GERMANY Law and Practice Contributed by: Leif Gösta Gerling, Matthias Krämer, Anna Reuber and Jiabao Gerling-Li, LPA
Distinct advantages of each form • GmbHs are highly flexible, with low minimum capital of EUR25,000 or even less in the form of an Unternehmergesellschaft ( haftungsbeschränkt ), which can be considered to be a GmbH “light”, and strong shareholder influence over manage - ment. They also offer tax exemption for capital gains on disinvestment from corporate subsidiar - ies. • GmbH & Co KGs combine limited liability with partnership-style tax treatment and contractual flexibility, and offer less formalism compared to GmbHs, AGs and SEs. They offer a check-the-box tax option and save investors from complicated withholding tax refund procedures. • AGs are best suited for ventures considering public offerings or requiring a rigid governance frame - work. They offer a capital gains tax exemption (see GmbHs). • SEs enhance mobility and harmonisation in cross- border EU contexts. They offer a capital gains tax exemption (see GmbHs). Other considerations Sector-specific regulations and the nature of the JV parties (eg, listed companies, foreign investors) can influence the choice of structure. 2.2 Strategic Drivers for JV Structuring The reasons and motives for establishing a JV are diverse and, in some cases, depend on the industry sector in question. One of the main motives is the pooling of resources or the merging of capital with product and/or service ideas or research initiatives (ie, know-how). However, aspects such as market entry or risk distribution, economies of scale and cost reduc - tion, liability limitations, tax relief, exchange of experi - ence, competitive advantages or certain legal and/or regulatory requirements in a specific market environ - ment may also be reasons for choosing to establish a JV (incorporated or unincorporated). The planning of a specific exit strategy may be anoth - er driving factor for the establishment of a JV. In this way, the JV parties can “carve out” sub-divisions of their undertakings to combine them in a JV for bet - ter commercialisation and to achieve synergy effects. After a certain period, the JV can then be sold once it
inventor” principle, forcing JV parties to contractually define these rights to mitigate legal risk. Finally, the new EU Product Liability Directive expands strict lia - bility to software and AI, compelling JV parties to pre- allocate financial responsibilities for defects, recalls and monitoring. Ultimately, these regulations require JVs to pre-emptively address novel liability risks and embed rigorous technological compliance into their very foundation to ensure viability. 2. JV Structure and Strategy 2.1 Typical JV Structures Preferred Legal Forms for Equity Joint Ventures in Germany Commonly used structures Equity JVs in Germany are most frequently structured in the following forms: • a private limited liability company ( Gesellschaft mit beschränkter Haftung – GmbH), which is the most flexible and widely used form; • a stock corporation ( Aktiengesellschaft – AG), which is suited for larger ventures or capital market access; • a limited partnership with a corporate general part - ner (GmbH & Co KG), offering a hybrid between partnership and corporate benefits; or • a European company ( Societas Europaea – SE), which is typically chosen for cross-border ventures within the EU. Key factors driving the choice of vehicle • Commercial objectives: smaller ventures often opt for simpler structures, whereas large-scale or com - plex projects require more robust governance. • Liability protection: GmbH, AG and SE all provide limited liability for shareholders. • Tax efficiency: partnerships (especially GmbH & Co KG) offer a check-the-box tax option and save investors from complicated withholding tax refund procedures. • Governance and flexibility: a GmbH allows tailor- made governance structures, whereas an AG is more regulated but aligns with capital market standards.
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