Key Aspects of German Business Law Michael Wendler • Bernd Tremml Bernard Buecker Editors

Key Aspects of German Business Law

A Practical Manual

Fourth Edition

123 Editors Michael Wendler Bernard Buecker Wendler Tremml Rechtsänwalte 1220 Tower Life Building Mörsenbroicher Weg 200 310 S. St. Mary’s 40470 Düsseldorf San Antanio, Texas 78205 Germany USA [email protected] [email protected]

Dr. jur. Bernd Tremml, M.C.J. Wendler Tremml Rechtsanwalte Martiusstraße 5/II 80802 München Germany [email protected]

The information contained herein is general information and is not intended to provide legal advide. Should you require legal advice, you should seek the assistance of counsel. Copyright © 2006 Michael Wendler, Bernd Tremml, Bernard Buecker

ISBN: 978-3-540-68574-6 e-ISBN: 978-3-540-68577-7

Library of Congress Control Number: 2008929899

This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permissions for use must always be obtained from Springer-Verlag. Violations are liable for prosecution under the German Copyright Law.

The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use.

Cover design: WMXDesign GmbH, Heidelberg, Germany

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9 8 7 6 5 4 3 2 1 springer.com Preface

This book presents a clear and precise overview of the key aspects of German business law. It was written by attorneys involved in the daily practice of business law in Germany and is aimed at people who wish to orient themselves quickly with the German legal system and the manner in which it impacts business purchases, establishment, operations and liquidations. The first section of the book is devoted to an explanation of the major issues to be considered in acquiring or establishing a business in Germany. The second section focuses on areas of commercial law that are important for an operating business. In comparison to the last edition four new areas (transportation law, customs regulations, insurance law and state liability law) are treated. The fol- lowing sections deal with labor law as an independent part of German business law and with computer law. Furthermore, procedural law and European law are addressed. Finally, the last two sections of the book are devoted to an overview over the German tax law, which has an enormous impact on business decisions, and IP law. In all sections special attention has been paid to highlighting and explaining the differences between the German legal system and that of the United States. Nevertheless, the intention is to provide information that will prove valuable to all foreigners, particularly business men and women and lawyers advising clients with an interest in doing business in Germany. Although it is the object of this book to provide readers with a general orienta- tion and the foundation for making informed decisions concerning business transactions in Germany, it cannot possibly function as a substitute for case-specific professional advice and by no means purports to do so. Those readers who wish to follow up on any decisions they may have formed on the basis of the material presented here are well advised to seek the guidance of qualified attorneys and tax advisors before entering into any binding obligations. This holds particularly true in light of the fact that all information here is based on the laws that were in effect in the Federal Republic of Germany on the first of January 2008. Düsseldorf, Germany Michael Wendler Munich, Germany Bernd Tremml San Antonio, TX Bernard Buecker

v Contents

Introduction ...... 1 B. Tremml

Part I How to Establish or Acquire a Business in Germany

Recognized Forms of Business Organizations ...... 7 B. Tremml and B. Buecker

Establishment of a Company or Branch Office ...... 33 T. Fischl

The Acquisition of Closely Held Companies ...... 39 B. Tremml

Valuation of Business Enterprises ...... 55 B. Tremml

“Pseudo – Foreign Companies” in Germany – The Centros, Überseering and Inspire Art Decisions of the European Court of Justice ...... 59 K.F. Sturmfels

Part II Commercial Law

The Law of Contracts ...... 67 M. Luber

General Terms of Business (AGB) ...... 81 A. Stadler and M. Luber

Torts ...... 95 T. Tremml

vii viii Contents

Product Liability Under German and European Law ...... 107 R. Grote

Real-Estate Property Law Germany ...... 117 C.R. Wolf

The Law of Insolvency and Security Interests ...... 127 R. Nacke

Unfair Competition ...... 139 H. Schroeder

The Law of Public Procurement ...... 147 N. Müller

Distribution Agreements ...... 163 M. Bihler

Private Public Partnerships ...... 177 K.F. Sturmfels

Review of German Private Insurance Law ...... 201 T. Steffens

Transport Law and Forwarder Law ...... 217 J. Walther

Customs Law ...... 239 B. Kosny

Liability of the State ...... 263 M. Luber

Part III Labor Law

Aspects of German Labor Law ...... 277 W.D. Schenk

Residence and Work Permit ...... 291 M. Wendler Contents ix

Part IV Computer Law

Computer Law ...... 307 M. Karger

Electronic Commerce ...... 317 R.E. Walch

Protection of Internet Domain Names ...... 323 W.C. Leonti and H. Schroeder

Part V Procedural Law

Enforcement of Rights and Claims through the Courts and Arbitration Tribunals ...... 331 R. Nacke

Principles of the Legal Regulation of Attorney Fees ...... 339 S. Sandrock

Notaries in Germany ...... 351 C.R. Wolf

Part VI European Law

Institutions of the European Community ...... 365 B. Tremml

Antitrust Law in the European Community ...... 377 B. Tremml and M. Luber

Part VII Tax Law

German Tax Law ...... 389 I. Badura

Part VIII IP

The PCT and the Enforcement of Patents in Europe ...... 407 K. Rupprecht

Trademark Protection in Germany and Europe ...... 465 E. Popp Glossary of German Terms and Abbreviations

Abgabenordnung (AO) Tax Code Abstraktionsprinzip Abstraction Principle Abtretung Assignment Allgemeine Geschäftsbedingungen General Terms of Business (AGB) Amtsblatt der Europäischen Union Official Journal of the European Union Amtsgericht Court of Small Claims; Municipal Court Änderungskündigung A Termination of a Contract with the Reserved Right to Renew it Under Altered Conditions Änderungsvertrag Contract of Amendment Angestellte Employees; Salary Earners; “White Collar” Workers Aktiengesellschaft (AG) Stock Corporation Aktiengesetz (AktG) Corporation Act Aktionär Stockholder (of a Stock Corporation) Aktie A Share of Stock; Stock Certificate Arbeiter Laborers; “Blue Collar” Workers Arbeitserlaubnis Work Permit Arbeitserlaubnisverordnung (AEVO) Work Permit Regulations Arbeitsförderungsgesetz (AFG) Work Promotion Act Arbeitsgerichtsgesetz (ArbGG) Code of Labor Procedure Arbeitslosenversicherung Occupational Incapacity Insurance Arrest Freeze Order Arzneimittelgesetz (ArzneimittelG) Pharmaceutical Products Act Aufenthaltserlaubnis Temporary Residence Permit Aufenthaltsgesetz Federal Residence Act Aufsichtsrat Supervisory Board of a Company or Corporation Ausländer Foreigner; Alien

xi xii Glossary of German Terms and Abbreviations

Ausländergesetz (AuslG) Aliens Act Ausländeramt Aliens Office Außenministerium Department of Foreign Affairs Außenwirtschaftsgesetz Federal External Trade Act Begehungsgefahr Danger of Commission of an Offense Bergamt Mining Authorities Berufsgenossenschaft Administrative Authorities in Charge of Providing Social Insurance due to Occupational Accidents Berufungsverfahren Appellate Proceedings (to the Next Higher Court) Beschäftigungsverordnung (BeschV) Employment Regulation Order Betriebsaufgabe Abandonment of a Business Enterprise Betriebsrat Works Council Betriebsstätte Operational Location (Dependant Branch Offiche) Betriebsverfassungsgesetz (BetrVG) Employee Representation Law Bezirk District BGB-Gesellschaft See Gesellschaft Des Bürgerlichen Rechts BGB-InfoV Federal Ordinance on the Duty to Provide Information to the Consumer Bilanz Commercial Balance Sheet Bilanzrichtliniengesetz Accounting Directives Act Bundesagentur für Arbeit Federal Employment Office Bundesarbeitsgericht Federal Labor Court Bundesministerium für Arbeit und Federal Department of Labor and Social Soziale Sicherung Order Bundesfinanzhof Federal Finance Court Bundesgerichtshof (BGH) Federal Supreme Court Bundeshaushaltsordnung Federal Budget Code Bundesimmissionsschutzgesetz Federal Emission Act (BImSchG) Bundeskartellamt Federal Cartel Authority Bundesrechtsanwaltsordnung German Bar Act (BRAO) Bundesrechtsanwaltsgebührenordnung Attorneys’ Fee Ordinance (BRAGO) Bundespatentgericht Federal Patent Court Bürgerliches Gesetzbuch (BGB) Civil Code Bürge Guarantor Bürgschaft Surety or Personal Guarantee Bundesverfassungsgericht Federal Constitutional Court Glossary of German Terms and Abbreviations xiii

