Corporate litigation
Your expert lawyer for the efficient resolution of a shareholder dispute
In corporations of all legal forms, shareholder disputes often occur - whether between shareholders, between individual shareholders and the company, or between the management and the shareholders. These disputes often affect central building blocks of the company, such as the composition of the management, differing views on company issues or financial aspects. Escalated shareholder disputes then often lead to the squeeze out of a shareholder or the removal of a managing director and can result in lengthy and costly corporate litigations, which often end in the insolvency of the company.
For this reason, impending shareholder disputes should ideally be resolved by mututal agreement as soon as possible, or - if this is not feasible – be settled as quickly and cost-effectively as possible. In order to achieve this, professional legal advice from experienced experts is required in any case due to the high complexity.
As a law firm with specialized lawyers for corporate law we at ab&d Rechtsanwälte advise and represent companies, shareholders and managing directors in all legal matters and stages of shareholder disputes. We know the specific processes and mechanisms from many years of experience and know that an effective and sustainable agreement between the parties requires more than a purely legal and functional approach.
In addition to expert knowledge of the contractual and statutory regulations as well as extensive case law, we offer our clients above all a clear strategy, clever tactics and negotiating skills to successfully resolve a shareholder dispute. The latter also includes improving an initially weak negotiating position through appropriate measures so that the other side recognizes the need to enter into concrete negotiations.
Are you affected by a shareholder dispute? We will be happy to take care of your individual concerns personally and professionally, work out and prioritize the objectives together and enforce them for you in negotiations and/or court proceedings!
Your lawyers in the event of a shareholder dispute:
Shareholder disputes in a German GmbH
A shareholder dispute can have devastating consequences, particularly in the case of the German GmbH (limited liability company), due to the specific company structure - the shareholders of a GmbH are both decision-makers and administrators. Through their voting rights at the shareholders' meeting, they have power over important decisions in the company, such as the selection of the managing director, but also on the tasks to be fulfilled by the managing director.
The advantage of the GmbH company form, particularly in the initial stages, is that it enables the shareholders to pursue their common vision in an ideal manner. However, numerous problems can also arise from this structure over time. The personal change of individual shareholders, corporate crises or a changed business environment can lead to disputes between the shareholders and a lack on corporate decisions.
The shareholders then often initiate dispute-based resolutions, such as the removal of the managing director or the redemption of the shares of the "querulous" co-shareholders. If a shareholder or managing director does not want to lose their claims as a result of a shareholder dispute, strict legal (and often contractually stipulated) formalities must be observed, particularly in the case of a GmbH. This applies, for example, to the need for urgency (e.g. for termination for cause, cf. § Section 626 (2) BGB), the enforcement of shareholder rights(such as information, see §§ 51a, 51b GmbHG; or the right to convene a general meeting of shareholders, cf. § Section 50 GmbHG), the short limitation period for claims due to prohibited competitive activity (cf. § Section 113 (3) HGB), but also for frequent preclusion periods for contesting shareholder resolutions.
Measures to settle a shareholder dispute
If it is foreseeable that differences in opinion or a growing grievance between shareholders will come to a head and threaten to turn into a full-blown shareholder dispute, measures to settle the matter should be taken as quickly as possible. This can prevent the destruction of company values, as well as secure one’s own position and assert it in upcoming disputes.
If a shareholder dispute cannot be resolved (amicably) by other means, the following measures are most frequently used in practice to settle the dispute:
- Redemption of shares
- Squeeze out of shareholders
- Removal of the managing director
However, it is essential to check whether the requirements for such drastic settlement measures are even met. Because for the settlement of potential disputes within the company complex regulations are often laid down in the shareholders' agreements (SHA) or (more rarely) in the articles of association, which may well supersede the statutory provisions. Particularly in the case of startups that have already gone through investment rounds, investors also regularly negotiate special contractual rights that must be observed by the co-shareholders (founders).
Redemption of shares
If the articles of association of a GmbH contain provisions on redemption of shares even against the will of the person concerned, this can be brought about by a shareholder resolution. The prerequisite is that the shares are fully paid up and the company is generally in a position to pay the compensation of the departing shareholder. As a result of the redemption, the shares in question are destroyed and measures must subsequently be taken to adjust the company's share capital.
If a (disputed) redemption of shares is to be carried out (cf. § 34 GmbHG) or - from the shareholder's perspective - such a redemption is imminent, haste is required: in the first case, the company must act quickly so that the reason for redemption is not forfeited; in the second case, there is a risk of unavoidable disadvantages once the redemption has been decided and announced and the shareholder concerned has lost his shares. These disadvantages can be averted through court summary proceedings (Application for interim injunction, cf. § 935 ZPO).
Squeeze out of shareholders
In principle, shareholders of a GmbH can - if permitted by the articles of association - be squeezed out from the company by a simple shareholder resolution ("redemption", see above). If there is no such regulation, the (only) option is to file an action for exclusion. The prerequisite is always a so-called "good cause", such as a serious breach of duty or a business-damaging, public appearance of the affected shareholder.
Compensation of the shareholder
If a redemption or squeeze out of shareholders has taken place, the focus is usually on the dispute over the compensation for the loss of the shareholder position. In principle, leaving shareholders are to be compensated according to the true value of their shareholding, but shareholders' agreements often contain deviating provisions, the effectiveness of which is often doubtful and therefore the subject to dispute. A compensation based on the true value (market value) is usually determined taking into account the capitalized earnings value of a company; for this purpose, the future earnings prospects of the company are assessed, which sometimes leads to unexpectedly high compensation claims.
Removal of the managing director of a GmbH
The management is of crucial importance for the operational business of a company and the central lever for implementing the corporate objectives of the shareholders. Particularly in the event of a shareholder dispute, the shareholders therefore have a great interest in ensuring that the position of managing director is filled by a candidate who acts in accordance with their own objectives. If this is not the case, the shareholders often demand a new appointment to the management board, which enables them to expand and consolidate their influence within the company.
However, in order to this, the board relationship of the previous management must be terminated, and the employment relationship (§ 611 BGB) should be dissolved as quickly as possible. The latter can be achieved with a termination of the managing director – either ordinarily with notice or, if necessary, extraordinarily without notice; the shareholders' meeting is responsible for this. To terminate the organizational position, however, the removal of managing director is required, which can be done at any time and without specific reasons by a majority resolution of the shareholders' meeting – unless the articles of association restrict the admissibility of removal to the existence of good cause (§ Section 38 (2) GmbHG).
The effectiveness of a removal of the managing director generally depends on whether the resolution was passed in a legally correct manner, whether there is good cause and whether the existence of special rights prevents the removal.
Resolution and avoidance of shareholder disputes
From the different rights between managing partners and external managing directors to the entitlement to compensation payments – a large number of legal challenges must be mastered in exclusion proceedings, in which the circumstances of the individual case are ultimately decisive.
For this reason, in the event of an impending exclusion – regardless of whether it concerns the managing director or shareholder – professional legal advice should always be sought, which our expert lawyers for corporate law are happy to offer. In order to avoid time-consuming and cost-intensive legal proceedings in the future, it is also important to draw up a legally compliant contract that works for all parties involved, in which we are of course also be happy to support you with our comprehensive expertise.
