26. Jan 17

Severance package for GmbH shareholder

If a shareholder wishes to withdraw from a Gesellschaft mit beschränkter Haftung (GmbH), a type of German private limited company, this can give rise to disputes among the shareholders regarding the amount of any severance payment. This was the case, for instance, in proceedings before the Kammergericht (KG) Berlin (Higher Regional Court of Berlin).

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: In the case of a GmbH consisting of multiple shareholders, it is possible for the withdrawal of one of these shareholders to trigger a dispute pertaining to the extent of any severance package to be paid to the shareholder in question.

The GmbH in the instant case had three shareholders. The plaintiff withdrew as a shareholder with effect from September 30, 2006. The GmbH had acquired real estate at a purchase price of 1.3 million euros. These real estate properties also constituted the company’s main assets. The articles of association included, among other things, a provision stating that a withdrawing shareholder is entitled to a severance package, with the value of the share to be determined based on a severance balance sheet prepared by a third party. Properties forming part of the company’s assets were to be valued on the basis of their market value. The severance balance sheet assessed the value of the properties at 1.3 million euros.

However, the company sold the properties on December 6, 2006, i.e. only a few weeks after the shareholder’s withdrawal, for 2 million euros. The shareholder rejected the severance balance sheet, arguing that the real estate’s market value corresponded to the selling price of 2 million euros. The Kammergericht Berlin shared this view. It held that the actual purchase price which was obtained represented the market value for the purposes of the severance balance sheet, the market value of an asset being the price achieved on the cut-off date for the assessment in the ordinary course of business. The Court went on to say that in this case the actual selling price could also be taken into account because it is more accurate than an estimate.

The KG Berlin ruled that the provision in the articles of association stating that real estate properties were to be assessed in the dissolution balance sheet based on their market value was aimed at ensuring that the withdrawing shareholder obtained the real value of his share.

The articles of association ought to always be prepared in as much detail and as unambiguously as possible so that all of the legal terms are set out clearly, not just those relating to severance payments. Lawyers who are experienced in the field of company law can offer advice.

For more informations:

https://www.grprainer.com/en/legal-advice/company-law/gmbh-limited-liability-company.html

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