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German Limited (GmbH): Effectiveness of shareholder exclusion

Company law

German Limited (GmbH): Effectiveness of shareholder exclusion

In its decision of July 11, 2023 (Case No. II ZR 116/21), the German Supreme Court (BGH) ruled that the exclusion of a shareholder due to an important reason becomes effective as soon as the decision becomes legally binding. Previously, the Supreme Court had made the effectiveness of the exclusion dependent on the effective payment of the compensation due to the shareholder. This paradigm shift is now intended to provide greater certainty as to the timing of the exclusion.

In the underlying case, a shareholder had requested, in the absence of an express provision in the articles of association, that his business partner be excluded from the company and that his share be withdrawn against payment of a compensation.

The Supreme Court ruled in his favour, overturning the previous view that exclusion of a partner was conditional on payment of compensation within a reasonable time. According to the abandoned interpretation, there was an uncertain legal situation after the judgment had become final, with the risk that the withdrawing shareholder would use his remaining shareholder rights during this transitional period to delay or prevent the effect of the judgment.

In addition, the Supreme Court clarified the controversial issue of the right to bring an exclusion action in the case of a two-person limited liability company (GmbH). According to the decision, the shareholder of a two-person GmbH can bring an action for exclusion against the other shareholder under the conditions of actio pro socio. The shareholders are to be protected from impairment by an unlawful influence on the management in the pursuit of claims arising from the duty of loyalty as a shareholder.