GERMANY Law and Practice Contributed by: Christoph Nolden, Nicolas Ott, Stefan Mendelin and Thomas Glaser, SZA Schilling, Zutt & Anschütz
an important role as credit security in corporate and acquisition financing. However, the articles of asso- ciation may establish restrictions for pledging shares. The technical details of the pledge depend on the type of share. For stock corporations, pledging securitised shares ( verbriefte Aktien ) requires a transfer of the share certificate. Unsecuritised shares ( unverbriefte Aktien ) may be pledged by a contractual agreement free of formalities. However, special characteristics apply to registered shares with restricted transferabil- ity ( vinkulierte Namensaktien ); in this case, pledging requires the consent of the company (see 3.2 Share Transfers ). 3.4 Disclosure of Interests Under German law, reporting duties regarding share- holders’ interests in the company depend on whether the company is listed on the stock exchange or not. For listed companies, the Securities Trading Act ( Wert- papierhandelsgesetz , or WpHG) stipulates reporting obligations regarding the purchase or sale of shares if certain thresholds are exceeded. Said reporting obligations serve the purpose of ensuring, inter alia, that both the company and other shareholders are informed of the change in the distribution of votes. The reporting thresholds start at 3% and increase, in various stages, to 75%. Where such a threshold is met, share purchases and sales must be reported to the company and to the German Federal Financial Supervisory Authority ( Bundesanstalt für Finanzdien- stleistungsaufsicht , or BaFin). With the crossing of the 10% threshold, an investor has to inform the company and the capital markets regarding its investment strat- egy and the sources of its funding. Besides the reporting obligations under the Securi- ties Trading Act, the Stock Corporation Act provides for additional reporting obligations that also apply to companies that are not listed on the stock exchange. According to Section 20 of the Stock Corporation Act, as soon as a company holds more than a quar- ter of the shares in a stock corporation with its seat in Germany, it must notify the corporation in writing and without undue delay. It should also be noted that Ger- man law provides for regulations regarding the allo- cation of shares, meaning that the above-mentioned
thresholds can also be met if the shares are only held indirectly by the shareholder concerned. Regarding limited liability companies, the commer- cial register keeps publicly accessible lists of the company’s shareholders and the nominal value of each individual share. Any change in the person of a shareholder or the extent of their participation must be reflected in the shareholder lists. Therefore, the managing directors are obliged to submit a new list of shareholders to the commercial register in any case of a change, without undue delay. Where a notary has been involved, the notary is obligated to do so. In addition, in all relevant cases, information about the ultimate beneficial owner has to be disclosed in the so-called transparency register. 4. Cancellation and Buybacks of Shares 4.1 Cancellation There are generally two options for cancelling shares after their issuance, as follows. • First, the so-called Kaduzierung represents the option of excluding a shareholder who does not pay the obligatory contribution, despite being requested to do so and a deadline being set. • Second, shares can be withdrawn (or, rather, eliminated) on the basis of a shareholder resolu- tion ( Einziehung ). However, doing this (at least in a limited liability company) requires a provision in the articles of association, and the shareholder must be granted compensation for the Einziehung . In stock corporations, there is also a third option called squeeze-out – by means of which, a shareholder hold- ing (generally speaking) at least 90% of the capital stock of a company can call in all remaining shares held by minority shareholders in return for an appro- priate cash compensation. Further details and require- ments depend on the squeeze-out being resolved as a squeeze-out under the Stock Corporation Act, the Transformation Act or the Securities Acquisition and Takeover Act.
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