GmbH: Redemption of a share or exclusion?

Is the redemption of a share held by a shareholder in a GmbH permissible, or is exclusion only possible by court order? And if so, under what conditions?

This article is provided by BRG Rechtsanwälte, Berlin, Germany – your corporate lawyers in Germany.

First of all, according to Section 34 (1) GmbHG, the redemption (amortization) of a share may only take place if it is permitted in the articles of association. If, on the other hand, the articles of association do not contain any provisions, redemption by resolution of the shareholders’ meeting is ruled out from the outset and only a court ruling can exclude the shareholder concerned.

However, the articles of association may contain a provision on compulsory redemption under sufficiently specific conditions, for example with regard to the realization of a reason for redemption specified in the articles of association in the person of the holder of the share to be redeemed. Thus, redemption requires an effective resolution of the shareholders’ meeting and the subsequent declaration of redemption to the shareholder concerned. In the event of redemption by resolution of the shareholders for good cause in his person or in his conduct, the shareholder generally has no voting rights, as he should not be a judge in his own case. Furthermore, a share can only be redeemed or a shareholder excluded if the capital contribution for this share has been paid in full. The departing shareholder usually receives compensation in accordance with the criteria specified in the articles of association, which is normally primarily owed by the company. However, deviating provisions in the articles of association would also be possible under certain conditions.

If the articles of association do not regulate compulsory redemption or an obligation to transfer, or if such a measure is only permitted under strict conditions, exclusion is nevertheless permissible and indispensable if there is an important reason relating to the person of the shareholder. The other shareholders must be able to protect themselves and the company if a shareholder has become unacceptable. The majority shareholder can also be excluded.

Exclusion requires a corresponding shareholder resolution, an exclusion action, and a declaratory judgment by the court. Good cause also exists in the person or conduct of the shareholder to be excluded if this jeopardizes the achievement of the common purpose of the company and the shareholder concerned therefore appears to be unacceptable. In the event of exclusion, the company is also primarily liable for the compensation of the departing shareholder, the amount of which is based on the full economic value of the excluded shareholder’s share in the company.

However, due to the many legal aspects involved, the decision to redeem or exclude a co-shareholder should be carefully considered and, ideally, consulted with a specialist lawyer for corporate law beforehand.