GERMANY Law and Practice Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
4. Government Inducements 4.1 Subsidy Programmes
Investors generally confirm that they are author - ised to enter into the investment agreement and fulfil the associated obligations, that they are eligible/accredited investors, and that the exe - cution and fulfilment of the agreement do not conflict with other obligations. Additionally, a venture often commits to specific operational covenants which may include obli - gations to: • maintain adequate insurance coverage; • comply with specific accounting principles; and • adhere to predetermined financial ratios or liquidity levels. They are also often sought to address investors’ diligence findings. By statutory default, legal consequences of a breach of representations and warranties amount to the restoration of the breached “con- tractual guarantee” and the payment of damag - es if restoration is impossible (in rem restitution, or Naturalrestitution ). However, in many cases, immediate claims for monetary damages are excluded. The liability concept in an investment agreement will typically be limited to a cap and, besides the company, founders/key employees may stand behind the representations, typically within the confines of adequacy. Upon breach of a covenant, injunctions become relevant as an effective course of action against the defaulting contractual party. This is also the most relevant legal remedy relating to a shareholders’ agree - ment.
Among the most relevant government pro - grammes directed at enhancing investments in German early-stage companies are the “INVEST – Venture Capital Grant” , the “Venture Tech Growth Financing” programme, and the “ERP- EIF Facility” . INVEST – Venture Capital Grant The BMWK supports investments by private investors or business angels in young innova - tive companies with grants for investors (acqui - sition grant of 15% of the invested amount). The investments can be made by natural persons or via an investment company. Natural persons can receive an exit grant if they sell their shares. The exit grant amounts to a flat rate of 25% of the capital gains realised, and thus approxi - mately covers the tax burden associated with the divestiture. The maximum eligible invest - ment amount per investment is EUR333,333.33 per single investment. Each natural person (as a direct investor or as a shareholder in an invest - ment company) can be supported with INVEST up to a maximum total investment amount of EUR666,666.66 (also for investments in different companies) – ie, the acquisition grants per per - son are limited to a total of EUR100,000 (cap). To apply, start-ups may submit an online appli - cation to the Federal Office for Economic Affairs and Export Control ( Bundesanstalt für Wirtschaft und Ausfuhrkontrolle , or BAFA), providing details, including evidence of innovation, company size, age, and legal structure. Upon approval, BAFA issues an eligibility certificate. The investor can then apply for funding via BAFA prior to sub - scription for shares in the start-up or subscrip - tion for convertible bonds.
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