- •Preface
- •Contents
- •About the Authors
- •Introduction
- •1.1 Conducting Business in Germany
- •1.1.1 Case Study
- •Case Study
- •1.1.2 Economic Background
- •1.1.3 Core Features of the German Legal System
- •1.1.3.1 Hierarchy of Norms and Constitutional Framework
- •1.1.3.2 Predominance of Federal Law
- •1.1.3.3 Distinction Between Public and Private Law
- •1.2 Key Aspects of German Business Law
- •1.2.1 Codified Rules and Judge-made Law
- •1.2.1.1 German Law as a Civil Law System
- •1.2.1.2 Importance of Judge-Made Law
- •1.2.1.3 Interpretation of Statutes
- •1.2.2 Increasing Importance of European Law
- •1.2.2.1 European Legal Instruments
- •1.2.2.2 Supremacy of European Law
- •1.2.2.3 Fundamental Freedoms
- •1.2.3 (Re-)current Issues in Corporate Law
- •1.3 The Legal Framework for Business Organizations in Germany
- •1.3.1 Case Study
- •Case Study
- •1.3.2 Options for Conducting Business in Germany
- •1.3.2.1 Establishing a Branch Office
- •1.3.2.2 Overview of Various Forms of Business Organizations
- •1.4 A Brief Introduction into German Insolvency Law
- •1.4.1 Objectives of German Insolvency Law
- •1.4.2 Reasons for Opening Insolvency Proceedings
- •1.4.2.1 Illiquidity
- •1.4.2.2 Over-indebtedness
- •1.4.2.3 Imminent Illiquidity
- •1.4.3 Insolvency Proceedings—Steps and Options
- •1.4.3.1 Petition to Open Insolvency Proceedings
- •1.4.3.2 Preliminary Proceedings
- •1.4.3.3 Regular Insolvency Proceedings
- •1.4.3.4 Reorganization Proceedings
- •References
- •Stock Corporation (AG)
- •2.1 Introduction
- •2.1.1 Case Study
- •Case Study
- •2.1.2 Characteristics of the AG
- •2.1.3 Advantages of the AG
- •2.1.4 Disadvantages of the AG
- •2.2 Internal Organization
- •2.2.1 Governance Structure and Bodies of the AG
- •2.2.2.1 Composition and Appointment
- •2.2.2.2 Functions and Responsibilities of the Management Board
- •2.2.3.1 Composition and Appointment
- •2.2.3.2 Functions and Responsibilities of the Supervisory Board
- •2.2.5.1 Sphere of Competence of the Stockholders’ Meeting
- •2.2.5.2 Decision-Making Procedure
- •2.2.5.3 Minority Rights of Stockholders
- •2.3 The Capital of the AG
- •2.3.1 Equity and Capital Structure
- •2.3.1.1 Internal Financing
- •2.3.1.2 External Financing
- •2.3.1.3 Determining the Right Capital Structure
- •2.3.2 Share Capital of the Stock Corporation
- •2.3.2.1 Types of Stock
- •2.3.3 Capital Increases
- •2.3.3.1 Ordinary Capital Increase Against Contributions
- •2.3.3.2 Contingent Capital Increase
- •2.3.3.3 Capital Increase from Authorized Capital
- •2.3.3.4 Capital Increase from Retained Earnings
- •2.3.4 Capital Reductions
- •2.3.4.1 Ordinary Capital Reduction
- •2.3.4.2 Simplified Capital Reduction
- •2.3.4.3 Capital Reduction by Way of Redemption of Stocks
- •2.3.5 Capital Preservation
- •2.4 Formation, Dissolution and Liquidation of the AG
- •2.4.1 Formation
- •2.4.2 Dissolution and Liquidation
- •2.4.2.1 Dissolution
- •2.4.2.2 Liquidation
- •2.5 Employee Participation
- •2.5.1 Collective Bargaining and the Role of Labor Unions
- •2.5.2 Shop-Level Co-determination
- •2.5.3 Board-Level Co-determination
- •2.5.3.1 Coal and Steel Co-determination Act of 1951
- •2.5.3.2 One-Third Co-determination Act of 2004
- •2.5.3.3 Co-determination Act of 1976
- •2.6 Capital Markets Law
- •2.6.1 Introduction
- •2.6.1.1 Objectives of Capital Markets Law
- •2.6.1.2 Sources of German Capital Markets Law
- •2.6.2 Prohibition of Insider Trading
- •2.6.3 Publication of Inside Information
- •2.6.4 Share Ownership Notification Rules
- •References
- •Limited Liability Company (GmbH)
- •3.1 Introduction
- •3.1.1 Characteristics of the GmbH
- •3.1.2 The Lasting Success of the GmbH—A Historical Overview
- •3.1.4 Advantages of the GmbH as a Business Vehicle
- •3.2 Formation
- •3.2.1 Regular Formation Procedure
- •3.2.2 Simplified Formation Procedure
- •3.3 Internal Organization
- •3.3.1 Shareholders’ Meeting (Gesellschafterversammlung)
- •3.3.2 Managing Director (Geschäftsführer)
- •3.3.3 Supervisory Board (Aufsichtsrat)
- •3.4 Duties and Liability Risks of the Managing Director