Darlehen loan Intended for Consumption (Normally a Monetary Loan) Delikt Tort (Compensatory), Unlawful Act Deutsche Angestelltengewerkschaft White Collar Union Deutscher Beamtenbund Civil Servants’ Union Deutsche Bundesbank Federal Reserve Bank of Germany Deutscher Gewerkschaftsbund German Association of Industrial Labor (DGB) Unions Dienstvertrag Contract for Services (Without any Promise of Specific Result, as Opposed to a Werkvertrag) dinglicher Vertrag Real Contract dispositives Gesetzesrecht Non-Mandatory Statutory Law Duldung Residence Toleration Durchführungsverordnung zum Implementation Ordinance of the Aliens Ausländergesetz (DVAuslG) Act Einfuhrumsatzsteuer Import Turnover Tax Einführungsgesetz zum BGB Introductory Act to the Civil Code (EGBGB) Einigungsgebühr Settlement Fee Einkommenssteuer Personal Income Tax Einkommenssteuergesetz Income Tax Act einstweilige Verfügung (Preventive) Injunction Einzelunternehmen Sole Proprietorship Entscheidungen des Decisions of the Federal Court for Civil Bundesgerichtshofs in Zivilsachen Cases (BGHZ) Entsendung Posting Erbbaurecht Inheritable Building Right Erbrecht Inheritance Law Erbschaftssteuer Inheritance and Gift Tax Erfolgshonorar Contingent Fee Erstbegehungsgefahr Danger of First-time Commission of an Offense Europäische Gesellschaft Societas Europaee (SE), European Stock Corporation Europäisches Patentamt European Patent Office Europäische Wirtschaftliche Business for Multinational Enterprises Interessenvereinigung (EWIV) Comparable to the General Partnership Europäischer Gerichtshof (EuGH) European Court of Justice (ECJ) Europäische Gesellschaft Societas Europae (SE), European Stock Corporation xiv Glossary of German Terms and Abbreviations

Europäischer Wirtschaftsraum European Market (EWR) Fernabsatzgesetz Act on Distant Sale Contracts Fernstraßenbaufinanzierungsgesetz Private Highway Construction Financing Act Finanzamt Tax Office; Tax Authorities Firma Legally: Corporate Name Freizügigkeitsgesetz/EU Freedom of Movement Act/EU Gebührensatz Rate of Charges/Fee Rate Gebührenvereinbarung Fee Agreement Gefährdungshaftung No-Fault Tort Liability Gegenstandswert Value of the Subject Matter Gemeinde Community or Municipality Gentechnikgesetz (GenTG) Genetic Technology Act Geräte- und Produktsicherheitsgesetz Equipment and Products Safety Act (GPSG) Gerichtskostengesetz (GKG) Court Costs Act Gerichtsvollzieher Sheriff’s Officer (Official Debt Collector) Gesamtbetriebsrat Combined or Overall Works Council (Of More Than One Business Unit) Gesamthandsvermögen Joint Ownership (of the Property of a Partnership) Geschäftsbesorgungsvertrag Contract for Business Services Geschäftsführung ohne Auftrag Settlement of a Third Party’s Legal Obligations Without a Contract Geschäftsgebühr Fee for Out-of-Court Work Gesellschaft des bürgerlichen Rechts (Also: BGB-Gesellschaft) Civil-Law (GbR) Partnership Gesellschaft mit beschränkter Haftung Limited Liability Company (GmbH) Gesellschafter Shareholder (In a Limited Liability Company) Gesellschafterversammlung Shareholder Meeting (Limited Liability Company) Gesellschaftsvertrag Articles of Incorporation Gesetz Law or Act Gesetz gegen Werbung auf dem Law Against Advertising in the Gebiet des Heilwesens Health-Care Sector Gesetz gegen den unlauteren Unfair Competition Act Wettbewerb (UWG) Gesetz gegen Wettbewerbsbeschrän Act Prohibiting Restrictions of kungen (GWB) Competition Glossary of German Terms and Abbreviations xv

Gesetz über den Vertrieb ausländischer Law on Foreign Investment Shares Investmentanteile (AuslInvestmG) Gesetz zur Regelung des Rechts der Law for the Regulation of General Allgemeinen Geschäftsbedingungen Business Terms (AGBG) Gewerbeaufsichtsamt/Gewerbeamt Trade Supervision Office Gewerbeordnung (GewO) Trade Supervision Law Gewerbesteuer Trade Tax Gläubiger Creditor Gläubigerversammlung Creditor’s Meeting (In an Insolvency Proceeding) Gläubigerverzug Delay of the Creditor GmbH & Co KG Business Organizational Form Which is a Combination of a Limited Liability Company and a Limited Partnership GmbH-Gesetz (GmbHG) Gmbh Act (Law Governing Limited Liability Companies) Gründungstheorie Incorporation Theory (of Business Enterprises) Grundbuch Land Register at the Local Court Grunderwerbssteuer Real Estate Transfer Tax Grundpfandrecht Real-Estate Mortgages Grundsätze ordnungsgemäßer Principles of Proper Accounting Buchführung Grundsteuer Real Estate/Property Tax Haftpflichtgesetz (HaftpflG) Liability Act Haftungsausschluss Total Exemption from Liability Haftungsbeschränkung Limitation of Liability Handelsgesetzbuch (HGB) Commercial Code Handelsgewerbe Commercial Trade Enterprise (Owned and Operated by Individuals Who are Merchants by Profession). Governed by the HGB Handelsregister Commercial Register Handlungsvollmacht (see also: Full Power of Attorney (to Represent Prokura) an Enterprise) Handwerksordnung Handicrafts Code Hauptfürsorgestelle Head Office for Public Assistance Hauptniederlassung Company Headquarters, Main or Head Office Hauptversammlung Stockholder Meeting (Stock Corporation) xvi Glossary of German Terms and Abbreviations

