Risk of strict contingent liability for the acquisition of shares in limited liability companies

By comprehensive guarantees of the seller in the sales contract the risks can be clearly reduced with the acquisition of limited liability company ("GmbH") shares - with one often overlooked exception: The contingent liability of the remaining shareholders, if a shareholder does not fulfill his contribution obligation.

If the partner of a GmbH does not make the contribution promised by him, the GmbH law regulates in detail, which measures are to be taken for the securing of the capital raising. In this context, the shareholder concerned can be excluded from the company - with the result that the remaining shareholders are subject to contingent liability.

This special feature of German GmbH law entails considerable liability risks for GmbH shareholders, since they - unlike shareholders or limited partners - are liable as a result not only for raising their own contribution, but also for that of their co-partners. Initially, the shareholders can only be held liable in proportion to the capital contributions they have assumed. If however one of the partners is not able to fulfill its proportionate payment obligation, also this amount is shifted proportionately on the remaining, solvent partners. This joint liability can lead to a situation in which, in extreme cases, a shareholder with only a minor interest is liable for raising the entire share capital, provided that he is the sole solvent shareholder.

In a new ruling, the Federal Court of Justice ("BGH") has significantly extended this strict joint and several liability and has also applied it to shareholders who acquired their shareholder status only after the due date of the contribution claim, for which the seller of the shares was excluded from the company (ruling of 18.09.2018 - II ZR 312/16). According to the BGH, the responsibility to raise capital applies to all shareholders who are members of the company from the due date of the relevant contribution claim until the amount in arrears has been paid. The point in time at which they would have acquired their shareholder status during this period is irrelevant. The contingent liability also applies to every "intermediate purchaser".

Note

With its decision, the BGH clarifies the great importance of securing the raising of capital for the protection of the company creditors as compensation for the otherwise applicable limitation of liability of the GmbH shareholders. From the creditor's perspective, contingent liability is certainly to be welcomed. Every purchaser of GmbH shares, however, must be aware that he also assumes the seller's contingent liability with his status as shareholder.

The purchaser can hardly protect himself against this, since on the one hand an agreed liability limitation in the share purchase agreement is ineffective vis-à-vis the company. On the other hand, in case of doubt, a corresponding guarantee is also worthless if the seller is without means.

Conclusion: Before acquiring shares in a German GmbH, the proper raising of capital should always be carefully examined.