Establishing and Operating a Limited Liability Company (GmbH) PDF

Chapter 4: ESTABLISHING AND OPERATING A LIMITED LIABILITY COMPANY (GMBH) Ê GmbH statute goes back to 1900, having since been modified repeatedly Ê Act on Limited Liability Companies (Gesetz betreffend die Gesellschaften mit beschränkter Haftung – GmbHG) Ê GmbH as the most convenient and flexible form of doing business in Germany for foreigners (bakermckenzie.doing-business-in-germany.pdf, pages 17 – 46.) English 1 49 Prof. Dr. Prof. h.c. Schellberg Act of 15 July 2022 (Federal Law Gazette I p. 1146) Zur Nutzung dieser Übersetzung lesen Sie bitte den Hinweis auf www.gesetze-im-internet.de 1. Formation of a GmbH unter "Translations". 1.1 One For conditions or more governing use of thisForming Shareholders translation, please see the information provided at www.gesetze-im-internet.de under "Translations". Act on Limited Liability Companies (Gesetz betreffend die Gesellschaften mit beschränkter Haftung – GmbHG) Limited Liability Companies Act, as consolidated and published in the Federal Law Gazette III, Index No. 4123-1, as last amended by Article 5 of the Act of 15 July 2022 (Federal Law Gazette I, p. 1146) Division 1 Formation of company Section 1 Purpose; number of founders Limited liability companies may be formed by one person or several persons in accordance with the provisions of this Act for any purpose permitted by law. Section 2 (bakermckenzie.doing-business-in-germany.pdf, pages 18 – 19.) Form of articles of association (1) Articles English 1 of association require notarial form. 50 They must be signed byProf. all Dr. the shareholders. Prof. h.c. Schellberg (1a) A company may be formed under a simplified procedure if it has no more than three shareholders and one director. The Model Protocol provided in Annex 1 must be used to Limited Liability Companies Act, as consolidated and published in the Federal Law Gazette III, Index No. 4123-1, as last amended by Article 5 of the Act of 15 July 2022 (Federal Law Gazette I, p. 1146) 1. Formation of aFormation GmbH Division 1 of company 1.1 One or morePurpose; Forming and the Federal number Shareholders Service1provided by the Federal Ministry of Justice Section Office of Justice ‒ www.gesetze-im-internet.de of founders Limited liability companies may be formed by one person or several persons in accordance with the provisions of this Act for any purpose permitted by law. Section 2 Form of articles of association (1) Articles of association require notarial form. They must be signed by all the shareholders. (1a) A company may be formed under a simplified procedure if it has no more than three shareholders and one director. The Model Section Protocol 3provided in Annex 1 must be used to form a limited liability companyContent under the of simplified articles ofprocedure. association No further provisions which (1) The articles of association must stipulate the following: derogate from the law may be laid down. The Model Protocol also serves as the list of shareholders. In all other respects, the provisions of this Act concerning the articles of 1. the company’s business name and the place of its registered office, association apply accordingly to the Model Protocol. (2) The2. articles ofpurpose the association may of the be signed by authorised representatives only on the basis enterprise, of a power of attorney established or authenticated by a notary. Notarial recording of the power 3. of attorney the amount may also of be theeffected share capital, via video link in accordance with sections 16a to 16e of the 4. Notarial the Recording number Act and(Beurk nominal undungsgesetz). values of the shares to which each shareholder (3) Where a company is formed without subscribes against payment of the capital any contributions contribution in kind, into thenotarial recording share capital of the (ʻoriginal articles of association capital shareʼ). may also be effected via video link in accordance with sections 16a to 16e of the Notarial Recording Act. In such cases, in derogation from subsection (1) sentence 2,(2)the If the enterprise qualified is to be electronic formed for signatures a specific of the directorsterm or if other obligations participating vis -à-vis in the notarial recordingthe via company are to be imposed on the shareholders in addition to payment of a capital video link are sufficient to effect signature. Other declarations of intent which do not require contribution, notarial these recording mayprovisions mustviaalso be effected videobe included in the articles link in accordance with of association. sections 16a to 16e of the Notarial Recording Act; they must be included Sectionin4 the electronic (bakermckenzie.doing-business-in-germany.pdf, pages