Industriegewerkschaft (IG) Industrial Trade Union Industrie- und Handelskammer (IHK) Chamber of Industry and Commerce Informations- und Kommunikationsdi Federal Information and Communication enstegesetz (IuKDG) Service Act Inhaberaktie Bearer Stock Certificate Insolvenzordnung Federal Insolvency Act Insolvenzplan Insolvency Plan Insolvenzverwalter Insolvency Administrator Interessenausgleich Compromise on Issues of Disagreement Involving Conflicting Interests (for Example, of Employers and Employees) Investmentgesetz Investment Act Kapitalerhaltungsregeln Rules on Capital Maintenance Kapitalertragssteuer Capital-Yield/Withholding Tax Kapitalspiegelmethode Literally: Capital-Mirroring Method. the Reflection of the Actual Net Value of a Partnership in its Fiscal Balance (As Opposed to Using the Purchase Price as the Means of Measure) Kaufmann Merchant Kausalitätsvermutung Assumption of Causation in Regard to Tort Liability Kommanditgesellschaft (KG) Limited Partnership (for Merchants) Kommanditgesellschaft auf Aktien Limited Partnership Combined with (KGaA) Stock Kommanditist Limited Partner (in a Kommanditgesellschaft) Komplementär General Partner; Personally Liable Partner (in a Kommanditgesellschaft) Konkurs Bankruptcy Konkursordnung (KO) Bankruptcy Act Kontrahierungszwang Obligation to Enter into Contracts Kostenordnung (KostO) Cost Regulation (for Notary Fees) Kostenrechtsmodernisierungsgesetz Legal Costs Modification Act (KostRMoG) Körperschaftssteuer Corporate Income Tax Krankenversicherung Private Health Care Insurance Kreditwesengesetz (KWG) Lending Business Act Kündigungsschutzgesetz (KSchG) Termination Protection Act Ladenschlussgesetz Store Closing Hours Act Laienrichter Lay Judges Landgericht Regional Court Landkreis County (Approx. Equivalent) Glossary of German Terms and Abbreviations xvii

Leasingvertrag Leasing Contract Lebensmittel- und Food and Essential Commodities Law Bedarfsgegenständegesetz Leihe Gratuitous Loan Leitende Angestellte Senior Executives; Managerial Employees (with the Ability to Hire and Fire); Literally: Leading Employees Lohnsteuer Wage Tax Mahnverfahren Summary Proceeding for Debt Collection Markengesetz Trademark Act Mehrwertsteuer (MwSt) (also: Umsatzsteuer) Value- Added Tax (VAT) Mehrwertsteuergesetz (MwStG) Value-Added Tax Act Miete Rent Minderkaufmann Small Merchant Mitbestimmungsgesetz (MitbestG) Co-Determination Law Enabling Employee Representation in a Company’s Management Montan-Mitbestimmungsgesetz Coal-and-Steel Co-Determination Law Mutterschutzgesetz (MuSchG) Maternity Protection Act Namensaktie Registered Stock Niederlassung Branch Office Niederlassungserlaubnis Permanent Settlement Permit Niederlassungsfreiheit Right of Establishment Of Companies Nießbrauch Usufruct Notar Notary Oberfinanzdirektion Superior Finance Directorate Oberlandesgericht Court of Appeals Offene Handelsgesellschaft (OHG) General Partnership (for Merchants) ÖPP-Beschleunigungsgesetz Private–Public-Partnerships Acceleration Act Pacht Leasing (of an Establishment or a Real Property) Patentanwalt Patent Attorney Pariser Verbandsübereinkunft Paris Convention Partnerschaftsgesellschaft Professional Partnership Personengesellschaft Partnership Pflegeversicherung Long-Term Care Insurance Preisangabenverordnung (PAngV) Price Indication Regulation Produkthaftungsgesetz Product Liability Act Prokura Full Power of Attorney Enabling Company Representation by an Employee Rahmengebühr Lump-Sum Fee with an Upper and Lower Limit xviii Glossary of German Terms and Abbreviations

