regulate how a business enterprise functions from the inside. Under company law, every business is structured differently.
Articles of association, rules of procedure for directors and supervisory boards, and well-drafted shareholder agreements are designed to keep shareholders and management apart and minimise conflict.
Conflicts between shareholders, directors and management and even the survival of the company can be jeopardised by disputes or disagreements between shareholders.
Such conflicts must therefore be resolved by corporate lawyers as quickly and without complications as possible.
Relationships between corporate law and business
Contractual agreements, distribution links and service provider links are governed by company law. Legal issues such as general civil law, distribution law and commercial agency law (especially HGB) are relevant in this remote location. As a general rule, higher order volumes entail greater risk.
Company law also takes into account the connection to competitors. In the case of anti-competitive advertising, for example with false or misleading information on the packaging, there is a risk of injunctions and other legal action.
Companies, in turn, run the risk of being fined heavily under antitrust law if they collude with competitors. Last but not least, relations with the state also play a decisive role in company law. The payment of customs duties and taxes is only part of the legal obligations that the state imposes on companies.
Corporate law lawyer – legal advice for companies
Due to the complexity of the areas of corporate law and company law, a company must rely on the knowledge and skills of its advisors to navigate the rough waters of the legal system.
Since numerous corporate law requirements can result in criminal prosecution as well as dismissal, large claims for damages and public law fines if breached, nothing should be left to chance when hiring lawyers.
Our corporate lawyers at the Hamburg, Munich and Frankfurt am Main offices – but also via video conference throughout the German-speaking world – provide advice in particular to medium-sized companies and executives on a wide range of commercial and tax law issues.
Below you will find examples of our core competences. Various corporate law issues, such as:
- the formation of limited liability companies and public limited companies
- Mergers & Acquisitions (M&A),
- Company acquisitions and conversions,
- Corporate succession planning,
- Competition and antitrust law as well as
- Labour law and corporate insolvencies.
Please contact one of our lawyers directly by phone, email or our contact form for a non-binding enquiry.