record 18 – 19.)made as required by sentence 1. Sentence 3 applies accordingly Business to name resolutions passed by unanimous vote. A English 1 51 Prof. Dr. Prof. h.c. Schellberg company The business may also namebemustformed via video include link under the the designation simplified mit ʻGesellschaft procedure beschränk as ter referred Haftungʼto in subsection (1a) orCompany) (Limited Liability using the Model Protocols or a readily provided in abbreviation comprehensible Annex 2. Subsection (1a) of this designation directors during this interim period attach to the managing directors personally. It is primarily for this reason that the period between formation and incorporation should be kept as short as possible and that the management should not enter 1. Formation of a GmbH into obligations or liabilities prior to incorporation. Another important reason is that any depletion of the paid-up capital prior to incorporation gives rise to a 1.1 One or more Forming Shareholders personal liability for the forming shareholders to make up such deficiency existing at the time of incorporation. Once the GmbH has become incorporated, any rights and obligations created between formation and incorporation attach to the GmbH by operation of law as the new legal entity. The time between filing the complete formation documentation with the register court and the recording of the GmbH - thus its incorporation – takes approx. 1 – 6 weeks, depending on the workload at the respective register court. In urgent cases, recordings have been achieved within a few days from filing, but this high-speed recording cannot be guaranteed. Formation costs for a minimum capital company are in the range of EUR 250 for notarial fees, EUR 400 for court fees and EUR 800 for attorney fees, all in the case of an uncomplicated wholly owned subsidiary formation. (bakermckenzie.doing-business-in-germany.pdf, page 19.) English 1 52 Prof. Dr. Prof. h.c. Schellberg Baker & McKenzie even if it is continued in accordance with section 22 of the Commercial Code (Handelsgesetzbuch) or other statutory provisions. If the company exclusively and directly pursues tax-privileged purposes under sections 51 to 68 of the Fiscal Code (Abgabenordnung), the abbreviation ʻgGmbHʼ may be used. 1. Formation of a GmbH Section 4a 1.1 One or more Forming Shareholders Registered office The place of the company’s registered office is that place in Germany as specified in the articles of association. Section 5 Share capital; share (1) The company’s share capital must amount to no less than 25,000 euros. (2) The nominal value of each share must be a full euro amount. A shareholder may subscribe to several shares upon formation of the company. (3) The amount of the nominal values of the individual shares may be variously determined. The sum total of the nominal values of all the shares must equal the amount of the share capital. (4) If contributions in kind are to be made, the object of the contribution in kind and the nominal value of the share to which the contribution in kind refers must be specified in the articles of association. The shareholders are required to set forth in a report on company formation on the basis of contributions in kind the material circumstances which establish the appropriateness of the payments for contributions in kind and, where an enterprise is transferred to the company, to state the annual results of the two previous financial years. Section 5a Entrepreneurial company (1) The business name of a company formed with a share pages (bakermckenzie.doing-business-in-germany.pdf, capital 18 which falls short of the – 19.) minimum English 1 share capital as referred to in section 53 5 (1) must, in derogationProf. from section Dr. Prof. 4, bear h.c. Schellberg the designation ʻUnternehmergesellschaft (haftungsbeschränk t)ʼ (Entrepreneurial Company (Limited Liability)), or ʻUG (haftungsbeschränk t)ʼ for short. 1. Formation of a GmbH 1.2 One – Euro Capital Formation Ê This one - Euro company may not call itself "GmbH", but has to call itself as "Unternehmergesellschaft", (meaning "Entrepreneur Company") or abbreviated "UG", always with the additional specification "limited liability". Ê Entrepreneur Company provides full limited liability for its shareholders. To this extent, it is comparable to the UK Limited or the French S.