Recht der Leistungsstörungen Law of Irregularities in Performance Rechtsanwalt Attorney at Law Rechtsanwaltsvergütungsgesetz Attorney Remuneration Act (RVG) Rechtspersönlichkeit Legal Personality or Nature (of a Business Venture) Regierungspräsident President of the Regional Administration Rentenversicherung Retirement Pension Insurance Repräsentanz Representative Organization Restschuldbefreiung Discharge of Remaining Debt (in an Insolvency Proceeding) Revisionsverfahren Appellate Proceedings (to the Highest Court for Judicial Grounds) Richterrecht Judicial Law Sachverständiger Public-Appointed Experts Satzung Articles of Incorporation of a Stock Corporation Schachtelbeteiligung Intercorporate Participation; Mutual Stockholding Scheinauslandsgesellschaft Pseudo-Foreign Company Schuldner Debtor Schuldnerverzug Delay of the Debtor Selbstbelieferung The Ability to Procure Goods Oneself SE-VO European Stock Corporation (SE) Implementation Regulation (VO) Sitztheorie Real Seat Theory (of Business Enterprises) Solidaritätszuschlag Solidarity Contribution/Surcharge Sozialgesetzbuch (SGB) Federal Public Welfare Act Sozialversicherung Social Insurance Sozialversicherungspflicht Compulsory Social Insurance Stammaktie Common Stock Stammkapital Nominal Capital of a Business Enterprise Steuer Tax Steuerberater Tax Advisor Stille Gesellschaft Silent or Dormant Partnership Stuttgarter Verfahren Stuttgart Procedure (a Way of Assessing the Value of a Business, which was Once the Standard Procedure in Germany but has Recently Fallen Out of Use Due to its Inaccuracy Pitfalls) Terminsgebühr Appointment Fee Überschuldung Excessive Indebtedness Glossary of German Terms and Abbreviations xix

Umsatzsteuer Value-Added Tax (Vat). Literally: Sales Tax Umwandlung Transformation of a Business Enterprise from One Organizational form to Another Umwelthaftungsgesetz (UmweltHG) Environmental Liability Act Unbedenklichkeitsbescheinigung Clearance Certificate unerlaubte Bereicherung Undue Benefit unerlaubte Handlung Unlawful Conduct Unfallversicherung Accident Insurance Unterlassungsklagengesetz Law Enabling the Filing of Suits for Discontinuance of Using Unlawful General Terms of Business Urhebergesetz (UrhG) Copyright Act vereidigter Buchprüfer Certified Bookkeeper Verfahrensgebühr Litigation Fee Verfassung Constitution Vergabeverordnung (VgV) Regulation on the Award of Public Contracts Vergütungsverzeichnis (VV) Catalogue of Fees for Legal Services Vermögenssteuer Wealth tax Vermögensübertragung Transfer of Corporate Assets and Liabilities Into Public Ownership Verschmelzung Corporate Merger Verschmelzung durch Aufnahme Take Over; A Merger with at Least One Other Company Verschmelzung durch Neubildung Consolidation of One Corporation with Another for the Purpose of Forming an Entirely New Corporation Versicherungsaufsichtsgesetz (VAG) Insurance Supervision Act Versicherungsvertragsgesetz Insurance Act Vertrags- und Vergabeordnung für Regulation for Standard Terms for Bauleistungen (VOB) Contracting Construction Work Verwaltungssitz eines Unternehmens Principle Place of Business Vorschuß Retainer Vorstand Board of Management Vorzugsaktien Preferred Stock Wasserhaushaltsgesetz (WHG) Water Conservation Act Werkvertrag Contract for Work and Labor Promising A Specific Result Wertgebühr Fee Based on Case Value Wettbewerbshandlung Competitive Act Wettbewerbsrecht Law on Competition Widerrufsrecht Revocation Right xx Glossary of German Terms and Abbreviations

Wiederholungsgefahr Danger of Repetition of an Offense Wirtschaftsprüfer Certified Public Accountant (CPA) Wohnungseigentum Condominium Zivilprozessordnung (ZPO) Code of Civil Procedure Zug-um-Zug-Leistung Mutual Simultaneous Performance Zwangsvertrag Compulsory Contract Zweigniederlassung Independent Branch Office About the Authors

Inge Badura Tax consultant and certified public accountant in Munich, Germany. She has many years of experience in all areas of tax law and accountancy, working with both German and international clients, including French and English speaking companies and subsidiaries. Michael Bihler Attorney at Law in Munich, Germany – partner in the law firm of Wendler Tremml. He provides legal representation to large international corporations and distribution companies, as well as to developers and mid-sized businesses. Bernard Buecker Attorney at Law in San Antonio, Texas. He received the Doctor of Jurisprudence degree from the University of Texas at Austin, was a Fulbright Scholar at the University of Heidelberg School of Law, Germany, and specializes in German – American legal disputes. He was awarded the Service Cross of the Federal Republic of Germany in 1987 and was appointed Honorary Consul of the Federal Republic of Germany by President Rau in 2001. Thomas Fischl Attorney at Law in Munich, Germany – senior associate in the law firm of Wendler Tremml. He is chiefly involved with representing the interests of mid- sized and major IT providers and business customers in both the domestic and international markets. Corporate law and industrial property protection are his areas of further focus. Carsten Gerlach Attorney at Law in Berlin, Germany – senior associate in the law firm of Wendler Tremml. His areas of expertise include intellectual property and computer law. He provides legal representation to companies and public authorities, especially in the area of computer law. Ralf Grote Attorney at law in Berlin, Germany – partner in the law firm of Wendler Tremml. He is a litigation lawyer with longstanding experience. One of his areas of expertise

