Separation of shareholders in Germany through spin-off
Division of a german company between disputing shareholders
Shareholder disputes can have serious consequences for the entire german company and its employees. Often, disputes among shareholders and management come to a head over months and years. In german practice, a shareholder dispute can be resolved amicably by resignations and separations at the shareholder level. The separation of shareholders often presents itself as a difficult situation, as the emotional and economic burdens on those affected are very high and the legal situation is often unclear.
An interesting possibility for a dispute-ending separation of shareholders is the spin-off according to the provisions of the German Reorganization Act ( Articles 123 et seq. UmwG). Read here how german companies can be divided among the shareholders and which variations of the company division or special features there are.
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Legal expertise in spin-off measures and shareholder separations in Germany
Our lawyers, certified specialists for german corporate law and tax advisors have many years of experience in shareholder disputes and M&A measures. Our advice on dispute-ending transformation measures covers the following aspects:
- Preventive strategic advice on shareholder disputes and separation options (company sale, structural measures, contentious proceedings)
- Design and negotiation of the legal implementation of the conversion-legal spin-off
- Coordination of further advisors, for example auditors and notaries public
- Out-of-court conflict management within the shareholder group as well as judicial enforcement of shareholder rights
- Company valuation for the purpose of shareholder separation
- Tax support for shareholder disputes and corporate restructuring. We are happy to work hand in hand with your tax advisor in the separation of shareholders.
The separation of shareholders in Germany after the shareholder dispute
For a variety of reasons, it is often unavoidable in german practice to separate individual shareholders or groups of shareholders from each other. In german business practice, there are many cases in which individual shareholders or groups of shareholders leave the common basis of cooperation and disputes within the circle of shareholders can negatively affect the management and ultimately the existence of the entire company. In such acute situations, a separation of shareholders can prevent the company from being endangered.
Possibilities of shareholder separation in Germany at a glance
If, in the course of a shareholder dispute in Germany, agreement is reached that a separation of shareholders should take place, the difficult question arises as to how such a separation can be brought about.
The simplest way of separating shareholders is to sell the shareholding to the disputing party in return for an appropriate purchase price, which is paid to the departing shareholder. It is also legally conceivable to terminate the partnership interest (resignation), which results in a compensation claim of the withdrawing partner against the german company. If the selling or terminating shareholder holds an office as managing director or supervisory board member, this office is usually also relinquished by way of a mutually agreed contractual arrangement. However, the entrepreneurial commitment of the withdrawing shareholder ends with the termination or sale of an investment.
In german practice, the situation very often arises in which shareholders who have built up the company over many years consider a dispute-ending separation to be necessary, but do not want to leave the company themselves. Since a sale or termination of the shareholding always amounts to an "all or nothing" situation, there are often efforts to divide the company between the disputing shareholders. If the german company now consists of a holding company with several operationally independently active companies, the separation is conceivable through an individual allocation of the operational subsidiaries and sub-subsidiaries. However, a group of companies and even a single company can also be split up and allocated to individual shareholders by means of a demerger. In german practice, the so-called spin-off pursuant to the German Transformation Act (UmwG) is used for such division measures, which is described below.
Spin-off for the purpose of ending shareholder disputes in Germany
There are various types of a spin-off in german practice. However, not all of them are equally suitable for the purpose of separating shareholders. The spin-off can be carried out either for the purpose of absorption onto an already existing company or and for the purpose of new formation. The latter variant is also referred to as a "spin-off".
A group of existing shareholders of the original company becomes shareholders of the new company. At the same time, they lose their shares in the original company, in which only the other shareholders then have a stake. It is also possible for a german company to split into two independent companies of the same size, in which the competing shareholders have an exclusive interest.
As a rule, no measure for final shareholder separation is the implementation of a so-called total spin-off. In this variant, the entire assets of the transferring legal entity are transferred by way of universal succession. The spinning-off entity subsequently becomes a pure holding company.
Special features of the spin-off under german law
In contrast to the termination or share sale solution, the spin-off under german transformation law enables the takeover of a complete part of the business by a shareholder or shareholder group. It is possible that no money will flow, but both groups of shareholders can continue to be active entrepreneurially on the basis of the former entire business. Figuratively speaking, a german company is divided into two or more companies and taken over by the individual shareholders or shareholder groups. In other words, operating businesses and shareholders are divided up among individual new companies, which can resolve the conflicts of interest among the shareholders. If a disproportionate spin-off takes place, which is not accompanied by the value of the shareholding, compensation payments to the "stripped" shareholder can be agreed. For example, if a shareholder group holds a 50% interest and receives an enterprise value of only 40% as part of the spin-off, the disadvantaged shareholder group will demand a compensatory settlement payment.
Another advantage lies in the partial universal succession. This means that all the assets agreed in the spin-off agreement or spin-off plan are automatically transferred to the new or existing legal entity. It is therefore not necessary to transfer individual assets. For example, license, supply and rental agreements are automatically transferred to the new company as a result of the spin-off under german transformation law. The contracts do not have to be concluded anew with the old contractual partner.
If you have any questions regarding the separation of shareholders, please contact one of our lawyers and specialist attorneys in Berlin, Hamburg, Munich, Frankfurt and Cologne. They will be pleased to be at your disposal as contact persons.