INVESTING IN GERMANY Legal and tax aspects INVESTING IN GERMANY Legal and tax aspects Content A. The European Union and Germany . 1 B. Corporate law & acquisitions . 2 I. Establishment of a company branch . 2 1. Independent branch (branch establishment or branch office) . 2 2. Dependent branch (business premises) . 3 II. Representative offices . 4 III. Establishment of a sole proprietorship . 4 IV. Establishment of partnerships . 5 1. The Gesellschaft bürgerlichen Rechts or “GbR” (partnership under German civil law) . 6 2. The offene Handelsgesellschaft or “OHG” (general partnership) . 6 3. The Kommanditgesellschaft or “KG” (private limited partnership) . 6 a) The partners in the KG . 7 b) Management and representation . 7 c) Articles of association . 7 d) Registration of the KG in the commercial register . 8 V. Establishment of a corporate entity . 9 1. Establishment of a Gesellschaft mit beschränkter Haftung or “GmbH” (limited liability company) . 9 a) Drafting the articles of association . 9 (1) Name of the company . 9 (2) Registered office of the company . 10 (3) Object of the company . 10 (4) Nominal capital and shares in the business . 10 (5) Special services on the part of the shareholders . 11 (6) Other provisions . 11 b) Establishment through the simplified procedure – the model statutes . 11 c) Appointment of the company`s directors . 12 d) Provision of the nominal capital and opening of a bank account . 12 e) Application and registration of the company in the commercial register . 13 f) Business registration . 14 g) Mandatory information on company`s letter . 15 I 2. The Unternehmergesellschaft haftungsbeschränkt or “UG” (entrepreneurial company with limited liability) . 15 a) Special features relating to the establishment of the company . 15 b) Formation of reserves . 16 c) Obligation to convene the shareholders’ meeting . 16 d) Conversion of the UG into a GmbH . 16 e) UG (haftungsbeschränkt) & Co . 17 3. The corporate bodies of the GmbH . 17 a) The shareholders’ meeting . 17 b) The directors . 17 c) The supervisory board . 20 4. Miscellaneous . 21 a) Amendments to the articles of association . 21 b) Liability of the shareholders . 21 c) Preservation of capital . 21 d) Reporting and auditing obligation . 22 5. Purchasing a GmbH . 23 6. Establishment of an Aktiengesellschaft or “AG” (public limited company) . 24 a) Drafting of the articles of association . 24 (1) Digression: forms of shares and categories of shares . 25 (2) Forms of shares: par-value shares and no-par shares . 25 (3) Distinction between bearer shares and registered shares . 25 (4) Different categories of shares . 25 b) Appointment of the supervisory board and management board of the AG . 26 c) Formation report and formation audit . 26 d) Deposit of the share capital . 26 e) Registration and entry of the AG in the commercial register . 27 f) Business registration and mandatory information on company`s letter . 27 7. The corporate bodies of the AG . 27 a) The general meeting . 27 (1) Calling the general meeting . 28 (2) Conduct of the general meeting . 29 b) The management board . 30 c) The supervisory board . 31 8. Comparison between GmbH and AG . 31 VI. Combined form of company – the GmbH & Co. KG . 32 1. Establishment . 32 2. Share capital . 32 3. Shareholders’ liability . 33 4. Representation . 33 II 5. Amendments to the articles of association . 33 6. Nature of the shares in the company / voting rights . 34 7. Transfer of limited partner’s shares . 34 8. Auditing of financial statements . 34 9. Dissolution . 34 VII. Legal framework conditions for the acquisition of companies . 35 1. Advantages of acquiring a company . 35 2. Restrictions on foreign investors . 35 a) Foreign investment control . 35 (1) Sector-specific investment control . 35 (2) General investment control for critical infrastructure and other sectors . 37 b) Restrictions under competition law . 38 (1) German merger control . 38 (2) EU merger control . 39 (3) Foreign merger control . 40 c) Restrictions on disposal, requirement of approval by third parties . 41 (1) Restrictions under public law . 41 (2) Further restrictions . 41 3. Issues to be clarified prior to acquisition . 42 a) Selection of the target . 42 b) Share deal or asset deal . 42 (1) Liability of the purchaser . 42 (2) Tax aspects . 42 (3) Contractual aspects and formal requirements . 45 4. Process of acquiring a company . 45 a) Confidentiality agreement . 45 b) Letter of Intent . 46 c) Due diligence . 46 d) Negotiation and conclusion of the purchase agreement . 47 e) Closing . 48 f) Post-merger . 48 5. Tax issues . 48 a) Regular taxation of corporations . 48 b) Regular taxation of trading partnerships . 49 c) Minimum taxation . 49 6. Subsidies . 50 a) Growth programme for small companies . 50 b) Growth programme for mid-sized and large companies . 50 C. Investing in real estate . 51 I. No special conditions for foreign investors . 51 III II. Types of property . 51 1. Definition of a plot of land .....................................52 2. Land register law, registration..................................52 3. Condominium ...............................................53 4. Hereditiary building right......................................53 III. Direct investment as asset or share deal . 54 1. Asset deal . 54 2. Share deal . 54 a) The GmbH . 55 b) The GmbH & Co . KG . 55 3. Trade tax on rental income ....................................56 IV. Due diligence . 56 1. Situation of the real estate . 57 2. Priority notice ...............................................57 3. Restrictions on use and disposal . 57 a) Usufruct . 58 b) Easement . 58 c) Limited personal servitude . 58 d) Public charges . 58 4. Financing encumbrances . 59 a) Mortgage . 59 b) Land charge . 59 5. Tenancy agreements . 60 a) Entry into the existing tenancy . 60 b) Compliance with written form . 60 c) Index-linking of rent . 61 d) Deposit . 61 e) Additional costs . 61 f) Maintenance . 61 g) Rights of withdrawal . 61 h) Standard agreements . 61 6. Public-law aspects . 61 a) Planning law . 62 (1) Outer zone . 62 (2) Inner zone . 62 (3) Planned inner zone . 62 (4) Content of a development plan . 62 b) Planning permission . 63 c) Registers of construction and maintenance obligations . 63 d) Infrastructure development . 63 e) Restrictions on disposal and pre-emptive rights . 64 f) Conservation of historical buildings . 64 IV 7. Environmental law (existing contamination) . 64 8. Insurance . 65 9. Legal disputes . ..