xxi xxii About the Authors is the law of product liability. He is active for and recommended by well-known German insurers. Moreover, he provides legal advice to the food industry. Michael Karger Attorney at Law in Munich, Germany – partner in the law firm of Wendler Tremml. His areas of expertise include computer law and telecommunications law. He is a frequent lecturer on the law pertaining to the use of on-line computer services. Beata Kosny Attorney at law in Düsseldorf, Germany – senior associate in the law firm of Wendler Tremml. She specializes in giving comprehensive legal advice to transnational corporations on their cross-border activities, particularly supporting Polish companies in their operations in Germany. She also concerns herself with business reorganization, the establishment of branches and subsidiaries, and international insolvency law. Wolfgang C. Leonti Legal counsel at a global software company. His areas of expertise include IT law, industrial property rights, and software law. He handles trademark infringement cases. Michael Luber, LLMEur Deputy Head of Division in the Bavarian State Chancellery for the affairs of the Ministry of Finance and the ministry of Economy, Infrastructure, Transport and Technologies. His areas of expertise include public commercial and company law. Norman Müller Attorney at Law in Berlin, Germany – partner in the law firm Wendler Tremml. His areas of expertise include computer law and public procurement law. He provides legal representation to large international corporations as well as to mid-sized companies, especially in their activities for and with public authorities in Germany. Reinhard Nacke Attorney at Law in Düsseldorf, Germany – partner in the firm of FPS Fritze Paul Seelig. His special area of expertise lies in the representation of foreign and German companies in legal matters with international background, including the representation in legal disputes in and out of court or arbitration tribunals. Eugen Popp, LLM Educated at Munich’s Technical University and Ludwig-Maximilians-University, he is a partner in the firm of Meissner Bolte in Munich, Germany. Dr. Popp is Vice-President of the German Patent Attorneys’ Bar Association, Secretary General of the European wide Committee of National Institutes of Patent Attorneys and former President of the Bavarian Association of Patent Attorneys. About the Authors xxiii

Kay Rupprecht, LLM European and German patent and trademark Attorney in Munich, Germany – partner in the intellectual property firm of Meissner Bolte. He specializes in the prosecution and litigation of German, European, and International (PCT-) patent and trademark applications and their registrations. Stefan Sandrock Attorney at Law in Munich, Germany – senior associate in the law firm of Wendler Tremml. His areas of expertise include administrative law as well as landlord and tenant law. Wolf D. Schenk Attorney at Law in Munich, Germany. His areas of expertise include collective bargaining and individual labor law, industrial property and copyright law, as well as drafting of corporate contracts, especially in regard to tax issues. Henrik Schroeder Deputy Head of Division in the Bavarian Ministry for Employment and Social Affairs in Munich, Germany. His areas of expertise include administrative and competition law. Andreas Stadler Attorney at Law in Munich, Germany – partner in the law firm Wendler Tremml. His areas of expertise include IT law, contract law, commercial and distribution law, as well as industrial property protection and copyright law. Theresa Steffens Attorney at law in Düsseldorf, Germany – senior associate in the law firm of Wendler Tremml. Her special areas of expertise include International esp. European labor law and international social security law as well as public law and criminal law relating to economic and administrative offences. Kai F. Sturmfels, LLM Attorney at Law in Düsseldorf, Germany – partner in the law firm of Wendler Tremml. His professional focus is on private building construction law, business and corporate law, as well as IT law. He participates in seminars as an expert speaker on various legal issues, chiefly as they concern private building construction law. Dr. Jur. Bernd Tremml, MCJ Attorney at Law in Munich, Germany – partner in the law firm Wendler Tremml. He has many years of experience in the representation of foreign clients who wish to establish a subsidiary or purchase a business in Germany or in other European countries. Bernd Tremml is admitted to the Bar of the State of Texas as Foreign Legal Consultant. xxiv About the Authors

