The list of shareholders entered in the Commercial Register is decisive for the question of whether GmbH shareholders may exercise their membership rights – in particular their voting rights - in the GmbH. However, this principle does not apply without restriction, as the Federal Court of Justice ruled in a recent decision.
High value is placed on the list of shareholders in the law governing German limited liability companies. With respect to shareholders’ membership rights, only those are considered to be shareholders who are entered in the list of shareholders filed with the Commercial Register (Section 16(1) Act governing German Limited Liability Companies). This applies even if the list of shareholders should be incorrect, i.e., in cases where the information in the list of shareholders does not correspond to actual ownership of the company. The Federal Court of Justice has now ruled that this principle does not apply without restriction (Federal Court of Justice, July 2, 2019 - II ZR 406/17).
The case at issue in the cited judgement of the Federal Court of Justice concerned the redemption of shares held by the majority shareholder of a GmbH. The majority shareholder appealed the redemption of his shares and obtained a temporary injunction prohibiting the fiing of a list of shareholders in the Commercial Register that would not show him as a shareholder. The company failed to comply with said prohibition and nevertheless submitted a new list of shareholders to the Commercial Register, which now only showed the minority shareholder. The minority shareholder subsequently used the shareholder list’s formal legitimizing effect and made important decisions for the company. According to the Federal Court of Justice, such an action infringes good faith, so that in relation to the effectiveness of the decisions made, the company cannot rely on the list of shareholders being authoritative.
Essentially, the Federal Court of Justice bases its arguments on two aspects: On the one hand, referring to the new list of shareholders constituted a case of inadmissible exercising of rights. Inadmissible exercising of rights is always deemed to be given where an authorized party invokes a legal position acquired through unlawful, immoral, or non-contractual conduct. On the other hand, a shareholder who has obtained a preliminary injunction must be provided effective legal protection. This would only be guaranteed if the company could not rely on a list of shareholders submitted in violation of the prohibition until a later decision was issued in the main proceedings. The reason for this is that in the meantime, a loss of rights of the relevant shareholder may have already occurred.
The Federal Court of Justice judgement is remarkable as it recognizes that the authoritative character of the list of shareholders does not apply without restriction to exercising membership rights. Admittedly, the case at issue is particularly vivid, and any other decision by the Federal Court of Justice would have been astonishing because it would have placed formal criteria above the sanctioning of dishonest conduct and the need for protection of legitimately entitled parties seeking justice. And yet: the door is open for exceptions to the authoritative character of the list of shareholders for exercising membership rights in the GmbH. It will be very interesting to follow further legal developments on this subject.