GERMANY Law and Practice Contributed by: Leif Gösta Gerling, Matthias Krämer, Anna Reuber and Jiabao Gerling-Li, LPA
• the allocation of liabilities associated with the assets; and • continuity of contracts and employee relationships linked to transferred business units. Clear distinction between contributed and JV-gen - erated assets is essential to avoid disputes, ensure creditor protection and align with German corporate In Germany, the mechanics of a JV party’s exit from a JV are largely matters of contract: JV parties enjoy broad freedom to agree on transfer restrictions, buy - out mechanisms and valuation methods in the JV agreement. However, that contractual freedom is sub - ject to overriding legal constraints and practical limits: • corporate law imposes capital maintenance and formal procedure requirements; • certain transactions may require shareholder approvals or changes to the articles of association; and • regulatory clearances (antitrust, foreign investment review, sectoral licences) or contractual third-party consents can restrict or delay exits. In practice, JV agreements therefore combine bespoke exit rules with statutory safeguards to ensure enforce - ability and creditor protection. Typical contractual provisions regulate consent requirements for share transfers, pre-emption arrangements for existing JV parties, valuation formulas or expert appraisal pro - cedures for buyouts, and the circumstances in which put/call rights, redemption or compulsory buyouts may be triggered. Where a JV involves a listed entity, takeover rules and mandatory offer obligations may also be relevant if control changes. Tax, employment and contract-assignment issues (including supplier law requirements. 9.3 Exit Strategy
and customer consents) should be considered early in the process, since they frequently determine the prac - tical feasibility and timing of any exit. Finally, dispute resolution and valuation processes (often arbitration with a clear valuation mechanism) are commonly built into exit provisions, in order to minimise litigation and preserve confidentiality. Common exit mechanisms used in German JVs include: • tag-along and drag-along rights to protect minority holders or enable a co-ordinated sale; • put and call options granting JV parties the con - tractual right to force a sale or to require purchase under agreed terms; • buy-sell/shoot-out mechanisms (eg, Russian Rou - lette, sealed-bid procedures) to resolve intractable deadlocks; • rights of first refusal/pre-emption in favour of co- shareholders; • sale to third parties (trade sale or sale to financial investors); • co-shareholder buyouts; • company redemption or structured wind-up; and • occasionally IPOs for larger JVs. Exits generally occur through a sale of shares to other JV parties or a third party, redemption or repurchase by the JV itself, or termination of the JV with a propor - tional or contractually defined distribution of assets. While statutory principles ensure basic fairness and proper corporate procedure, the detailed exit strategy is primarily a matter for contractual design, reflecting the strategic, financial and operational objectives of the JV parties. In any case, an exit is a taxable event, whereby the consequences depend on the legal form of the JV and the peculiarities of the exit scenario.
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