Tobias Tremml Holding both a German law degree, as well as a business degree from Columbia University, New York, he is working in a management position at an international software company in Dresden, Germany. Before joining his current company, he taught constitutional law at Ludwig-Maximilians-University of Munich, Germany. Raimund E. Walch Attorney at Law in Berlin, Germany – partner in the law firm Wendler Tremml. His special areas of expertise include IT law, commercial and corporate law, as well as private construction law. Jutta Walther Attorney at law in Düsseldorf, Germany – senior associate in the law firm of Wendler Tremml. Her special areas of expertise include labor law, administrative law as well as criminal law involving business offences and administrative offences. Michael Wendler Attorney at Law in Düsseldorf, Germany – partner in the law firm Wendler, Tremml. His focus is on the provision of legal representation to German corporations that operate globally and to foreign companies and associations concerning their business activities in Germany and in all EC-member states. Christian R. Wolf Notary in Kleve, Germany. Educated at the Ludwig-Maximilians-University of Munich and the University of Freiburg, he specializes in corporate law and international business transactions, in real-estate transactions, and particularly in the formation and merger of business enterprises. Fluent in Dutch, he is especially involved in international transactions between The Netherlands and Germany. Introduction

Overview of the German Legal System and its Role in Light of Germany’s Membership in the European Union

B. Tremml

Foreigners interested in starting a business or investing in German companies are generally attracted by the prospect of expanding into other European markets. Germany’s membership in the European Union (EU) is a beneficial factor when deciding whether to invest in Germany, especially, because of the recent broadening of the EU. On 21 December 2007, nine new countries (Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia and Slovakia and the Czech Republic) joined Europe’s travel zone, the Schengen area. This means there will be no more border checks on people travelling between these and other Schengen countries by land or sea, and checks at airports are set to end in March 2008. In addition, travelers from outside the EU need just one visa to travel to all Schengen states. In addition, the new EU treaty (the so called Lisbon treaty) that was signed on 13 December 2007 and is expected to be in force by the next European elections in June 2009, improves the decision making in the EU and, therefore, contributes to the complete establishing of a common market. However, there also have been concerns about the implications of the dual European and German legal systems. Investors may wonder whether a German venture requires familiarization with two, often-conflicting bodies of law, or if businesses in Germany frequently have to deal with administrative authorities at both the national and international level with regard to the same transaction. The answer to such questions is “no.” Given the structure of the EU and particularly the manner in which EU institutions pass laws, an investment in Germany does not place investors in a legal quagmire. Nevertheless, there are some legal areas where European law is directly applicable, for example, in antitrust law. As a fundamental principal, the EU and its institutions possess the power to pass legislation in only those areas in which an express delegation of national authority exists. For this reason alone, many regulatory areas remain outside of the EU’s control. For example, most civil, criminal, and administrative laws remain the sole province of the Member States. In general, the EU’s authority is limited to those regulatory areas which are essential to the establishment of a common market. Furthermore, the laws that have been passed by the EU tended to take the form of “directives.” As will be explained in detail in the chapter entitled “Institutions of the EU”, directives do not, as a general principal, take effect until after they have been incorporated into national law. This special characteristic of directives is intended M. Wendler et al. (eds.) Key Aspects of German Business Law – A Practical Manual 1 © Springer-Verlag Berlin Heidelberg 2008 2 B. Tremml to give Member States the flexibility of choosing the manner in which a directive becomes law in their own country. Accordingly, Member States can choose a directive that is most compatible with their particular legal system. For individuals and business enterprises alike, it is often not easy to recognize whether or not a national law is based on a European directive. In summary EU directives do not constitute an overlay of regulations which investors must familiarize themselves with, but rather comprise an integral part of a Member State’s national law. However, that is not to say, that the EU’s influence should be downplayed. The numerous areas of law impacting the establishment and operation of businesses in Germany are often reflective of EU law. Nevertheless, for the most part EU laws have been incorporated into national law and are subject to Germany’s legal system. It is within this system that foreign investors will predominantly conduct their business transactions. For the most part, Germany’s legal system is stable and smooth working. It is based on the Continental European legal tradition as opposed to Anglo-Saxon law upon which the U.S. legal system is based. The primary difference between the two systems is that the Continental European legal system is based on “code law” as opposed to “case law.” In accordance with the Continental tradition, the German legal system consists essentially of written laws. Nearly all potential regulatory areas are the subject of formal and detailed codification. Many of Germany’s legal codes are the final product of decades of careful deliberation and refinement. This offers foreign entrepreneurs and investors considerable advantages. German law is so clearly structured and transparent that contract terms can be standardized to a very large extent. All the standard practices and regulations governing a business’s conduct are codified in the German Civil Code (BGB, or “Bürgerliches Gesetzbuch”). Therefore, if no special terms are agreed upon between the parties, the terms and provisions of the BGB automatically apply. In other words, in the U.S., business contracts require the clear and detailed statement of all the terms the parties agree to. Contracts in Germany tend to be considerably shorter, which lowers their drafting costs accordingly. German law has undergone numerous reforms in recent years, which, for the most part, have had a very positive impact on business activities, even though there have been some less favorable developments. The Commercial Code was liberal- ized by broadening the definition of “merchant”, thus, making it easier for people to get started in business. Additionally, the Handcrafts Code (“Handwerksordnung”) was modified to make it easier to demonstrate professional qualification. Business activities in the domestic market were also facilitated through a considerable loos- ening of the laws regulating unfair trade. On the other hand, disadvantageous are the new regulations in contract and civil process law. Contract law now ensures an extraordinary high degree of consumer protection at the expense of merchants. Furthermore, the extent and complexity of the reforms have led to a certain degree of legal confusion. The changes made in civil process law make it more difficult to acquire access to appellate courts, which very often necessitates cost-and-effort intensive proceedings right from the start. As in the U.S., it is the task of the courts to interpret the written law. Because a number of German codes are more than a hundred years old, the case law pertaining Introduction 3 to certain individual provisions of them is very extensive. The courts have the primary task of interpreting the statutes, regulations, and Constitution, and they also play a role in filling in the gaps of laws where necessary. However, the reliance on prece- dence plays a much smaller role in the German legal system than in American jurisprudence, since German laws are explicitly detailed and codified. The sharp differentiation between the various areas of law in Germany and the separate codification of them have led to a strict division of subject-matter jurisdiction among the different types of courts. As in the U.S., there are separate civil courts responsible for deciding legal disputes among private persons, and there are criminal courts for criminal prosecutions brought by the State against individuals. In contrast to the U.S. legal system, there are also separate court systems for administrative matters or legal disputes involving measures taken by public authorities against residents and for labor-law and financial matters. Germany has a special body of law governing taxation and a court system specialized in trying tax cases as well. It should also be noted that, in contrast to the U.S. judicial system, there is no duality between state and federal courts. In Germany, their areas of jurisdiction are clearly kept separate. Each of the various court systems has its own supreme court. The Constitutional Court is the final authority. The judges who serve on the courts are judges by profession and are specialized in one type of law. They do not rotate from one type of court to another as U.S. judges do, but generally serve on only one type of court throughout their careers. They are not elected but rather appointed by the government of the particular state of Germany where the court is located. Germany does not make use of the jury process. However, in certain cases the judges are assisted in making their decisions by common citizens who do not necessarily have a legal background of any kind (“Laienrichter/lay judge”) and who are chosen to serve on the court for a limited time period. Regardless of which type of court is handling a particular dispute, the parties’ trial preparation consists primarily in the drafting and presentation of legal briefs in which evidence is presented and the issues in dispute are argued. In doing so, the parties rely on the court’s special procedural rules. Each type of court has its own rules, such as determining case procedure, the kind of evidence it will admit, etc. The courts make extensive use of independent public-appointed experts (“Sach- verständiger”), whose professional input almost always influences the ruling to a very large extent and often determines the outcome of a case. Due in part to the judicial system’s reliance on the parties’ briefs, the reports of independent experts and other written submissions, the trial itself (in particular the in-court presentation of live testimony and other evidence) takes considerably less time and involves less costs than U.S. court proceedings. This will be discussed extensively in chapter “Enforcement of Rights and Claims”. With the exception of criminal cases, most trials last no longer than one or two days. An overview of Germany’s legal system would not be complete without a few comments about the governmental administrative apparatus. The Federal Republic of Germany is, as its name expresses, a federal state. That means that legislative pow- ers are divided between the federal government and each of the country’s states. 4 B. Tremml

