If the company being sold represents the whole or almost the whole of the total estate of the seller, the consent of the seller's spouse is required if the seller is living in the legal matrimonial regime as defined in =A7 1365 of the German Civil Code. Whether and if the company being sold represents the whole or almost the whole of the total estate of the seller has to be determined in each individual case, whereby recourse may be had to the factors referred to above with regard to the presentation included in =A7 419 of the German Civil Code.
Probate regulations may also give rise to consent requirements. This particularly holds true if a company is being sold from a deceased's estate. In view of the fact that the scope of inheritance law regulations is both extensive and complex, it should be specifically examined which consent requirements apply in cases possibly involving the applicability of probate regulations.
The consent requirements based on the regulations of the German Joint Stock Corporation Act (AktG), the Commercial Code (HGB) and the Companies Act (GmbHG) are also important in actual practice.
Under =A7 361 of the German Joint Stock Corporation Act, a contract in which a public limited company (AG) or a partnership limited by shares (KGaA) sells its business or a company which represents its major asset is only valid if the consent of the annual general meeting has been received. Whether the contract relates to the major asset of the AG or KGaA depends upon whether the company is sufficiently able to achieve the entrepreneurial objectives specified in its Articles of Association with the remaining assets. At the same time, it is not sufficient for a justification of the aforesaid consent requirement that the entrepreneurial objective is only possible to a limited extent as a result of the transaction in question. The resolution granting consent requires a majority of at least 75 % of the equity capital of the company participating in the vote. In rem enforcement transactions undertaken on the strength of a contract are basically possible without the consent of the annual general meeting, however, but the absence of consent may result in a reversal based on the principles of the law on unjustified enrichment.
According to recent jurisdiction by the German Supreme Court, the basic principle should be observed in addition to the consent requirement of =A7 361 of the German Joint Stock Corporation Act that a resolution of the annual general meeting is also required in a case in which a public limited company sells a business or a company and if this sale is an absolutely exceptional transaction, i.e. the Management Board is not "reasonably" able to assume that it is allowed to act without the consent of the annual general meeting. If the consent of the annual general meeting has not been received in such a case, the purchase contract and the in rem enforcement transactions are valid but a shareholder of the company concerned may request the company to reverse the transaction in question. This may mean an element of legal uncertainty for the buyer and result in legal action being brought.
Additional consent requirements are to be found in the regulations of the German Commercial Code (HGB) in respect of unlimited partnerships (OHG) and limited partnerships (KG). In view of the fact that the sale of a business conducted by an unlimited partnership or a limited partnership also extends beyond the scope of exceptional business by the company, i.e. a so-called basic transaction is thereby involved affecting the future of the company, such as sale can only be effected after an appropriate amendment has been made in the Articles of Association. If the company operates various businesses but only intends to sell one of them, this generally represents an act which only extends beyond the normal course of business relating to the trading operations of the company. Under =A7 116, para. 2 of the German Commercial Code, such acts may only be executed by the executive shareholders when they have been authorised to do so by a shareholders' resolution. Individual limited partners also have a right of objection under =A7 164 of the German Commercial Code unless otherwise agreed in contractual arrangements.
In the case of a private limited company (GmbH), sales and disposals which are made by an executive shareholder and exceed his power of authority are basically unreservedly valid, however. This also applies to acts undertaken by the Management Board of the company. The aforesaid principle of unlimited validity only lapses if the third party involved was aware of the deficient power of attorney in the specific case in question or if it was even more than obvious. In relations per se, the Management Board is liable to pay compensation to the shareholders if it exceeds its power of authority, however.
For further information please contact Dr Erich Michel, Wessing Berenberg-Gossler Zimmermann Lange, Freiherr-Vom-Stein-Strasse 24-26, Frankfurt am Maim 60323, Frankfurt, Germany- Tel: +496 997 1300, Fax: +496 997 130100.
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4 December 1997