If a GmbH shareholder or his legal successor makes a claim against the GmbH for a severance payment, serious burdens can occur for the company. This applies both financially and temporally and certainly affects the long-term legal certainty of the GmbH in legal disputes. Especially since it is often only due to the fact that in the absence of a wise advance planning by a company contract, the legal regulations are applied. In addition, however, it may also happen that in the case of a contractual arrangement for the severance payment of a GmbH shareholder already made in advance, these then violate the law and are therefore null and void. Often such cases are related to the determination of the severance payment amount or the time frame of the payment. If this occurs, the legal norms apply, which often strengthens the position of the shareholder to be settled. Therefore, a potential severance payment by the GmbH already deserves appropriate corporate compliance in advance.

In almost every social contract of a limited liability company (GmbH) constellations are regulated, such as the confiscation of company shares, the death of a shareholder, the termination of a shareholder, etc., which entail a severance payment claim of the departing shareholder vis-à-vis the company qua social contract or by law. Nevertheless, the current daily consulting practice makes it clear that the participants regularly hardly or at best rudimentarily worry about the legal and economic consequences for society and their handling. In contrast, the Federal Court of Justice already set the following standards for consultants in 1994:

‘If the lawyer has the task of advising his client on all matters concerning his departure from a company, he is normally obliged to explain to him the content and meaning of a book value clause contained in the articles of association’; This also includes showing in the starting point under which conditions the binding to the book value clause does not apply, or determining by specific questions whether such a case comes into consideration at all. ‘[1]

Although the GmbHG does not expressly state the severance payment of a departing shareholder, this is generally recognized in case law and legal literature by analogy with § 738 (1) sentence 2 BGB. [] 2]

Unless otherwise stipulated in the partnership agreement of the GmbH, the outgoing shareholder is entitled to a severance payment in the amount of the full economic value of his participation in the company. The economic value of the participation is determined by the market value. [3] For this purpose, the due date of the severance payment entitlement occurs on the occurrence of the event triggering the severance payment.

2.2 Legal Recognition

What this legal situation can have for the company in practice, should illustrate the following example:

A and B, together with a 50% shareholding, establish a GmbH with a share capital of EUR 25,000.00. The company is very successful and until the death of the A after 10 years reaches a market value of EUR 10 million, which is mainly composed of the company goodwill (hardly any fixed assets). The legal inheritance of A has little interest in the company and immediately after the death of A pays his severance payment claim of EUR 5 million to the company immediately. In the social contract there is no provision regarding a severance payment.

In the light of the aforementioned example, the following risks may arise for the GmbH and indirectly for the remaining shareholders due to the legal situation:

2.2.1 Risk of an immediately due, significant financial burden

The claim for severance pay becomes due by law upon the occurrence of the event triggering the severance pay. If necessary, as in the example, this may result in a short-term, considerable unplanned liquidity requirement on the part of the company.

2.2.2. Risk of uncertainty in determining the level of severance payments

If, consequently, no specification has been made in the articles of association, there are regular inconsistencies between the shareholders and the managing directors as to which valuation method to choose, in particular the amount of a severance payment is to be paid.

2.2.3 Risk of significant time expenditure

In accordance with the requirements of the Federal Court of Justice, the shareholder concerned must be provided with the information and documents (books, balance sheets, etc.) necessary for the valuation of shares for a period up to one year after his retirement so that he can check the adequacy of the severance payment. [] 4]

2.2.4. Risk of long-term legal uncertainty

Furthermore, the severance payment claim can be prosecuted and reviewed by the affected shareholder by way of action against the company. The (joint) partners are not personally liable for the severance payment. Nevertheless, they are indirectly exposed to legal uncertainty over a period of several years through their participation in the undertaking, possibly as a result of an appeal.

Settlement options: Practice and legal limits

Against the background of the above, one can recognize the need for an early mental debate and (company) contractual anchoring of any severance payment constellations, at best already in the context of the founding of the company.

In fact, the shareholders can deviate from the legal requirements in the articles of association, within legal limits regarding the amount of the severance payment as well as calculation procedures and payment methods. [] 5]

3.1. Derogation to the amount of the severance pay

The basic idea of the legislature is that the severance payment must take place as a membership right to actual, real value in the sense of market value. On the basis of this premise, social contract modifications pursuant to § 138 BGB may be null and void if they lead to a gross mismatch between the severance payment amount measured in accordance with the statutory provisions and the actual share value. [] 6]

3.1.1. Invalidity in case of initial mismatch

Deviating provisions that lead to a so-called initial disproportion are null and void according to § 138 BGB. This is to be assumed, except in exceptional circumstances, if a severance payment is completely excluded or the severance payment amount is already fixed at half of the book value at the time of incorporation. [7] Therefore, such restrictions in company contracts must be avoided as far as possible.

3.1.2. Adjustment by way of supplementary interpretation of the contract in case of subsequent mismatch / book value clause

A so-called retrospective disproportion is spoken of if the severance payment stipulated in the articles of association was originally appropriate at the time of incorporation (for example in the case of a book value clause), but in the course of the development of the company a disproportion between share value and a differently regulated severance payment amount arose.

Such a clause retains its validity in principle. However, it should in principle be adapted by way of the supplementary interpretation of the Treaty in relation to the individual case.

In order to avoid an interpretive, difficult-to-calculate adjustment of the severance payment amount or even the nullity of the clause, it is advisable to include dynamic regulations in the social contract, which take into account both the substance value and the past- and future-oriented income value. [8] In addition, a different clause should be included for each severance payment constellation in order to balance the interests between the company and the outgoing shareholder fairly within the framework of the severance payment amount.

In particular, taking into account the individual case, consideration should be given to entrepreneurial peculiarities, such as the existence of a ‘6b reserve’, the inclusion of special earnings, the exclusion of goodwill or the waiver of hidden reserves. [9]

3.2. Severance compensation: Derogation from the valuation procedure

According to the specifications of the Federal Court of Justice, an evaluation procedure must be used to determine the severance payment amount “in which the respective method is recognized in economics or business administration and is common in practice”. “[10] This usually includes the income value method, the discounted cash flow method and the substance value method, which can lead to significant differences in the company value in individual cases.” If no provision has been made here in the articles of association, the courts are inclined to apply the income value procedure.

In addition, in accordance with the Federal Court of Justice, it is necessary to obtain a neutral expert report for the company valuation.

In order to avoid any time-consuming and cost-intensive (shareholder) disputes in this regard, it is advisable to specify the valuation procedure and the experts in concrete terms already in the articles of association. For example, this can be a determination of the company value on the basis of the income value method common in practice, based on the current statement of the Institute of Auditors (IDW) by appointing an expert/arbitrator by the competent Chamber of Commerce and Industry.

3.3. Deviating due date clause and payment arrangements in the event of severance payment

Contrary to the immediate maturity prescribed by law, different maturities and payment modalities may be regulated in the articles of association.

Usually, a temporal extension in the form of disbursement is agreed in several equal annual or half-year installments with market interest rates. However, legal limits exist in cases where an excessively long payout period is included. In this context, a period of up to 5 years is recognized in the legal literature and jurisprudence. [] 11]

3.4. Deviating interest on outstanding redundancy payments

No interest on the outstanding severance payment credit is provided by law. However, especially in the case of a temporal extension of the payment, it is usually advisable to include an appropriate interest on the severance payment in the social contract.