- •3.4.1 Duties and Responsibilities of the Managing Director
- •3.4.1.1 Formation and Raising of the Share Capital
- •3.4.1.2 Preservation of the Share Capital
- •3.4.1.3 Accounting Duties
- •3.4.1.4 Duty to Prepare and Submit the Annual Accounts
- •3.4.1.5 Duty to File Petition for Initiation of Insolvency Proceedings
- •3.4.1.6 Calling of the Shareholders’ Meeting
- •3.4.1.7 Duty of Disclosure towards the Shareholders
- •3.4.1.8 Duties Arising in Connection with Entries in the Commercial Register
- •3.4.1.9 Duties Related to Social Security and Taxes
- •3.4.1.10 Information on the Business Letterhead
- •3.4.1.11 Other Duties
- •3.4.2 Liability Risks of Managing Directors
- •3.4.2.1 Liability to the Company
- •3.4.2.2 Liability to the Shareholders
- •3.4.2.3 Liability to Creditors of the GmbH
- •3.4.2.4 Liability for Violations of Competition Laws by the GmbH
- •3.4.2.5 Personal Liability under Tort Law
- •3.4.2.6 Liability to Tax Authorities and Social Insurance Agencies
- •3.4.3 Joint Responsibility/Joint and Several Liability
- •3.4.4 Statute of Limitations
- •3.4.5 Summary—Managerial Duties and Liability Risks
- •3.5 Shareholders’ Liability
- •3.5.1 Statutory Provisions Stipulating Personal Liability
- •3.5.2 Piercing the Corporate Veil
- •3.6 Protection of Minority Shareholders
- •3.6.1 Articles of Association—General Issues
- •3.6.2 Clauses to Protect Minority Shareholders
- •3.6.2.1 Need for Supplementary Protection
- •3.6.2.2 Overview of the Minority Protection Rules for GmbH Shareholders
- •3.6.2.3 Minority Protection Through Clauses in the Articles of Association
- •3.7 Dissolution and Liquidation
- •References
- •Corporate Acquisitions in Germany
- •4.1 Introduction
- •4.1.1 Case Study
- •Case Study
- •4.2 Types of Transaction
- •4.2.1 Share Deal
- •4.2.2 Asset Deal
- •4.3 Typical Steps in the Acquisition Process
- •4.3.1 Auction Process
- •4.3.1.1 Initial Phase
- •4.3.1.2 Information Memorandum
- •4.3.1.3 Due Diligence
- •4.3.2 Negotiations with One Bidder Only
- •4.3.3 Key Elements of the Share Sale and Transfer Agreement
- •4.3.3.1 Purchase Price
- •4.3.3.2 Warranties and Indemnities
- •4.3.3.3 Covenants
- •4.3.4 Completion of the Transaction (Closing)
- •4.3.5 Post-Closing Integration/Restructuring
- •4.4 Specific Problems
- •4.4.1 Financing
- •4.4.2 Merger Control Issues
- •4.4.3 Other Regulatory Matters
- •4.5 Introduction to Public Takeovers
- •4.5.1 Scope of the Public Takeover Act
- •4.5.2 Requirements for the Bidding Process
- •4.5.2.1 Mandatory Offer
- •4.5.2.2 Offer Document
- •4.5.2.3 Financing the Bid
- •4.5.2.4 Time Limits and Procedures for Notifying BaFin
- •4.5.3 Evaluation of the Bid by the Target Company
- •4.5.4.1 Types of Consideration
- •4.5.4.2 Determination of the Offer Price/Consideration
- •4.5.5 Duty of Neutrality and Defence Measures
- •4.5.6 Role of BaFin
- •4.6 Squeeze-out of Minority Stockholders
- •4.6.1 Overview
- •4.6.2 Steps of the Squeeze-out Procedure
- •Cross-Border Corporate Activities
- •5.1 Cross-Border Transfer of Corporate Seat and Applicable Law
- •5.1.1 Case Study
- •Case Study
- •5.1.2 Introduction
- •5.1.3 German Conflict-of-Law Rules for Corporations
- •5.1.4 The Decisions of the European Court of Justice
- •5.1.4.1 The Segers Decision (1986)
- •5.1.4.2 The Daily Mail Decision (1988)
- •5.1.4.3 The Centros Decision (1999)
- •5.1.4.4 The Überseering Decision (2002)
- •5.1.4.5 The Inspire Art Decision (2003)
- •5.1.4.6 The Cartesio Decision (2008)
- •5.1.5 Status-quo of German Conflict-of-Laws Rules for Companies
- •5.1.6 Legislative Proposals
- •5.1.6.1 Connecting Factors
- •5.1.6.2 Scope of Application
- •5.1.6.3 Expected Consequences for Corporate Mobility
- •5.1.7 Competition of Corporate Forms—GmbH vs. Limited
- •5.1.7.1 Competition of Corporate Laws—Some Comments
- •5.1.7.2 Check List—Advantages and Disadvantages of a UK Ltd. Compared to a German GmbH
- •5.2 The European Company (SE)
- •5.2.1 Case Study
- •Case Study
- •5.2.2 General Background
- •5.2.3 Formation of the European Company
- •5.2.4 Corporate Governance in the SE
