Redemption of Shares in a GmbH is Effective without Capital Measure

If the amount remaining after the redemption of a shareholding in a German limited liability company (Gesellschaft mit beschränkter Haftung – “GmbH”) does not coincide with the registered capital of the GmbH, the effectiveness of the redemption resolution is not impaired.

Background

The German Federal Court of Justice (Bundesgerichtshof – “BGH”) had to decide the following case (Judgment dated 2 December 2014, Docket no. II ZR 322/13): The plaintiff was a shareholder of the defendant GmbH, which, inter alia, was engaged in the sale of promotional items on the European market. The plaintiff had a shareholding of €16,250.00, and the remaining shareholders had interests of €6,250.00 and €2,500.00 in the defendant company.

Because the plaintiff had violated the prohibition against competition, the plaintiff’s shareholding was redeemed, as contemplated in the articles of association of the defendant. In so doing, the shareholders did not take any capital measures to adjust the amounts of the remaining shareholdings in the registered capital.

The plaintiff challenged the redemption resolution, invoking section 5 para. 3 sent. 2 of the Limited Liability Company Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung -“GmbHG”), according to which the total par value amounts of all shareholdings must correspond to the registered capital.

The Decision of the BGH

In its judgment, the BGH has clarified that the resolution concerning the redemption of a shareholding in a GmbH is not void if the shareholders’ meeting fails to prevent a divergence of the total par value amounts of the post-redemption shareholdings and the registered capital of the company. Although the convergence prohibition contained in section 5 para. 3 sent. 2 GmbHG does provide for an equal amount of the total par value amounts of the shareholdings and the registered capital, this provision does not automatically impair the effectiveness of the redemption of shareholdings. In addition, same does not affect the interests of creditors, because the amount of the registered capital remains unaffected by the redemption and because the remaining shareholders, together with their unmodified shareholdings, are evident from the shareholders’ list. Therefore, capital measures to reconstitute the convergence should not be required.

However, the case was decided in favour of the plaintiff and the proceedings were remitted to the appellate court, for lack of assessments regarding whether the shareholding of the plaintiff was fully paid in. A redemption is permissible only if the contribution made for the shareholding being redeemed has been fully paid in.

Comment

The decision of the BGH is a welcome development. Upon its redemption, the shareholding is completely extinguished while the registered capital figure (Stammkapitalziffer) is preserved. As a result, the total par value amounts of the shareholdings no longer equal the amount of the registered capital. The BGH has taken a position in the widespread dispute in both literature and jurisprudence concerning whether a capital measure is necessary for the effectiveness of redemption resolutions to create a convergence between the (remaining) par value amounts of all shareholdings and the registered capital and has therefore provided legal certainty.

However, the BGH has also indicated that the question remains open as to whether the redemption shall be noted in the shareholders’ list and whether the registry court, on the occasion of a subsequent entry application, insist upon equalizing the divergence between the total par value amounts of the shareholdings and the registered capital prior to entry in the commercial register.
Because these ensuing questions remain open, it is advisable that not only redemption as such, but also further proceedings be established in the articles of association. There are various options in this respect: E.g., linking the redemption to a capital reduction or adjusting the registered capital by means of a nominal increase in the total par value amounts of the shareholdings. Thereby, all shareholders will know which corporate measures are to be made after redemption of a shareholding.