à.r.l. Ê formation with a capital of at least one EUR Ê 25% of its (after tax) profit for the year have to be retained and credited to a mandatory reserve account until such time when the reserve account shows an amount of EUR 25,000 Ê directors are subject to a strict obligation to call a shareholders meeting in case of an imminent inability of the Entrepreneur Company to pay its debts (bakermckenzie.doing-business-in-germany.pdf, page 20.) English 1 54 Prof. Dr. Prof. h.c. Schellberg The sum total of the nominal values of all the shares must equal the amount of the share capital. (4) If contributions in kind are to be made, the object of the contribution in kind and the 1. Formation of a GmbH nominal value of the share to which the contribution in kind refers must be specified in the articles of association. The shareholders are required to set forth in a report on company 1.2 One – Euro Capital Formation formation on the basis of contributions in kind the material circumstances which establish the appropriateness of the payments for contributions in kind and, where an enterprise is transferred to the company, to state the annual results of the two previous financial years. Section 5a Entrepreneurial company (1) The business name of a company formed with aprovided Service share capital by thewhich fallsMinistry Federal short ofofthe Justice minimum share capital as referred and to inFederal the section Office 5 (1) must, in derogation of Justice from section 4, bear ‒ www.gesetze-im-internet.de the designation ʻUnternehmergesellschaft (haftungsbeschränk t)ʼ (Entrepreneurial Company (Limited Liability)), or ʻUG (haftungsbeschränk t)ʼ for short. (2) In derogation from section 7 (2), the application to register the company may not be filed until the full amount of the share capital has been deposited. Contributions in kind are not possible. (3) The balance sheet in the annual financial statements to be prepared in accordance with sections 242 and 264 of the Commercial Code must include statutory reserves comprising one quarter of the annual surplus minus any losses carried forward from the previous year. The reserves may be used only 1. for the purposes set out in section 57c; Page 2 of 38 2. to compensate for an annual deficit, insofar as it is not covered by profits carried forward from the previous year; (bakermckenzie.doing-business-in-germany.pdf, page 20.) 3. English 1 to compensate for losses carried 55forward from the previous Prof. year, insofar as they Dr. Prof. h.c. Schellberg are not covered by an annual surplus. (4) In derogation from section 49 (3), a meeting of shareholders must be convened without Service provided by the Federal Ministry of Justice and the Federal Office of Justice ‒ www.gesetze-im-internet.de 1. Formation of a GmbH 1.2 One – Euro Capital Formation one quarter of the annual surplus minus any losses carried forward from the previous year. The reserves may be used only 1. for the purposes set out in section 57c; 2. to compensate for an annual deficit, insofar as it is not covered by profits carried forward from the previous year; 3. to compensate for losses carried forward from the previous year, insofar as they are not covered by an annual surplus. (4) In derogation from section 49 (3), a meeting of shareholders must be convened without delay where there is a threat of illiquidity. (5) If the company increases its share capital so that it then equals or exceeds the amount of the minimum share capital as referred to in section 5 (1), then subsections (1) to (4) no longer apply; the business name as referred to in subsection (1) may be retained. Section 6 Directors (1) The company must have one or more directors. (2) Only a natural person of full legal capacity may be a director. Anyone who 1. as a person under custodianship is fully or partially (bakermckenzie.doing-business-in-germany.pdf, page subject 20.) to a reservation of English 1 consent (section 1825 of the Civil Code (Bürgerliches Gesetzbuch)) in the management 56 Prof. Dr. Prof. h.c. Schellberg of their assets, 2. on the basis of a court judgment or an enforceable decision issued by an 1. Formation of a GmbH 1.2 One – Euro Capital Formation EXAMPLE Ê You want to start a business. You have 5000 €. Can you set up a Limited Liability Company? Which legal form do you have to choose if you can't raise any further equity? Ê In the ﬁrst year of your business, you make a proﬁt of €10,000. How much can you distribute a proﬁt to the shareholders? In which balance sheet item do you post the remaining amount? Ê Under what conditions can you distribute the entire proﬁt to the shareholders? (Always explain your solution, citing the relevant §!) English 1 57 Prof. Dr. Prof. h.c. Schellberg 3. the amount of the share capital, 4. the number and nominal values of the shares to which each shareholder 1. Formation of a GmbH subscribes against payment of the capital contribution into the share capital (ʻoriginal capital shareʼ). 