- •5.2.5 Employee Participation in the SE
- •5.2.6 Possible Use of the SE
- •5.2.6.1 Cross-Border Merger of Companies by Using SE
- •5.2.6.2 Reorganization of the European Organizational Structure
- •5.2.6.3 Change in the Corporate Governance Structure
- •5.2.6.4 Cross-Border Transfer of Corporate Seat
- •5.3 The European Private Company (SPE)
- •5.3.1 The Commission Proposal on the Statute for a SPE
- •5.3.2 Controversial Issues
- •5.4 The EU Cross-Border Mergers Directive and Its Implementation in Germany
- •5.4.1 Case Study
- •Case Study
- •5.4.2 General Background
- •5.4.3 Implementation in Germany
- •5.4.4 Essential Steps in a Cross-Border Merger Proceeding
- •5.4.5 The SEVIC Decision of the ECJ
- •5.5 International Joint Ventures—A Check List for Relevant Issues
- •5.5.1 Commercial Background for Establishing a Joint Venture
- •5.5.2 Outline of Key Issues for Establishing a Joint Venture
- •References
- •Supplementary Materials
- •6.1 Convenience Translations
- •Further Translations
- •6.2 Examples of Corporate Documents
- •6.2.1 Articles of Association of a GmbH
- •6.2.2 Rules of Procedure for the Management Board of a GmbH
- •Selected Literature on German, International and Comparative Issues of Business Law
- •Index
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5 Cross-Border Corporate Activities |
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What are the necessary steps in a cross-border merger proceeding under the EU cross-border merger directive?
5.4.2 General Background
The EU Cross-Border Mergers Directive87 was adopted on 20 September 2005 and was to be implemented into the national law of the Member States by the end of 2007.
The new legal framework aims to facilitate cross-border mergers of limited liability companies, which in the past were often quite burdensome and costly. The cross-border mergers directive aimed at abolishing typical risks and uncertainties regarding the legal framework for such transactions. This is especially relevant for small and medium-sized companies wishing to operate in more than one EU Member State, but not throughout the whole EU and not wanting to have to establish a European Company (SE).
5.4.3 Implementation in Germany
With the introduction of a specific statute on 25 April 2007 amending the TransformationAct (Umwandlungsgesetz, UmwG), Germany implemented the corporate guidelines of the EU Cross-Border Mergers Directive. The rules on employee participation in cross-border mergers were dealt with separately in specific legislation on employee participation in cross-border mergers (Gesetz über die Mitbestimmung der Arbeitnehmer bei einer grenzüberschreitenden Verschmelzung) which had already come into force on 29 December 2006. Tax issues relating to cross-border mergers were also regulated by specific legislation (Gesetz über steuerliche Begleitmaßnahmen zur Einführung der Europäischen Gesellschaft und zur Änderung weiterer steuerlicher Maßnahmen, SEStEG).
These new German rules have now created a reliable legal framework for socalled ‘inbound’ mergers of corporations, i.e. mergers of corporations from other EU Member States or a Member State of the European Economic Area (EEA), i.e. Norway, Icelandor Liechtenstein,into German corporations, as well as for so-called ‘outbound’ mergers of German corporations into corporations of other EU or EEA Member States. The new provisions on cross-border mergers apply to corporations formed in accordance with the law of an EU or EEAMember State and having their registered office, their central administration or their principal place of business within the EU or EEA. In Germany, they will apply to the German stock corporation (AG), the limited partnership by shares (KGaA), the German limited liability company (GmbH), as well as to the ‘German’SE. However, these rules on cross-border mergers are only applicable to corporations, but not to partnerships. Furthermore,
87 Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on Cross-Border Mergers of Limited Liability Companies, OJ L 310/1 as of 25 November 2005.
