GERMANY Law and Practice Contributed by: Leif Gösta Gerling, Matthias Krämer, Anna Reuber and Jiabao Gerling-Li, LPA
• upon the occurrence of specific termination events such as material breach, insolvency or failure to meet critical conditions precedent. In a corporate JV (for example, a GmbH), termination usually triggers the dissolution and liquidation of the company, unless one JV party acquires the other JV party’s shares and continues the business. Key matters to address upon termination include the following. • Winding-up and liquidation: the JV agreement should outline the procedures for liquidating assets, settling liabilities and distributing any surplus among the JV parties to ensure an orderly process and creditor protection. • Exit rights and buyout mechanisms: pre-agreed valuation methods (eg, fair market value, discount - ed cash flow or expert appraisal) are often used to determine the price for a departing JV party’s shares. Put and call options, mandatory buyouts or other exit tools help avoid disputes. • Allocation of profits and losses: the JV parties should agree how accumulated profits, losses or contingent obligations up to termination are cal - culated and distributed, including the handling of ongoing contracts and outstanding liabilities. • Treatment of IP, licences and know-how: the JV agreement should regulate whether intellectual property and technology are transferred, licensed back or withdrawn, ensuring clarity on post-termi - nation use. • Confidentiality and non-compete obligations: restrictions on the use of confidential information and competitive activities typically survive termina - tion to safeguard business value. • Dispute resolution: as termination often raises valuation or transfer issues, arbitration or mediation mechanisms are commonly included to provide a binding and efficient resolution process. • Continuity arrangements: where one JV party con - tinues the business, transitional provisions cover - ing employees, contracts and operations should be clearly set out to avoid disruption. • Taxation: depending on the legal structure of the JV, capital gains are tax exempt in the case of a GmbH, AG or SE. In the case of a partnership
(GmbH & Co KG), they are taxed at the ordinary tax rate (15.8% for non-domiciled corporate share - holders; up to 45% for individuals based on the progressive tax rate). Overall, a well-structured termination regime protects both JV parties, ensures compliance with German corporate law, provides clear procedures for asset distribution, liabilities and post-exit obligations, and preserves business value beyond the JV. 9.2 Asset Redistribution and Transfers When dealing with asset redistribution and transfers in a German JV, careful attention must be paid to the origin, ownership and legal treatment of the assets, and also to the contractual and statutory obligations of the JV. Assets contributed by JV parties may include cash, equipment, technology or intellectual property contrib - uted at the outset. The JV agreement should specify ownership, valuation and conditions for return or buy - back. Unless title in assets was formally transferred to the JV, ownership often remains with the contributing JV party, although corporate and contractual restric - tions may apply. Any retransfer may require valuation mechanisms to avoid disputes and must not under - mine creditor protection. Assets generated by the JV include reserves, newly developed intellectual property, receivables or inven - tory created in the course of business. Such assets are legally owned by the JV or collectively by the JV parties and cannot be unilaterally withdrawn by a JV party. Their distribution requires compliance with cor - porate law and the JV agreement, including approval by shareholders or governing bodies, and the obser - vance of capital maintenance rules to safeguard credi - tors. Key considerations for any transfer include: • the valuation methodology (eg, book value, fair market value, discounted cash flow); • consent and approval requirements at shareholder or board level; • legal formalities for specific asset classes such as real estate or registered IP;
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