1.3 Name of the GmbH (2) If the enterprise is to be formed for a specific term or if other obligations vis -à-vis the company are to be imposed on the shareholders in addition to payment of a capital contribution, these provisions must also be included in the articles of association. Section 4 Business name The business name must include the designation ʻGesellschaft mit beschränk ter Haftungʼ (Limited Liability Company) or a readily comprehensible abbreviation of this designation even if it is continued in accordance with section 22 of the Commercial Code (Handelsgesetzbuch) or other statutory provisions. If the company exclusively and directly pursues tax-privileged purposes under sections 51 to 68 of the Fiscal Code (Abgabenordnung), the abbreviation ʻgGmbHʼ may be used. Section 4a Registered office The place of the company’s registered office is that place in Germany as specified in the articles of association. Section 5 Share capital; share (1) The company’s share capital must amount to no less than 25,000 euros. (2) The (bakermckenzie.doing-business-in-germany.pdf, pages 18A–shareholder nominal value of each share must be a full euro amount. 19.) may subscribe to several shares upon formation of English 1 58 the company. Prof. Dr. Prof. h.c. Schellberg (3) The amount of the nominal values of the individual shares may be variously determined. 1. Formation of a GmbH 1.3 Name of the GmbH Ê choice of name is free, if it does not mislead the public Ê must be sufficiently distinguishable from other names used in the marketplace Ê generally advisable for a new GmbH to seek to register its name as a trade or service mark Ê it is recommended to register a service or trademark for the new name to protect it against newcomers or copycats (bakermckenzie.doing-business-in-germany.pdf, page 20.) English 1 59 Prof. Dr. Prof. h.c. Schellberg 3. the amount of the share capital, 4. the number and nominal values of the shares to which each shareholder 1. Formation of a GmbH subscribes against payment of the capital contribution into the share capital (ʻoriginal capital shareʼ). 1.4 Registered Oﬃce (2) If the enterprise is to be formed for a specific term or if other obligations vis -à-vis the company are to be imposed on the shareholders in addition to payment of a capital contribution, these provisions must also be included in the articles of association. Section 4 Business name The business name must include the designation ʻGesellschaft mit beschränk ter Haftungʼ (Limited Liability Company) or a readily comprehensible abbreviation of this designation even if it is continued in accordance with section 22 of the Commercial Code (Handelsgesetzbuch) or other statutory provisions. If the company exclusively and directly pursues tax-privileged purposes under sections 51 to 68 of the Fiscal Code (Abgabenordnung), the abbreviation ʻgGmbHʼ may be used. Section 4a Registered office The place of the company’s registered office is that place in Germany as specified in the articles of association. Section 5 Share capital; share (1) The company’s share capital must amount to no less than 25,000 euros. (2) The (bakermckenzie.doing-business-in-germany.pdf, pages 18A–shareholder nominal value of each share must be a full euro amount. 19.) may subscribe to several shares upon formation of English 1 60 the company. Prof. Dr. Prof. h.c. Schellberg (3) The amount of the nominal values of the individual shares may be variously determined. 1. Formation of a GmbH 1.4 Registered Oﬃce Ê The Articles must state the registered office of the GmbH. It is sufficient to state the name of a city or town such as Frankfurt am Main. There is no need for a specific address to be given. Any move of the GmbH within city limits does not require an amendment to the Articles but must be notified to the local register court. A move to another town or city must be reflected by a change in the Articles and a change in the commercial register recording. Ê Pursuant to the old law, the registered office of the GmbH had to be at the place where the GmbH was operated, and this place had to be within Germany. This requirement was removed. While the registered office still needs to be in Germany, the GmbH may be operated from outside Germany. (bakermckenzie.doing-business-in-germany.pdf, page 20.) English 1 61 Prof. Dr. Prof. h.c. Schellberg Service provided by the Federal Ministry of Justice and the Federal Office of Justice ‒ www.gesetze-im-internet.de 1. Formation of a GmbH 1.5 Object Clause Section 3 Content of articles of association (1) The articles of association must stipulate the following: 1. the company’s business name and the place of its registered office, 2. the purpose of the enterprise, 3. the amount of the share capital, 4. the number and nominal values of the shares to which each shareholder subscribes against payment of the capital contribution into the share capital (ʻoriginal capital