5.4 The EU Cross-Border Mergers Directive and Its Implementation in Germany |
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these rules only apply to mergers; other forms of cross-border reorganization (e.g. a cross-border de-merger or a spin-off) are not included. However, the ECJ’s decision in the case of SEVIC (as outlined below), according to which cross-border mergers are protected by the Freedom of Establishment, are applicable also to partnerships, as well as to other forms of cross border reorganization.
5.4.4 Essential Steps in a Cross-Border Merger Proceeding
The essential steps to be taken and documents to be prepared in a cross-border merger proceeding are:
•Common Draft Terms of Cross-Border Mergers: The common draft terms of cross-border mergers form the basis of any cross-border merger. The minimum content of the common terms is mandatorily prescribed by the EU Cross-Border Mergers Directive.88 The national German merger agreement (Verschmelzungsplan) requires such content as: the names and registered offices of the merging companies, the ratio applicable to the exchange of shares and the amount of any cash payments, the date from which the shares will entitle their holders to share in profits, the date from which the transactions of the merging companies will be treated for accounting purposes as being those of the company resulting from the cross-border merger, any special rights conferred upon shareholders, as well as the effect of the merger on the employees. Additionally, the common terms must also include the statutes of the company resulting from the cross-border merger, as well as information on the procedure for the employee participation and information on the valuation of the assets and liabilities being transferred to the company resulting from the merger;89
•Merger Report of the Management: The management of each of the merging companies shall draw up a merger report containing certain mandatory information, e.g. explaining the common terms of the merger, the ratio applicable for the exchange of shares and the amount of any cash payment.90 In addition, the merger report shall also explain the implications of the cross-border merger for the creditors and employees of the merging companies.91 The merger report shall be made available to the shareholders and works council (or to the employees if no works council exists) no later than one month prior to the general meeting of shareholders to be held to approve the common terms;92
•Independent Expert Report: The common terms of the cross-border merger need to be verified by independent experts.93 The independent expert report must be
88 SeeArt. 5 Cross-Border Mergers Directive. 89 See Sec. 122c para. 2 UmwG.
90 See Sec. 8 UmwG.
91 See Sec. 122e sentence 1 UmwG. 92 See Sec. 122e sentence 2 UmwG.
93 See Secs. 122f sentence 1, Secs. 9–12 UmwG.
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available no later than one month prior to the required94 approval of the crossborder merger by the shareholders;95
•Shareholder Approval: If all the shares of the transferring company are held by the absorbing company, an approval by the shareholders of the transferring company is not necessary.96 In all other cases, the general meeting of each of the merging companies must decide on the approval of the common terms in accordance with the relevant national laws. The shareholders may make their approval of the cross-border merger subject to the condition that the details of the employee participation have to be explicitly approved by them;97
•Registration of the Cross-Border Merger:The registration process is divided into several steps; the requirements for each merging company shall be reviewed separately under the respective applicable law. For example, if a German company is the transferring company, its management is responsible for filing the merger with the competent Commercial Register in Germany.98 The Commercial Register will then examine whether the legal requirements regarding the merger have been fulfilled under German law and, if so, will issue a certificate to that effect to be submitted to the register of the absorbing or new company.99 The absorbing (or new) company shall subsequently apply for registration of the merger with its (if applicable, foreign) register within a period of six months and upon presentation of said certificate. The effectiveness of the merger depends on the law applicable to the absorbing (or new) company; the register responsible for that company shall be obliged to notify the Commercial Register of the German transferring company of the merger taking effect, whereupon the commercial register of the German transferring company shall register the effectiveness;100
•Employee Participation: Provisions regarding employee participation rights in the case of a cross-border merger are set out in the Act on Employee Participation in the Case of a Cross-Border Merger (Gesetz über die Mitbestimmung der Arbeitnehmer bei einer grenzüberschreitenden Verschmelzung, MgVG). The system of employee participation is similar to that which is implemented when establishing a SE by way of a merger. As a basic principle, the participation regime following a cross-border merger is governed by the legislation of the country in which the absorbing company has its registered office.101 The MgVG provides for an agreement to be negotiated by employee representatives and representatives of the company (‘negotiation solution’). For this purpose, a special negotiating body has to be formed which represents employees from all affected
94 See Secs. 13, 122 g UmwG.
95 See Sec. 122f sentence 2 UmwG. 96 See Sec. 122g para. 2 UmwG. 97 See Sec. 122g para. 1 UmwG. 98 See Sec. 122k para. 2 UmwG. 99 See Sec. 122k para. 2 UmwG. 100 See Sec. 122k para. 4 UmwG. 101 See Sec. 4 MgVG.