A recent Nuremberg Higher Regional Court case dealt with a contractual clause known as a 'Russian roulette' clause. The court ruled that such clauses are not legally void per se. However, there may be situations in which such clauses are misused. This may occur if the offeror is significantly more financially powerful than the other shareholder and makes an offer which it knows that the offeree cannot provide.
It is common commercial practice to add a company seal to signatures under a contract. Most companies have a seal of some sort, but it is not clear what legal effects its use may entail. The Federal Court recently heard a case in which one partner of a partnership signed an agreement, but added the company seal to his signature. The court found that one signature was sufficient where accompanied by the seal.
Directors of German limited liability companies are not liable for claims against the company. However, it is not always clear whether directors are free from liability if the company is involved in a wrongful act. In recent years there has been a trend to emphasise directors' liability.
German company law has traditionally been hostile to the international mobility of companies. However, Germany now accepts that EU companies may be directed from within Germany, without any negative impact on the companies' recognition. Recently, the Nuremberg Higher Regional Court had to decide on the transfer of a Luxembourg private limited company to Germany.
When preparing a letter of comfort, the parent company must take care to limit its liability as far as possible. However, the more that the parent company reduces its liability, the less that the letter of comfort is suitable to provide comfort and prevent insolvency. As the parent company will be responsible for all uncovered debts, it should check thoroughly its subsidiary's financial position when issuing the letter of comfort.
In a recent resolution, the Munich Upper Regional Court held that the German regime on the registration of company names also applies to the registration of German branches of foreign companies, such as the German branch of an English private limited company.
The company law reform of November 2008 established a new regime of subdivision and attribution of shares in German limited liability companies. All shares must now be numbered, so that each share can be easily identified and it is simple to keep track of any transfers to new shareholders. Shareholders in German limited liability companies should ensure that they are registered on the relevant shareholder list.
In a series of judgments the German courts have subjected directors of UK limited companies with centres of main interest in Germany to German insolvency law. This issue has long been disputed by legal commentators and may well be referred to the European Court of Justice.
In recent months several corporate scandals have unfolded before the disbelieving eyes of the German public. In response, the German authorities and courts have begun to increase the pressure on German companies and their management. As a consequence, compliance issues are becoming increasingly important and cost intensive. Both German and foreign parent companies may be affected.
Under Article 17(1) of the EU Commercial Agents Directive, member states must provide for indemnity or compensation for damage of the commercial agent after termination of its agency contract. Germany has incorporated the indemnity option into law by amending Section 89b(1) of the Commercial Code.
A recent ruling of the Federal Court of Justice has better defined the new legal regime for upstream loans and cash pooling under German company law. However, although it brings good news for shareholders, it also means increased risks for directors of German companies.
In a recent judgment the Federal Supreme Court reviewed the requirements for transactions involving an indirect transfer of shares in a limited liability company. Although the judgment confirmed the legal principles relating to the notarization requirement contained in the Limited Liability Companies Act, it did not explicitly waive other transactions from the requirement.
Most of the procedural issues surrounding the registration of English private limited companies - known in Germany as 'limiteds' - have been resolved. Two court decisions have clarified the legal norms applicable to limiteds with regard to the registration of a company name and the legal status of a limiteds in Germany after it has been struck from the Companies House Register in the United Kingdom.
The government has introduced draft legislation which, if passed, will fundamentally reform the statutory framework governing the German limited liability company. This framework - the Limited Liability Companies Act - principally governs the formation, operation and management of the limited liability company. This update summarizes the most important aspects of this reform.
Stock corporations have long been vulnerable to the phenomenon of 'professional' or 'predatory' plaintiff shareholders filing frivolous actions to set aside often crucial transactions and measures undertaken by stock corporations. In a new development, one such plaintiff was ordered to pay damages for commencing an action to block a stock corporation from increasing its stated capital.
The English private limited company (PLC) exploded in popularity in Germany as an alternative to the limited liability company. However, suspicion lingers that the PLC can be used as a vehicle to evade the application of German corporate laws, which are known for both conservative rigour and resistance to manipulation. Some of this suspicion has been put to rest by a recent Supreme Court judgment.
The issue of overvalued non-cash capital contributions remains fundamental to corporate law. In German practice, this issue most commonly arises where a limited liability company is incorporated and in-kind capital contributions are made in order to provide the nominal capital required to register the corporation.
In 1982 the Supreme Court ruled that in certain cases the management board's power to decide on management issues is restrained by an unwritten competence of the shareholders' meeting to decide on measures of particular importance. As a result, stock corporations tended to submit various measures deemed to be important to the shareholders' meeting for approval. Further rulings have now clarified this issue.
In two recent decisions the Supreme Court has specified and tightened the rules on consultancy agreements between German stock corporations and members of their supervisory boards. Following these decisions, stock corporations and their advisers must scrutinize contractual relations with members of their supervisory board and entities in which members of the supervisory board hold an interest.
The legislature is taking steps to modernize German corporate law. The latest development is the Law on Electronic Commercial Registers and the Company Register, which brings about major changes with regard to the publication of corporate data; it is designed to improve access to such data and speed up registration and publication procedures for companies in Germany.