shareʼ). (2) If the enterprise is to be formed for a specific term or if other obligations vis -à-vis the company are to be imposed on the shareholders in addition to payment of a capital contribution, these provisions must also be included in the articles of association. Section 4 Business name (bakermckenzie.doing-business-in-germany.pdf, page 20.) The business name must include the designation ʻGesellschaft mit beschränk ter Haftungʼ English 1 (Limited Liability Company) or a readily comprehensible 62 abbreviation Prof. of this designation Dr. Prof. h.c. Schellberg even if it is continued in accordance with section 22 of the Commercial Code 1. Formation of a GmbH 1.5 Object Clause Ê Articles of the GmbH must describe its objects in general terms Ê Certain activities require the consent by regulatory authorities, such as banking, insurance, certain pharmaceutical and chemical activities, to name but a few such areas. Ê Although this is not mandatory, the object clause would normally include wording to the effect that the GmbH can operate branch offices and set up subsidiaries. (bakermckenzie.doing-business-in-germany.pdf, pages 21 – 22.) English 1 63 Prof. Dr. Prof. h.c. Schellberg even if it is continued in accordance with section 22 of the Commercial Code (Handelsgesetzbuch) or other statutory provisions. If the company exclusively and directly pursues tax-privileged purposes under sections 51 to 68 of the Fiscal Code 1. Formation of a GmbH (Abgabenordnung), the abbreviation ʻgGmbHʼ may be used. Section 4a 1.6 Capitalization Registered office 1.7 Shares The place of the company’s registered office is that place in Germany as specified in the articles of association. Section 5 Share capital; share (1) The company’s share capital must amount to no less than 25,000 euros. (2) The nominal value of each share must be a full euro amount. A shareholder may subscribe to several shares upon formation of the company. (3) The amount of the nominal values of the individual shares may be variously determined. The sum total of the nominal values of all the shares must equal the amount of the share capital. (4) If contributions in kind are to be made, the object of the contribution in kind and the nominal value of the share to which the contribution in kind refers must be specified in the articles of association. The shareholders are required to set forth in a report on company formation on the basis of contributions in kind the material circumstances which establish the appropriateness of the payments for contributions in kind and, where an enterprise is transferred to the company, to state the annual results of the two previous financial years. Section 5a Entrepreneurial company (1) The (bakermckenzie.doing-business-in-germany.pdf, business name of a company formed with a share capitalpages 21which falls short of the – 22.) minimum English 1 share capital as referred to in section 64 5 (1) must, in derogation Prof. from section Dr. Prof. 4, bear h.c. Schellberg the designation ʻUnternehmergesellschaft (haftungsbeschränk t)ʼ (Entrepreneurial Company (Limited Liability)), or ʻUG (haftungsbeschränk t)ʼ for short. 1. Formation of a GmbH 1.8 Fiscal Year Corporate Income Tax Act (KStG) § 7 Basis of taxation (1) Corporation tax shall be calculated on the basis of taxable income. (2) Taxable income is income within the meaning of Paragraph 8(1), less the allowances provided for in Sections 24 and 25. (3) Corporation tax is an annual tax. The basis for their determination shall be determined for one calendar year at a time. If the unlimited or limited tax liability does not exist for a whole calendar year; the calendar year shall be replaced by the period of the respective tax liability. (4) In the case of taxpayers who are required to keep accounts in accordance with the provisions of the Commercial Code, the proﬁt shall be determined on the basis of the ﬁnancial year for which they regularly draw accounts. If, in the case of such taxpayers, the ﬁnancial year for which they regularly draw accounts diﬀers from the calendar year, the proﬁt from business operations shall be deemed to have been received in the calendar year in which the ﬁnancial year ends. The change of the ﬁnancial year to a period other than the calendar year is only eﬀective for tax purposes if it is carried out in agreement with the tax oﬃce. (bakermckenzie.doing-business-in-germany.pdf, pages 25 – 26.) English 1 65 Prof. Dr. Prof. h.c. Schellberg 2. Operation of a GmbH 2.1 Powers of Management Ê Powers of Management cannot be limited in the Articles with effect towards third parties Ê The only limitation, which will have effect towards third parties, is to tie the signature of each managing director to the co-signature of another