Key Aspects of German Business Law

Michael Wendler • Bernd TremmlBernard BueckerEditors

Key Aspects of German Business Law

A Practical Manual

Fourth Edition

123

EditorsMichael WendlerWendler Tremml RechtsänwalteMörsenbroicher Weg 20040470 DüsseldorfGermanydus@law-wt.de

Dr. jur. Bernd Tremml, M.C.J.Wendler Tremml RechtsanwalteMartiusstraße 5/ II80802 MünchenGermanymunich@law-wt.de

Bernard Buecker1220 Tower Life Building310 S. St. Mary’sSan Antanio, Texas 78205USAmastholte@aol.com

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

© 2008 Springer-Verlag Berlin Heidelberg

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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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 busi-ness 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 busi-ness 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 trans-actions 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 WendlerMunich, Germany Bernd TremmlSan Antonio, TX Bernard Buecker

Preface

v

Contents

Introduction ...................................................................................................... 1B. Tremml

Part I How to Establish or Acquire a Business in Germany

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

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

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

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

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

Part II Commercial Law

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

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

Torts .................................................................................................................. 95T. Tremml

vii

viii Contents

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

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

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

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

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

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

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

Copyright .......................................................................................................... 185C. Gerlach

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

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

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

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

Part III Labor Law

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

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

Contents ix

Part IV Computer Law

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

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

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

Part V Procedural Law

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

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

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

Part VI European Law

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

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

Part VII Tax Law

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

Part VIII IP

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

Trademark Protection in Germany and Europe ........................................... 465E. Popp

Glossary of German Terms and Abbreviations

Abgabenordnung (AO) Tax CodeAbstraktionsprinzip Abstraction PrincipleAbtretung AssignmentAllgemeine Geschäftsbedingungen (AGB)

General Terms of Business

Amtsblatt der Europäischen Union Official Journal of the European UnionAmtsgericht Court of Small Claims; Municipal CourtÄnderungskündigung A Termination of a Contract with the

Reserved Right to Renew it Under Altered Conditions

Änderungsvertrag Contract of AmendmentAngestellte Employees; Salary Earners; “White

Collar” WorkersAktiengesellschaft (AG) Stock CorporationAktiengesetz (AktG) Corporation ActAktionär Stockholder (of a Stock Corporation)Aktie A Share of Stock; Stock CertificateArbeiter Laborers; “Blue Collar” WorkersArbeitserlaubnis Work PermitArbeitserlaubnisverordnung (AEVO) Work Permit RegulationsArbeitsförderungsgesetz (AFG) Work Promotion ActArbeitsgerichtsgesetz (ArbGG) Code of Labor ProcedureArbeitslosenversicherung Occupational Incapacity InsuranceArrest Freeze OrderArzneimittelgesetz (ArzneimittelG) Pharmaceutical Products ActAufenthaltserlaubnis Temporary Residence PermitAufenthaltsgesetz Federal Residence ActAufsichtsrat Supervisory Board of a Company

or CorporationAusländer Foreigner; Alien

xi

xii Glossary of German Terms and Abbreviations

Ausländergesetz (AuslG) Aliens ActAusländeramt Aliens OfficeAußenministerium Department of Foreign AffairsAußenwirtschaftsgesetz Federal External Trade ActBegehungsgefahr Danger of Commission of an OffenseBergamt Mining AuthoritiesBerufsgenossenschaft Administrative Authorities in Charge

of Providing Social Insurance due to Occupational Accidents

Berufungsverfahren Appellate Proceedings (to the Next Higher Court)

Beschäftigungsverordnung (BeschV) Employment Regulation OrderBetriebsaufgabe Abandonment of a Business EnterpriseBetriebsrat Works CouncilBetriebsstätte Operational Location (Dependant Branch

Offiche)Betriebsverfassungsgesetz (BetrVG) Employee Representation LawBezirk DistrictBGB-Gesellschaft See Gesellschaft Des Bürgerlichen

RechtsBGB-InfoV Federal Ordinance on the Duty to

Provide Information to the ConsumerBilanz Commercial Balance SheetBilanzrichtliniengesetz Accounting Directives ActBundesagentur für Arbeit Federal Employment OfficeBundesarbeitsgericht Federal Labor CourtBundesministerium für Arbeit und Soziale Sicherung

Federal Department of Labor and Social Order

Bundesfinanzhof Federal Finance CourtBundesgerichtshof (BGH) