THE GERMAN LIMITED LIABILITY COMPANY

THE GERMAN LIMITED LIABILITY COMPANY An introduction to the Act on Limited Liability Companies with German / English text, synoptically arranged, of the act and related statutory provisions, a sample of articles of association, samples of the other formation documents of the company, the classification of the balance sheet and the profit and loss statement of a company and an extract from the commerial register Sixth revised edition Dr. Burkhard W. Meister Frankfurt am Main Rechtsanwalt und Notar, LL. M. (Havard) Dr. Martin H. Heidenhain Berlin Rechtsanwalt und Notar, LL. M. (Yale) Dr. Joachim Rosengarten Frankfurt am Main Rechtsanwalt LL. M. (Berkeley) Fritz Knapp Verlag ^3 Frankfurt am Main

INHALTSGLIEDERUNG Vorwort Abbreviations (Abkürzungen) Table of Contents (Inhaltsverzeichnis in englischer Sprache) VIII X XI Erster Teil: Introduction to the Act on Limited Liability Companies (Einführung zum GmbH-Gesetz in englischer Sprache) 1 Zweiter Teil: Gesetzliche Bestimmungen Deutscher Text mit synoptischer englischer Übersetzung - Inhaltsverzeichnis 162 - Gesetz betreffend die Gesellschaften mit beschränkter Haftung (samt zugehörigen anderen gesetzlichen Bestimmungen in den Fußnoten) 168 - Übergangsvorschrift zum Transparenz- und Publizitätsgesetz ( 87) 272 Dritter Teil: Appendices Deutscher Text mit synoptischer englischer Übersetzung - Appendix A: Muster des Gesellschaftsvertrages einer GmbH 274 - Appendix B: Dokumente zur Gliederung einer GmbH 282 - Appendix C: Auszüge aus dem Handelsregister 292 - Appendix D: Gliederung der Bilanz und der Gewinn- und Verlustrechnung einer GmbH 296 Index 300

CONTENTS Foreword Abbreviations Table of Contents IX X XI First Part: Introduction to the Act on Limited Liability Companies (Einführung zum GmbH-Gesetz in englischer Sprache) 1 Second Part: Statutory Provisions German Text with Synoptic English Translation - Table of Contents 163 - The Act on Limited Liability Companies (with text of other related statutory provisions in footnotes thereto) 169 - Interim Provision for the Transparency and Publicity Act ( 87) 273 Third Part: Appendices German Text with Synoptic English Translation - Appendix A: Sample of Articles of Association of a GmbH 275 - Appendix B: Sample of the Formation Documents of a GmbH 283 - Appendix C: Extract from the Commercial Register 293 - Appendix D: Classification of the Balance Sheet and of the Profit and Loss Statement of a GmbH 297 Index 300

TABLE OF CONTENTS Abbreviations Paragraph I Page X First Part: Introduction to the Act on Limited Liability Companies I. NATURE AND HISTORY OF THE GMBH 001 1 (1) Differences Between the AG and the GmbH a) The AG; b) The GmbH 002 1 (2) Development of the GmbH-Act 007 3 (3) Statistical Data on the Growth of the GmbH 010 5 (4) The Use of the GmbH in Corporate Transactions 013 6 II. FORMATION OF A GMBH 8 (1) Introduction to the Mechanics of Formation 017 8 (2) Permissions Required for Certain Types of Business Activities 017 8 (3) Number of Founders; One-Man-GmbH; Shareholder Qualification 018 9 (4) Articles of Association 022 10 (5) Purpose; Name; Domicile and Duration 029 13 a) Purpose of the Company; b) Name of the Company; c) Domicile of the Company; d) Duration of the Company (6) Appointment of Managing Directors; Determination of their Power to Represent the Company 044 17 a) General; b) Number of Managing Directors; c) Qualification for the Position of Managing Director aa) No Citizenship, Domicile or Residence Requirements; bb) Personal Reliability and Professional Qualification; cc) Conflicts of Interest; dd) Qualification Requirements in the Articles d) Appointment of Managing Directors; e) Determination of the Power to Represent the Company; f) Determination of the Power to Represent the Company (7) Share Capital 057 21 a) Minimum Share Capital; b) Subscription and Share Capital Contributions; c) Cash and Non-Cash Contributions; d) "Hidden" Contribution in Kind; e) Issuance of Shares below Stated Value not Permitted; Surplus; f) Payment of Share Capital Contributions; Liability for Shortfall and Pre-Incorporation Losses aa) Contributions in kind; bb) Cash Contributions; cc) Liability for Shortfall or Pre-Incorporation Losses g) Special Share Capital Requirements Applicable to the One-Man GmbH