director (four eyes principle). This limitation can be enforced against third parties, because the single or joint signatory power of a managing director is recorded in the commercial register and is thus deemed to be public knowledge. No other limitations can be recorded in this manner. Ê However, if managers habitually sign singly and their actions are recognized by the GmbH as binding, the GmbH will be estopped from raising the dual signature defense in trying to avoid contractual obligations. (bakermckenzie.doing-business-in-germany.pdf, pages 28 – 29.) English 1 66 Prof. Dr. Prof. h.c. Schellberg accordance with the articles of association. (2) Collection is made without the consent of the person entitled to the share only if the preconditions therefor were determined in the articles of association before the point in time 2. Operation of a GmbH at which the person entitled purchased the share. (3) The provision of section 30 (1) remains unaffected. 2.1 Powers of Management Division 3 Representation and management Section 35 Representation of company (1) The company is represented in and out of court by the directors. If a company has no director, the company is represented by the shareholders whenever declarations of intent are made or documents are served on it. (2) Where several directors have been appointed, they are only all jointly entitled to represent the company, unless otherwise provided in the articles of association. Where a declaration of intent is to be made to the company, it is sufficient for it to be made to one representative of the company in accordance with subsection (1). Declarations of intent may be made to and documents addressed to the company may be served on the representatives of the company referred to in subsection (1) under the address entered in the Commercial Register. Notwithstanding this, the declarations may also be made to and documents may also be served under the registered address to persons authorised in accordance with section 10 (2) sentence 2. (3) Where all the company’s shares are held by one shareholder or, in addition, by the company and that shareholder is at the same time the sole director, section 181 of the Civil Code applies to that shareholder’s legal transactions with the company. Legal transactions between the shareholder and the company which that shareholder represents are, even if he or she is not the sole director, to be documented without delay following their performance. Section 35a (bakermckenzie.doing-business-in-germany.pdf, pages 28 – 29.) English 1 Required particulars 67 in business letters Prof. Dr. Prof. h.c. Schellberg (1) All business letters, regardless of their form, which are addressed to a specific recipient must indicate the company’s legal form and registered office, the court of registration at the 2. Operation of a GmbH 2.1 Powers of Management Ê shareholders meeting may resolve, for example, on a list of actions and transactions which management may only perform subject to prior consent of the shareholders meeting, or any board as provided for in the code Ê managing director violating these internal rules will be subject to a damages claim raised by the shareholders Ê GmbH may not hold a violation of internal rules against a third party, unless the third party knew about these rules Ê Management is responsible for the day-to-day running of the GmbH. Management is also responsible for observing all statutory rules and regulations, which apply to the GmbH and its business, not least in the area of taxation. In the event that employees in conducting the GmbH business should breach the law, the ultimate responsibility (and with it any penalties) will attach to management, unless management can show that it has at all times properly instructed, organized and supervised its personnel. (bakermckenzie.doing-business-in-germany.pdf, pages 28 – 29.) English 1 68 Prof. Dr. Prof. h.c. Schellberg 2. Operation of a GmbH 2.2 Prokurist Ê second level executive position called "Prokurist” Ê appointed by the managing directors based on a vote of the shareholders' meeting Ê appointment and the signature power are recorded in the commercial register Ê range of powers as determined by the Commercial Code; limitations: Ê The Prokurist may not appoint other Prokurists, Ê the Prokurist may not sell the business as a whole and Ê the Prokurist may not enter into real estate transactions on behalf of the GmbH. Ê As in the case of the managing director, the Prokurist may have joint or single signature power. The joint power of a Prokurist may be tied to the signature of another Prokurist or that of a managing director. Conversely, the joint signatory power of a managing director may, as noted above, be tied to that of another