Removing a Shareholder of a Limited Liability Company (& Limited Partnership) in Germany

The compulsory redemption of shareholder shares is possible if the company’s articles of association authorise this. As a rule, this step results in the company taking over the shares from the shareholder concerned. The articles of association must clearly define the conditions under which the compulsory redemption can take place. The shareholder must be demonstrably in breach of the stipulated conditions. The other shareholders can submit such a motion at the general meeting but should prepare it carefully. It is often the case that the shareholder concerned will consider taking legal action if they believe that the measure is not in line with the articles of association.

Another critical question that needs to be clarified in advance is whether the shareholder should remain part of the company. The company must decide whether all or only some of the shares are to be redeemed. Questions regarding the compensation for the share and the future role of the shareholder, including their participation rights in the decision-making process, must also be clarified in advance.

Similar to compulsory redemption, a compulsory transfer of shares can also be decided if this is provided for in the company’s articles of association. This measure usually protects the company’s interests and is often used in cases such as the death of a shareholder, a change of control within the company, the departure of a shareholder or in the event of their mental or physical incapacity. Both measures should be clearly and unambiguously regulated in the articles of association to avoid legal conflicts.

Two steps are required to remove a shareholder from a company in Germany. Firstly, the other shareholders must agree to the exclusion. Secondly, the company itself must bring an action for exclusion against the shareholder. As with other methods of removing a shareholder, there must be good cause for the company to take this step. Essentially, the shareholders must prove that it is unreasonable for the shareholder to remain. The reasons vary from case to case, but they must be clearly demonstrated with this method. Essential reasons include, for example: Theft from the company, breaches of competition clauses or breaches by the shareholder of the company’s regulations (e.g. the articles of association).

In this context, it is strongly recommended that companies review their current articles of association. The articles of association should set out the conditions for exclusion, the procedure, and the manner of exclusion. Otherwise, it may be difficult for companies to exclude a shareholder if they do not proactively provide for a possibility to do so in the articles of association. Similarly, shareholders should scrutinise their company’s articles of association to ensure the measure has been adequately implemented. The removal of a shareholder always entails a considerable risk of the company violating the rules in its articles of association. Our legal experts will work with you to develop a solution for your company that takes your interests into account and fulfils the requirements of the articles of association.

The shareholder can also decide to resign or terminate their office. The meaning of the articles of association plays a significant role here. If the articles of association do not provide any termination restrictions, the shareholder can terminate without notice. However, if carefully worded, the articles of association may provide for a period of notice within which the shareholder must inform the company of their intention. The articles of association may also contain provisions on how such a decision affects severance payments.

Extraordinary termination (termination without notice) is possible if there is good cause, which can be defined in the articles of association. As a rule, however, it is regarded as conditions that make it unreasonable for the shareholder to maintain their position. The justification varies from case to case, as it is examined whether the reasons for the termination are so severe that they outweigh the interests of the company and, therefore, deserve preference.

Following the extraordinary termination of the shareholder, the shareholder may receive compensation for their shares, generally based on their market value. The shareholder may also be entitled to a severance payment, depending on the circumstances. We will examine your case carefully to find the best way to resolve this legal dispute.

Shareholders have certain rights in Germany that depend on the type of company they are involved in. They also depend on the number and type of shares the shareholder owns.

Shareholders of stock corporations have statutory rights that protect them, while the rights of GmbH shareholders are generally regulated in the articles of association. German stock corporation law provides rights relating to receiving information from those in charge of the stock corporation, the annual general meeting, the enforcement of claims against the management board and supervisory board and the right to a special audit.

In general, shareholders have the following rights in all forms of limited liability companies in Germany:

• The right to vote at general meetings,
• the right to amend the articles of association
• the right to call annual general meetings and other special meetings,
• the right to increase or reduce the company’s capital,
• the right to payment in the event of liquidation,
• participation in profits,
• to pass ordinary or special resolutions for the company.

The rights of the shareholders may vary depending on the provisions of the company’s articles of association. However, the articles of association cannot restrict or completely ignore certain core shareholder rights.