Under German corporate law there are certain matters which require approval from the shareholders‘ meeting and additionally a notarization of the resolution. Dr. Rouven Redeker, Notary at Deloitte Legal in Frankfurt am Main (Germany) describes situations where this formal requirement needs to be fulfilled and what companies should pay attention to in order to observe all formalities and avoid unnecessary costs.
Dr. Redeker, when does a consenting shareholder resolution require notarization?
Redeker: That depends on the situation and the provisions of the articles of association. Profit and loss transfer agreements, measures under the German Transformation Act such as mergers and spin-offs and the sale of a business as a whole require a notarized shareholder resolution by operation of law in order for the respective transaction to take effect. For other measures, it depends on what the articles of association say.
Can you give an example?
Redeker: The typical cases are the sale and pledge of shares in a GmbH. The articles of association in these cases typically provide for so-called transfer restriction clauses, according to which the sale or pledge of shares requires the approval of the shareholders’ meeting. The background to this is that the shareholders want to prevent outside third parties from acquiring a share in the company or exerting influence against their will. Therefore, a sale or pledge of shares without the consent of the other shareholders as provided for in the articles of association is pending ineffective and only becomes effective when the consent is granted.
Does the consenting shareholder resolution required notarization in such cases?
Redeker: No. However, the approval resolution is often included in the deed of sale or pledge and is also notarized. This, however, doubles the transaction value relevant for the notary’s costs and the notary’s costs increase accordingly. Therefore, it is also possible that the approving shareholder resolution is made in simple written form and attached to the notarial deed for evidentiary purposes. That saves costs.
Does this also apply to the sale of a business as a whole?
Redeker: No. In this case, the law requires both the notarization of the underlying purchase agreement and the approval resolution. If the shareholder resolution is not notarized, it is deemed ineffective and the entire transaction is, therefore, ineffective.
When are the requirements of the sale of a business as a whole met?
Redeker: Unfortunately, the law does not provide for any precise thresholds that could serve as a guide in practice. In the legal literature it is assumed that the sale of a business as a whole exists, if assets are sold, which make up approx. 80-90% of the balance sheet value of the company. These are practical figures to work with.
Do the provisions on the sale of a business as a whole apply to all legal forms?
Redeker: The notarization requirement for the purchase agreement applies to all legal forms and even to private individuals if a sale of a business as a whole exists. The legal situation is, however, different in regards to the approval resolution. In this case, the notarization requirement for die shareholder resolution only applies to private companies, but not to partnerships. In other words: an approval resolution must be taken for all legal forms. However, the resolution only requires notarization if the selling company is a GmbH or an AG. In case of a partnership, the simple written form is sufficient.