managing director, but also to that of a Prokurist. However, in a situation, where there is only one managing director, his signature may not with legal effect towards third parties be tied to that of a Prokurist. (bakermckenzie.doing-business-in-germany.pdf, pages 29 – 30.) English 1 69 Prof. Dr. Prof. h.c. Schellberg 2. Operation of a GmbH 2.2 Prokurist Section 48 (HGB) (1) The general commercial power of representation can be granted only by the owner of the commercial business or by his legal representative and only by means of an express declaration. (2) The general commercial power of representation can be conferred on several persons jointly (joint general commercial power of representation). Section 49 (1) The general commercial power of representation shall confer authority to enter into all kinds of judicial and extrajudicial transactions and legal acts involved in the operation of a commercial business. (2) The holder of a general commercial power of representation shall have authority to dispose of and encumber real property only if such authority has been specifically conferred on him. Section 50 (1) A limitation on the scope of the general commercial power of representation shall be ineffective vis-à-vis third parties. (2) This shall apply especially to a limitation whereby the general commercial power of representation is to be exercised only for particular transactions or particular kinds of transactions or only under certain circumstances or for a certain period of time or at specific places. (3) A limitation of the general commercial power of representation to the operation of one of several establishments of the business owner shall be effective vis-à-vis third parties only if the establishments are operated under different business names. A business name shall also be different within the meaning of this provision if, for a branch office, an addition is appended to its business name to indicate that it is the business name of the branch office. (bakermckenzie.doing-business-in-germany.pdf, pages 29 – 30.) English 1 70 Prof. Dr. Prof. h.c. Schellberg 2. Operation of a GmbH 2.2 Prokurist Section 51 The holder of a general commercial power of representation shall sign by adding to the business name his own name with an addition indicating the general commercial power of representation. Section 52 (1) The general commercial power of representation is revocable at any time irrespective of the legal relationship underlying the conferment thereof, without prejudice to the right to contractual remuneration. (2) The general commercial power of representation is not transferable. (3) The general commercial power of representation shall not terminate upon the death of the owner of the commercial business. Section 53 (1) The owner of the commercial business shall apply for registration of conferment of a general commercial power of representation in the Commercial Register. Where the general commercial power of representation has been conferred as a joint general commercial power of representation, this must also be submitted for entry. (2) Termination of the general commercial power of representation shall be submitted for entry in the same manner as conferment thereof. Section 54 (1) Where a person is authorised, without conferment of a general commercial power of representation, to operate a commercial business, to undertake a particular kind of transaction relating to a commercial business or to undertake individual transactions relating to a commercial business, such power of attorney (commercial authority to act) shall extend to all transactions and legal acts which are normally involved in the operation of such a commercial business or in the undertaking of such transactions. (2) The holder of a commercial authority to act shall have authority to dispose of or encumber real property, to enter into bill of exchange commitments, to take out loans and to conduct litigation only if such authority has been specifically conferred on him. (3) A third party must allow other limitations on the commercial authority to act to be asserted against him only if he knew or ought to have known of such limitations. (bakermckenzie.doing-business-in-germany.pdf, pages 29 – 30.) English 1 71 Prof. Dr. Prof. h.c. Schellberg 2. Operation of a GmbH 2.3 Shareholders’ Meeting Ê shareholders appoint a chairman of the meeting, and a protocol is taken and signed Ê votes are counted in accordance with the rules as stipulated in the Articles, normally by reference to the nominal value of shares held Ê a change of the Articles of the GmbH is only valid if part of a notarial deed and subject to a voting majority of 75% (bakermckenzie.doing-business-in-germany.pdf, page 30.) English 1 72 Prof. Dr. Prof. h.c. Schellberg (1) The determinations in respect of the company’s affairs which are subject to the shareholders’ disposition are made by passing a resolution with a majority of the votes cast. (2) Each euro of a share grants the holder one vote. (3) Powers of attorney must be made in text form in order to be valid. 