ARTICLE
4 December 1997

The Purchase and Sale of Companies in Germany - 4.2.2.3 Purchase Contract, Asset

WB
Wessing Berenberg-Gossler Zimmermann Lange

Contributor

Wessing Berenberg-Gossler Zimmermann Lange
Germany Employment and HR
In addition to the question of the definitiveness of the substance of the contract, it must also be examined to what extent formal requirements have to be applied for transferring the assets in question. Statutory requirements which basically play a part from a company law point of view are referred to below.

There are no basic formal requirements with regard to the transfers of shares in a private company or partnership. Special aspects arise only with regard to limited partnerships ("KG"). Under =A7 161, para. 1 and =A7 107 of the German Commercial Code, there is an obligation to register the acceptance of a new unlimited partner into the KG in the trade and commercial registry. The same also applies to the acceptance of a new limited partner into the KG (=A7 162, para. 3). No other formal requirements have to be observed with regard to the transfer of shares in a KG.

Concerning KGs, it should also be said that the so-called "limited partner" is only liable to third parties up to the amount of his/its capital contributions. On the other hand, the so-called "unlimited or general partner" is basically liable without limitation to third parties with the whole of his/its assets. The formation of private trading companies in the form of a so-called limited partnership with a limited company as general partner (GmbH & Co. KG) has therefore become a frequent occurrence in practice. The general partner in this case is a limited liability company whose liability is also limited to the amount of its share capital. With the KG structure, the unlimited liability originally intended by legislators ceases to apply therefore.

As far as joint stock companies are concerned, there are only special aspects for the transfer of shares in the case of a private limited company (GmbH). The transfer of shares is governed in =A7 15 of the German Companies Act (GmbHG). Based on the aforesaid law, a transfer of shares by shareholders requires a contract concluded in the presence of a notary. This notarial form also requires an agreement substantiating the obligation of a shareholder to transfer his/its share. Both the contractual obligation to transfer a share and also the in rem transfer of the share have to be carried out in a notarial form therefore. In view of the fact that the Articles of Association also have to be changed as a result of the transfer of one or more shares, the formal requirement with regard to the aforesaid transactions is also supplemented by the requirement to pass a resolution to change the Articles of Association in the form prescribed by law and to register it with the trade and commercial registry.

There are no such formal requirements with the transfer of shares in a public liability company (Aktiengesellschaft).

In addition to the above regulations, =A7=A7 313 and 311 of the German Civil Code particularly apply as the relevant regulation as far as an asset deal is concerned.

If the company being sold owns properties or leasehold rights, the relevant purchase contract requires notarial authentication in accordance with =A7 313 of the German Civil Code. This formal requirement then covers the business as a whole. In such a case, this also applies to ancillary agreements which could in themselves be reached informally. A division of the whole business transaction does not result in just the business relating to properties being subject to the formal requirements of =A7 313 of the German Civil Code unless it can be assumed that the business would also have been concluded without the properties. Non-authenticated ancillary business which cannot be regarded as being independent of the main business makes the whole transaction invalid under =A7 125 of the German Civil Code, including the notarially authenticated sale and purchase of the property concerned. This is particularly important as far as frequently used "side letters" are concerned in which the parties make ancillary agreements. In order to avoid formal invalidity of the whole transaction, it is therefore recommended that all contractual agreements should be notarially authenticated if a property forms part of the contract.

If the properties to be sold are located in the Federal Republic of Germany, the sale and purchase contract concerning such properties may well materialise under foreign law but the conveyance, i.e. the in rem transfer thereof, may under no circumstances be made in front of a foreign notary or equivalent person. Authentication by a Germany notary is always required. This means that if a company is to be sold together with a transfer of property located in the Federal Republic of Germany, the whole contract should be protocolled before a German notary for reasons of simplicity.

=A7 311 of the German Civil Code constitutes another formal requirement which may well be applicable. =A7 311 of the German Civil Code applies if the sale of a company includes an obligation to transfer other asset components which are not specified in further detail. Notarial authentication is also required in this case. The purpose of this ruling is to warn the seller of the general lack of definitiveness of the obligation to sell his/its assets.

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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