If a company in Germany can no longer be continued, closing the company remains a possible solution alongside the sale of the company. However, such a solution often proves to be quite complex and lengthy, as there are many legal, financial and organisational issues to consider. Regardless of the reasons for closing the company in Germany, this step must be handled correctly in every respect. If a company is not closed in good time, the managing director may be held privately liable for all liabilities, depending on the company’s legal form.
To ensure that all legal and contractual obligations are complied with when closing a business in Germany, Schlun & Elseven Rechtsanwälte offers skilled and committed legal advice. We examine existing contracts to determine when and under what conditions a company closure can occur. Of course, we also ensure that aspects of German employment law are considered. In addition, we monitor the notifications due to the relevant authorities to ensure that all formalities are complied with. Contact us today to benefit from our expertise.
Closing a Company in Germany: Comprehensive Legal Advice and Analysis
Our German corporate lawyers advise you on all issues relating to the dissolution of a company. We support you with the following aspects:
- Preparing the necessary documents,
- ensuring that the documents are processed properly,
- gathering the necessary information about creditors and debtors,
- ensuring that the debts are collected and enforced accordingly,
- supervising the cancellation from the commercial register in Germany.
Closing a company in Germany can be very complex, as several legal steps must be taken. This applies in particular to companies that are not primarily based in Germany. Ideally, they should appoint a local legal partner to oversee the process. The lawyers at Schlun & Elseven Rechtsanwälte are very familiar with the legal requirements and bureaucratic hurdles of company liquidation to provide you with the support you need in such a situation. Due to our international orientation, we advise clients worldwide on company-related matters such as company formation, sale, or closure.
In addition to economic reasons, there are other reasons for the dissolution of a company. For example, the following circumstances can be considered as reasons for a limited liability company (GmbH) in accordance with Section 60 of the German Act on Limited Liability Companies (GmbHG):
- The expiry of the period specified in the articles of association;
- by resolution of the shareholders, unless the articles of association provide otherwise, this resolution requires a majority of three quarters of the votes indicated;
- by a court judgement or a decision of the administrative court;
- due to the opening of insolvency proceedings;
- with the decision on the refusal to open insolvency proceedings due to mass insufficiency;
- by a decision of the register court declaring that the articles of association are defective pursuant to Section 399 of the German Act on Proceedings in Family Matters and in Matters of Non-contentious Jurisdiction (FamFG);
- the cancellation of the company in the commercial register for lack of solvency pursuant to Section 394 FamFG;
- the articles of association may also provide for other grounds for the dissolution of the company.
In Germany, the management and shareholders can decide to give up a company based on various business aspects. These can range from the decision in favour of a different business model to whether they want to continue running the company. In addition to the complete closure of the company, the sale of a company can also be considered. Regardless of which solution you choose, our lawyers will support you with their expertise to analyse the legal and factual circumstances and develop a suitable strategy together with you.
The Procedure for Closing a Company
In Germany, there are two ways to close down a company: Companies that are solvent at the time of closure can apply for voluntary closure, while insolvent companies are usually wound down by a court order.
The liquidation of a company follows a specific procedure. The main aim of liquidation is to remove the company from the German commercial register (Handelsregister). It is not enough to cease business activities; the company itself must be dissolved. The dissolution of a company takes place in three steps:
- Dissolution,
- liquidation,
- cancellation.
In the dissolution phase, most shareholders (usually at least three quarters) must vote in favour of a resolution to dissolve the company. It should be noted that the required number may vary depending on the provisions of the company’s articles of association. The dissolution of the company is decided by the shareholders, whereby three quarters of the shareholders must generally vote in favour of the dissolution. This requirement can be amended in the articles of association. Once the dissolution has been decided, the winding-down phase of the company begins.
The company must explicitly state that it is winding down its business. This can be done by adding the note i. L. (in Liquidation) or i. Abw. (in Abwicklung) next to the company name. For a company dissolution to be continued, it must be notarized and entered into the German commercial register. From then on, the company enters the liquidation phase. The dissolution of the company is regulated in Section 65 GmbHG.
The next step is the liquidation of the company. Liquidation involves terminating all ongoing business and correcting the distribution of the company’s assets. For the liquidation phase to continue, the company must appoint a liquidator to oversee it. The liquidator represents the company during this period and supervises the distribution of the company’s assets.
The Role of the Liquidator
The liquidator’s role is crucial, as they represent the company in this complicated procedure. During the liquidation process, the liquidator assumes the role of a managing director and, as such, must monitor all actions of the company. In Section 70 GmbHG, their duties include:
- the completion of the company’s ongoing business,
- to fulfil the obligations of the dissolved company,
- to collect receivables and realise the company’s assets,
- representing the company in and out of court,
- the conclusion of transactions.
Another duty of the liquidator is to prepare and submit an opening balance sheet at the beginning of the liquidation proceedings. Essentially, it must be openly stated that the company’s assets are being liquidated transparently. Our German corporate lawyers support the liquidator in correctly fulfilling their duties.
During the liquidation of the company, the liquidator must ensure that no new liabilities arise and that old liabilities are settled. They are responsible for ensuring that the intention to close the company is publicised in the German Federal Gazette, which serves as a call to creditors to assert their claims. Section 65 (2) GmbHG regulates this obligation. Once the call to creditors has been made, it is the creditors’ responsibility to contact the company.
Creditors are protected in the form of a “blocking year”.This year, which begins with the call to creditors, allows them to submit their claims to the company. The company must then pay them the amounts owed before distributing the assets to the shareholders. Creditors and shareholders can still contact the company after the blocking year to obtain their share of the assets. During this year, the company’s tax regulations continue to apply. After the blocking year, the company’s assets can be liquidated and distributed to the shareholders. How the assets are distributed depends on the number of shares per shareholder.
The liquidator of the company is usually one of the following persons:
- The managing director of the company,
- a liquidator appointed in the articles of association who is not the managing director,
- a liquidator appointed by the court.
In most cases, the liquidator is the company’s managing director. Under German criminal law, there should be no grounds to prevent the appointment of a liquidator on behalf of the company.
The Cancellation Process
Once the liquidation matters have been finalised, the cancellation process can take place. Cancellation is the final act in the closure of a company in Germany. The liquidator enters the cancellation in the commercial register. This process consists of the liquidator signing the document declaring that the company is to be dissolved.
Once this is the case, the company can no longer trade and, in most cases, no longer exists. However, the company must keep its accounts and books for ten years, even after closure. This is necessary to ensure that the company can continue to be audited for tax purposes. The liquidator or another person designated by the company can keep these documents for disposal.
Practice Group: German Corporate Law
Practice Group:
German Corporate Law
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