XII Table of Contents (8) Registration and Publication 74 27 a) The Commercial Register; b) Application for Registration; c) Role of the Court in the Registration Process; d) Contents of the Registration; e) Publication of Registrations (9) Pre-Incorporation Status of the Company 89 32 a) Pre-Incorporation Company; b) Pre-Incorporation Rights and Liabilities; c) Accrual of Pre-Incorporation Rights and Liabilities to the GmbH; d) Pre-Incorporation Losses (10) Defective Incorporation 95 34 (11) Liability of Founders and Other Persons 96 35 a) False Statements; b) Contributions or Formation Expenses which Cause Damage; c) Joint and Several Liability; Degree of Fault Required; d) Assertion of Claims; Statute of Limitations; Waiver and Compromise; e) General Scope of Protection of Creditors and the Public III. SHARES; SHAREHOLDER RIGHTS AND OBLIGATIONS.. 38 (1) Shares versus Share Capital Contributions 103 38 (2) Stated Amount of Shares 104 38 (3) Number of Shares 105 38 (4) No Share Certificate or Share Record Required 106 40 (5) Shareholder Rights and Obligations 110 40 a) General, b) Shareholder Rights aa) Rights Attaching to Shares; Personal Shareholder Rights; bb) Property Rights; Control and Management Rights; cc) Preferential Rights or Shares, Special Privileges c) Shareholder Obligations aa) Obligations Adhering to Shares, Personal Shareholder Obligations; bb) Ancillary Obligations (6) Transfer and Inheritance of Shares 136 48 a) Transfer of Shares aa) Contractual Commitment to Transfer or Acquire Shares; bb) Transfer Agreement; cc) Transfer Restrictions and Formalities Imposed by the Articles; dd) Transfer Notification to the Company; ее) Evidence of Ownership of Shares b) Inheritance of Shares (7) Division of Shares 153 53 (8) Joint Holding of Shares 155 53 (9) Acquisition of Its own Shares by the Company 157 54 (10) Redemption of Shares 159 55

Table of Contents XIII IV. CAPITALIZATION AND FUNDING OF THE COMPANY BY ITS SHAREHOLDERS 164 57 (l)share Capital 166 57 a) General; b) Ensurance of Full Payment of Share Capital Contributions aa) General; bb) Forfeiture of Shares in Case of Default; cc) Liability of Predecessors for Payment; dd) Liability of Fellow Shareholders Following Public Auction b) Ensurance of Full Payment of Share Capital Contributions aa) General; bb) Forfeiture of Shares in Case of Default; cc) Liability of Predecessors for Payment; dd) Liability of Fellow Shareholders Following Public Auction c) Preservation of the Share Capital aa) General; bb) Prohibition Against Repayment of Share Capital (2) Supplementary Contributions 196 65 a) General; b) Due Date; Ownership of Claim for Payment; c) Repayment to Shareholders of Supplementary Contributions (3) Additional Payments into the Equity in the Form of Capital Reserves 202 68 a) General; b) Procedure; c) Repayment to Shareholders of Additional Payments into the Equity (4) Shareholder Loans to the GmbH: "Capital-Replacement".. 205 69 a) General; b) Loans Considered "Capital Replacement"; c) Repayment of Capital-Replacing Loans aa) During Insolvency Proceedings; bb) Prior to Insolvency Proceedings d) Limitations on Loan Collateral; e) Limitations on "Third-Party" Loans (5) Piercing the Corporate Veil? 216 73 V. CORPORATE STRUCTURE; MANAGIG DIRECTORS; MAN AGEMENT AND REPRESENTATION; SUPERVISORY BOARD 74 (1) Corporate Structure 219 74 a) The Traditional Structure; b) The Impact of Employee Co. Determination Acts (2) Managing Directors; Management and Representation... 226 75 a) Appointment of Managing Directors; b) Requirement of a Labour Director; c) Removal and Resignation of Managing Directors aa) Removal; bb) Resignation; d) Service Agreements with Managing Directors; e) Representation of the Company; f) Internal Management Structure; g) Duties and Responsibilities of Managing Directors aa) General; bb) General Obligation of Diligent Management; cc) Special Obligations Regarding Contribution and Preservation of Share Capital; (dd) Special Obligations arising from Loss of Share Capital, Overindebtedness and Insolvency; (ее) Special Responsibilities Regarding Payment of Taxes and Social Insurance Contributions;ff)Compliance With Instructions of Shareholders

