GERMANY Law and Practice Contributed by: Leif Gösta Gerling, Matthias Krämer, Anna Reuber and Jiabao Gerling-Li, LPA
referral to an advisory or supervisory board for recom - mendation, granting one JV party a casting vote in narrowly defined areas, or elevating the matter to sen - ior executives or parent company boards for further negotiation. In practice, the advisory or supervisory board can act as a mediator without altering the bal - ance of power, by requiring its approval for significant operational measures. For shareholder-level deadlocks, German market practice often employs “Russian Roulette” or “Texas Shoot-Out” clauses. In a Russian Roulette mecha - nism, one JV party offers to buy the other’s shares at a defined price, and the other JV party must either sell or buy at that price. A Texas Shoot-Out allows each JV party to submit a sealed bid to buy the other’s shares, with the higher bidder acquiring the stake. These mechanisms are usually reserved for deadlocks over material decisions, such as capital increases, strategic disposals or termination of the JV. Other solutions include defined pauses in discussions to allow the JV parties to reassess their positions, independent expert valuation, mediation or temporary neutral management appointments. The objective is to provide a clear, enforceable procedure that ensures the JV can continue operating and that the JV parties have defined exit or buyout options without resorting to court intervention. 6.5 Other Documentation The contractual framework usually extends beyond the articles of association and the JV agreement to include a set of ancillary contracts tailored to the transaction. A central category consists of intellectual property agreements, in the form of either licences or assign - ments, which regulate the use of pre-existing rights contributed by the JV parties and define ownership of improvements, scope of use and termination rights. Asset transfer agreements are equally common, cov - ering the sale or contribution of tangible and intangible assets such as equipment, contracts, customer rela - tionships or know-how. Any liabilities or warranties associated with transferred assets are also typically addressed. Where assets are contributed as consid -
eration for shares in a GmbH, statutory requirements on contributions in kind and notarial formalities must be observed. Confidentiality is usually addressed through non-dis - closure agreements, often signed at the negotiation stage and sometimes reconfirmed at closing to cover ongoing data exchange. In addition, service and sup - ply agreements are frequently put in place if one JV party will continue to provide management support, back-office functions or material inputs. Employment or secondment agreements for key staff are also com - mon, requiring careful alignment with German labour law. Further ancillary documents may include sharehold - er loan agreements and intercreditor arrangements, especially if the JV is highly leveraged, as well as regu - latory or permit-related agreements in cross-border structures. Where foreign investors are involved, fil - ings under the German foreign trade regime may be required. Across all categories, the overarching principle of Ger - man JV practice is to ensure consistency: provisions on ownership, funding or governance contained in ancillary agreements must align with the JV agree - ment and the articles of association to avoid conflicts and secure enforceability. From a tax perspective, it is of particular importance when transferring assets that their valuation and the consideration (in particular the resulting special rights or the number of shares) received by the contributing JV party are properly documented. 6.6 Rights and Obligations of JV Partners In a German JV structured as a GmbH, the rights and obligations of the JV parties are typically governed by the articles of association, the JV agreement and applicable law. Key rights include: • participation in profits; • voting rights in the shareholders’ meeting; • appointment rights for managing directors and advisory board members; • access to books, records and operational informa - tion; and
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