2. Operation of a GmbH (4) Shareholders who are to be discharged or exempted from an obligation by resolution have no voting right in this connection nor may they exercise that voting right for another. 2.3 Shareholders’ Meeting The same applies to a resolution concerning the performance of a legal transaction or the initiation or termination of a lawsuit against a shareholder. Section 48 Meeting of shareholders (1) Shareholder resolutions are passed in a meeting. Meetings may also be held by telephone or via video link if all the shareholders declare their consent thereto in text form. (2) No meeting need be held if the shareholders all declare their consent to the disposition in question in text form or by submitting their votes in writing. (3) Where all the company’s shares are held by one shareholder or, in addition, by the company, that shareholder is required to document this in writing and sign the document without delay after the resolution is passed. Section 49 Convocation of meeting (1) The meeting of shareholders is convened by the directors. (2) Apart from any cases expressly laid down, it is convened where it appears necessary in the company’s interest. (3) The meeting must, in particular, be convened without delay if it is clear from the annual financial statements or the balance sheet prepared in the course of the financial year that half of the share capital has been lost. (bakermckenzie.doing-business-in-germany.pdf, page 30.) Section 50 English 1 73 Prof. Dr. Prof. h.c. Schellberg Minority rights (1) Shareholders whose shares together make up at least one tenth of the share capital are (3) If the members of the supervisory board are appointed before the company is entered in the Commercial Register, section 37 (4) no. 3 and no. 3a of the Stock Corporation Act applies accordingly. Whenever there is a change in the members of the supervisory board, 2. Operation of a GmbH the directors are required to submit, without delay, to the Commercial Register a list of the members of the supervisory board indicating their family name, given name, profession and 2.3 Shareholders’ Meeting place of residence; in accordance with section 10 of the Commercial Code, the court is to give notice that the list has been submitted to the Commercial Register. (4) Claims for compensation against the Service members of the by provided supervisory the Federalboard on account Ministry of Justiceof a violation of their obligations become and the statute-barred after Federal Office of five ‒years. Justice www.gesetze-im-internet.de Division 4 Amendments to articles of association Section 53 Form of amendment to articles of association (1) Any amendment to the articles of association requires a shareholders’ resolution. (2) The resolution must be recorded by a notary and requires a majority of three quarters of the votes cast. The articles of association may set out additional requirements. (3) A resolution to increase those obligations which the shareholders are bound to under the articles of association may be passed only with the consent of all the involved shareholders. Page 18 of 38 Section 54 Application for registration and e ntry of amendment to articles of association (1) Any amendment to the articles of association is to be entered in the Commercial Register. The application must include the full text of the articles of association; a notary must certify that the amended provisions in the articles of association correspond to the resolution to amend the articles of association and that the unamended provisions correspond to the last complete text of the articles of association (bakermckenzie.doing-business-in-germany.pdf, page 30.)which was submitted to the Commercial Register. English 1 74 Prof. Dr. Prof. h.c. Schellberg (2) Unless the change concerns the information referred to in section 10, reference to the documents submitted to the court concerning the amendment suffices when entering the 2. Operation of a GmbH 2.4 Insolvency Ê GmbH statute provides for involuntary winding up in an insolvency situation. An insolvency situation is present if either the GmbH is unable to meet its current payment obligations or the GmbH has an excess of liabilities over assets, unless the GmbH has a going concern prospect. (bakermckenzie.doing-business-in-germany.pdf, page 30.) English 1 75 Prof. Dr. Prof. h.c. Schellberg

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