XIV Table of Contents (3) Supervisory Board 268 88 a) Optional or Mandatory Supervisory Board; b) Optional Supervisory Board aa) Creation of a Supervisory Board; bb) Number of Members; Qualification; Conflicts of Interest; cc) Appointment; dd) Term of Office; Removal and Resignation; ее) Compensation; ff) Internal Organization; gg) Rights and Responsibilities of the Supervisory Board; hh) Power to Represent the Company vis-ä-vis Managing Directors; ii) Duty of Diligence, Liability c) Mandatory Supervisory Boards in Co-Determined Companies. VI. BUSINESS YEAR; ACCOUNTING AND AUDITING; DISCLOSURE; APPROPRIATION OF PROFITS 97 (1) Business Year 291 97 (2) Accounting and Auditing; Disclosure 294 98 a) Proper Bookkeeping; b) Preparation of Financial Statements; c) Auditing; d) Review by the Supervisory Board; e) Submission of the Financial Statements to, and Adoption of the Annual Accounts by the Shareholders; f) Disclosure (3) Appropriation of Profits 317 104 VII. MAJORITY GOVERNANCE; SHAREHOLDER RESO LUTIONS; MINORITY PROTECTION 106 (1) Majority Governance 323 106 (2) Shareholder Resolutions 327 107 a) Matters Subject to Shareholder Resolution aa) Adoption ofannual Accounts and Distribution of Profit; bb) Calling of Share Capital Contributions; (cc) Repayment of Supplementary Contributions; (dd) Division and Redemption of Shares; ее) Appointment, Removal and Discharge of Managing Directors; ff) Management Control; (gg) Appointment of Holders of a Prokura or of a General Power of Representation; (hh) Disputes with Managing Directors or shareholders; b) Passage of Resolutions with or without Meetings; c) Shareholder Meetings aa) Reasons for Calling Shareholder Meetings, bb) Competence to Call Meetings; cc) Place of Meetings; dd) Form and Notice of Call of Meetings; Announcement of Subject Matters of Meetings; ее) Participation in Meetings; ff) Quorum; gg) Rules of Procedure, Chairman of the Meeting d) Minutes of Shareholder Meetings, Resolutions; e) Majority Requirements, Voting rights, Conflicts of Interest; aa) Majority Requirements, (bb) Voting Rights; cc) Conflicts of Interest f) Defective Resolutions (3) Minority Protection; Duty of Loyalty; Principle of Equal Treatment 357 116 a) Minority Protection; b) Duty of Loyalty; Principle of Equal Treatment

Table of Contents XV VIII. AMENDMENT OF THE ARTICLES; INCREASE AND DECREASE OF SHARE CAPITAL 120 (1) Amendment of the Articles 367 120 a) Shareholder Resolution; b) Application for Registration; c) Registration and Publication (2) Share Capital Increase 387 123 a) Increase by Contributions; Increase from Company Reserves; b) Increase by Contributions aa) Shareholder Resolution; bb) Subscription to Share Capital Contributions; cc) Payment of Share Capital Contributions; Liability for Shortfall; Liability of Fellow Shareholders; dd) Application for Registration; ее) Registration and Publication; c) Increase of Share Capital from Company Reserves aa) Reserves Available for Increases; bb) Shareholder Resolution; cc) Application for Registration; dd) Registration and Publication (3) Ordinary Share Capital Decrease 409 132 a) Purpose of a Decrease; b) Procedure aa) Shareholder Resolution; bb) Publication of Shareholder Resolution; Satisfaction or Securing of Creditors; cc) Application for Registration; One-Year Waiting Period; dd) Registration and Publication (4) Simplified Procedure for Share Capital Decrease 423 136 IX. SHAREHOLDER EXCLUSION OR WITHDRAWAL; DISSOLUTION AND LIQUIDATION OF THE COMPANY; INVALIDATION.. 138 (1) General 428 138 (2) Exclusion of a Shareholder 429 138 (3) Shareholder Withdrawal from the Company 434 140 (4) Dissolution and Liquidation of the Company 439 141 a) Cases of Dissolution aa) By Expiration of the Term of the Company's Existence; bb) By Shareholder Resolution to Dissolve the Company; cc) By Decision of a Regional Court for Cause; dd) By decision of an Administrative Court; ее) By the Institution of Insolvency Proceedings or the Denial of Institution due to Insufficient Assets; ff) By Court Decision Because of Defects in the Articles; gg) By court Decision in the Event of Non-compliance with Obligations Relating to the Unification ofall Shares under the Control of One Shareholder; hh) By Court Decision in Case of a Company without Assets; ii) By Virtue of Special Reasons in the Articles b) Registration; Publication; Creditor Notification; c) Effect of Dissolution; Liquidation; d) Liquidation aa) Appointment of Liquidators, bb) Power of Representation; cc) Registration and Publication; dd) Duties and Responsibilities e) Completion of Liquidation aa) Distribution of Liquidation Proceeds; bb) Continued Availability of Books and Records; cc) Registration in the Commercial Register and Expiration of the Company's Existence (5) Invalidation of the Company 467 148

XVI Table of Contents X. TAXATION OF THE GMBH 150 (1) Corporate Income Tax 471 150 a) Imputation Credit Regime; b) German Tax Reduction Act (Steuersenkungsgesetz) of 2000; с) Thin Capitalization Rules (2) Trade labe 488 154 (3) Net Assets Tax 490 154 (4) Capital Investment Tax; Capital Transfer Tax 154 (5) Real Property Transfer Tax 491 154 XI. GMBH & CO. KG 156 (1) General Features 492 156 (2) Tax Treatment 495 157 a) Income Taxation; b) Thin Capitalization Rules; c) Real Property Transfer Tax (3) Popularity Among Investors 498 158 Second Part: Statutory Provisions German Text with Synoptic English Translation 159 - Act on Limited Liability Companies (with text of other related statutory provisions in foot notes thereto) 169 Third Part: Appendices German Text with synoptic English Translation 275 - Appendix A: Sample of Articles of Association of a GmbH 275 - Appendix B: Samples of the Formation Documents of a GmbH 283 - Appendix C: Extract from the Commercial Register 293 - Appendix D: Classification of the Balance Sheet and of the Profit and Loss Statement of a GmbH 295 Index 300