Shareholders Dispute Lawyers in Germany

Shareholder disputes in Germany are not uncommon and can arise for reasons such as conflicting objectives, business strategies, or ideas about the company’s future development. However, if there is the potential for serious and business-damaging conflicts, it is advisable to consult external parties to resolve the disagreement before it becomes more entrenched.

Typical reasons for shareholder disputes in Germany include the following:

• the dismissal of the managing director,
• the exclusion of a shareholder for a good cause,
• the withdrawal of a shareholder from the company (e.g. through termination or dissolution),
• the provisional withdrawal of the managing director’s management and power of representation,
• termination of the managing director’s employment contract without notice for a good cause,
• decisions made concerning the company’s annual accounts and profit distributions,
• disputes over shareholders’ rights of information and control,
• incomplete, improper or unsuitable partnership agreements.

Resolving disputes early through negotiation and out-of-court settlements provides the best chance of reaching a preferable solution. However, more serious disputes may not be resolved quickly and have significant consequences. In the event of more serious disagreements, German corporate law provides for the following measures in such shareholder disputes:

• The company can withdraw the shares of the shareholders concerned,
• The shareholder or managing director can be dismissed,
• One or more of the shareholders involved may be excluded from the company.

The dismissal of a managing director can be sought in cases where the managing director has proven to be incapable of reliably managing the company. In most cases, there must be a valid reason for this relating to actions such as bribery, balance sheet manipulation, fraud, etc. The exclusion of a shareholder can also be pursued based on such actions.

Cancelling a shareholder’s shares can be pursued if the company’s statutes provide grounds for this solution. In this case, the requirements for the redemption of shares are not as high as for the dismissal of a managing director or the exclusion of a shareholder. However, if it is decided to withdraw shares from certain shareholders, they have the opportunity to challenge the company’s decision legally. In any case, if the statute does not provide any grounds, the company can bring an action for exclusion before the competent court.

Arbitration is often a much more cost-effective method of resolving shareholder disputes in Germany. Arbitration proceedings offer many advantages: First, they save time compared to lengthy court disputes, and second, the parties involved retain some control over the rules of arbitration.

In addition, arbitration proceedings take place behind closed doors to ensure that details of the conflict do not become public knowledge. Furthermore, the arbitrators are often experts in their field and have a strong understanding of economics. However, arbitration proceedings are generally binding and cannot be contested. In exceptional cases, the competent higher regional court (OLG) can overturn an arbitration award.

Careful legal advice is particularly important when choosing a dispute resolution procedure, as a legal dispute before a court can lead to further conflicts. There can be many reasons why an out-of-court settlement fails. In certain cases, it may even be necessary to resolve the issue in court – for example, in the event of wilful damage to the company by certain shareholders, abuse of power, breach of non-competition clauses, fraudulent actions or behaviour that damages the company’s reputation. Other corporate disputes that can be taken to court relate to the activities of managing directors and company management. Managing directors can be dismissed for bribery, fraud and tax evasion, among other things.