GERMANY Law and Practice Contributed by: Leif Gösta Gerling, Matthias Krämer, Anna Reuber and Jiabao Gerling-Li, LPA
votes cast, but it also prescribes qualified majorities for certain fundamental matters. In particular, the fol - lowing all require a majority of at least three-quarters of the votes cast: • amendments to the articles of association, includ - ing capital increases or reductions; • transformations such as mergers, demergers or conversions; and • a resolution to dissolve the company. JV agreements often go further by contractually requir - ing supermajority or unanimous consent for additional matters, thereby strengthening minority protection through veto rights on key business issues. JV parties frequently introduce an advisory or supervi - sory board to provide an additional governance layer and to act as an intermediate decision-making forum. To mitigate deadlocks, JV agreements commonly pro - vide escalation procedures and, if unresolved, mech - anisms such as mediation, expert determination or buyout options. In some cases, a rotating chairperson or weighted voting scheme is used to ensure fairness. This framework ensures operational efficiency while safeguarding minority interests, and remains fully con - sistent with German corporate law requirements. 6.3 Funding In Germany, JVs are typically funded through both equity contributions and debt financing (and occa - sionally also mezzanine financing), particularly those structured as GmbHs. At formation, each JV party usually subscribes to a defined portion of the stated share capital, as reflected in the articles of associa - tion, which may include initial cash contributions or, in some cases, contributions in kind such as intel - lectual property, technology or tangible assets. The initial equity establishes ownership percentages and voting rights. Beyond initial funding, JV agreements often provide for future funding obligations, either as optional con - tributions or as pre-agreed mandatory capital calls. Capital increases require a three-quarters majority under the GmbHG and, unless agreed otherwise, all shareholders have statutory pro rata subscrip - tion rights to maintain their percentage participation.
The respective provisions in the JV agreements are designed to maintain the JV’s financial health while protecting shareholders from disproportionate dilu - tion. Typically, if a shareholder elects not to partici - pate in a capital increase, their ownership is diluted according to the terms set out in the JV agreement. Some agreements include anti-dilution protections or pre-emptive rights – the former designed to prevent the disproportionate dilution of a shareholder, and the latter designed to have certain control over the share - holder structure of the JV. Debt financing can be arranged either on the JV entity level or via shareholder loans. Shareholder loans are common in German JVs and are usually structured with agreed terms on interest (reflective of the risk taken by the disbursing lender), repayment and subor - dination, often ranking behind external debt. In some cases, JV agreements include covenants requiring unanimous or supermajority approval for taking on additional debt, particularly if such debt exceeds a threshold or materially affects the balance sheet. When future equity funding occurs, the JV agreement must clearly define the valuation methodology, the issuance of new shares, and the adjustment of gov - ernance rights. This ensures transparency, maintains fairness between shareholders, and avoids deadlocks. Market practice emphasises pre-agreed rules for both voluntary and mandatory funding, ensuring financial flexibility and adequate capitalisation without under - mining the strategic balance or minority protections. 6.4 Deadlocks In German JVs, deadlocks between the board and the JV parties are a critical risk and must be addressed explicitly in the JV agreement to ensure business con - tinuity. Deadlocks typically arise in two contexts: • disagreements on operational decisions requiring board approval; or • shareholder-level disputes over strategic or extraordinary matters. A common approach is to distinguish between day-to- day operational deadlocks and major strategic dead - locks. For operational issues, the JV agreement may provide for pre-agreed escalation procedures, such as
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