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A ruling by the Amtsgericht (district court) Duisburg dated 8 August 1997 but only recently published (NZG 1998, 194) holds that the purchase of a shell corporation for use as the vehicle of a new business is the economic equivalent of the formation of a new company and, as such, is subject to application by analogy of the statutory provisions which govern the corporate formation process. This means in particular that the corporation must have the minimum paid in capital required by law at the time of formation.
A limited liability company (GmbH) must have stated capital of DM 50,000 or more, of which half must be paid in at the time application is made for entry in the Commercial Register (sec. 7 (2) GmbHG). The application must state that this sum is at the free disposal of the company's general managers as of the application date (sec. 8 (2) GmbHG). This means that the paid in capital cannot be reduced by any liabilities as of this date. The company acquires corporate existence upon its entry in the Commercial Register, which is required to refuse to enter a corporation if the formation process is defective (sec. 9c GmbHG).
A corporation which has terminated its previous business and has only minimal assets is commonly referred to as a shell company. The purchase of such a company for use as the vehicle of a new enterprise is, in the court's view, a circumvention of the corporate law provisions respecting corporate formation. When a Commercial Register has reason to suspect that it has been requested to register a transaction relating to a shell company, the Commercial Register must, in the court's view, make such registration contingent upon proof that the company has the capital required for registration of a newly formed corporation.
In the case at hand, the shares in a GmbH registered in the Commercial Register in a city in Nordrhein-Westfalen were sold for the price of DM 1, whereupon the new owner replaced the former general manager and revised the articles of incorporation to shift the company's seat (registered office) to Duisburg. These changes were filed with the Duisburg Commercial Register. Before action could be taken on the filing, the shares in the GmbH were transferred again to a second new owner, who again changed the general manager and revised the articles, in particular to provide for a completely new business purpose. These changes were also filed with the Duisburg Commercial Register, which refused to enter the transactions pending proof of compliance with the minimum capital requirements at the time of the filing. The company's officers declined to provide such proof and instead filed suit with the Duisburg District Court seeking to compel the Commercial Register to enter the transactions as requested. The court upheld the Commercial Register.
The court bases its decision on a considerable body of scholarly opinion. While the instant case involves a "used" shell corporation, i.e. one which has previously engaged in business but since terminated its business activity, the grounds of the decision may apply as well to "new" shell corporations such as are commonly formed by large law and accounting firms for sale to their clients. In the case of such "new" shell corporations, however, satisfying the sorts of requirements imposed by the Duisburg Commercial Register would appear to entail no more than slight additional effort.
The views of the Duisburg District Court are not universally held. There is also case law which denies the Commercial Register the right to investigate filing requests from shell corporations (Regional Court of Appeals Frankfurt a.M. Rpfleger 1992, 27).
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