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The Effectiveness of A Redemption Resolution

Written By:  Thomas Schwab – German Attorney at Law

WINHELLER Attorneys at Law

Frankfurt am Main, Germany

In literature and case law it was disputed for a long time when the redemption of a limited liability company share takes effect. With the judgment of January 24, 2012, the German Federal Court of Justice has now clarified this question for practice.

According to Section 34 of the German Limited Liability Companies Act, the articles of incorporation can provide for the redemption of the share to be possible by resolution both with and without the consent of the shareholder concerned. However, he is basically entitled to appropriate compensation. Since it is not as a rule immediately paid in full, the question arises whether and, where applicable, how this affects the status of the shareholder concerned.

Some will argue that the redemption only takes effect upon payment of the compensation in full. However, with this “condition solution,” according to the Federal Court of Justice, the interests of the withdrawing shareholder were moved too much into the foreground, above all, when considering that he has consented to a possible redemption in the articles of incorporation.

Therefore, the Federal Court of Justice decided that the redemption basically takes effect with the notification of the redemption to the shareholder concerned and the latter accordingly withdraws from the company. If the company cannot satisfy the compensation claim, the remaining shareholders are personally liable.

NOTE: The remaining shareholders can only escape the personal liability if they dissolve the company, unless they can otherwise make sure that the compensation claim is settled, for example, through release of hidden reserves or reduction of the share capital.

If the exclusion of the shareholder does not occur by resolution, but rather by legal action, it remains, however, the case that the effect of the exclusion judgment depends on the payment of the compensation remuneration.

Federal Court of Justice, Judgment of January 24, 2012, Case II ZR 109/11.

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The general information contained herein is intended for informational purposes only. It is not intended to be, and should not be construed as, legal advice or legal opinion on any specific facts or circumstances.

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