The most important areas of law are the exclusive domain of the federal government. However, because individual states of Germany are generally vested with the authority to enforce federal laws and the majority of the administrative offices necessary to accomplish this task are established by the states, the states have an important influence on the interpretation and development of federal laws. Similar to the state subdivisions in the U.S., the states of Germany are comprised of districts (“Bezirke”), counties (“Landkreise”) and communities (“Gemeinde”). A striking difference between the two administrative systems is in many cases the higher degree of authority and competence exercised by the more local and regional units in Germany, which often allows them to take action and make decisions affecting both residents and businesses more efficiently and quickly. In conclusion, it can be said that the legal system in Germany is precisely structured. Its areas of court jurisdiction are clearly defined and its laws so explicitly codified that overlapping and ambiguities are largely ruled out. This makes it relatively easy for foreigners to orient themselves within the system. They will find the drafting of business contracts to be a relatively swift and inexpensive process as opposed to the process in the U.S., where effort and costs generally tend to be considerably higher, because its laws allow a vastly wider degree of interpretation and all the terms of agreement must be contained in the contract itself. In contrast, the terms of the German Civil Code (BGB) regulating contracts automatically come into effect in the absence of other terms. Contracts between business partners are necessary only if the parties wish to agree to terms that differ from the standard provisions of the BGB. When looking at business operations, the clearly structured German system encourages fair, free trade and the minimization of conflicts.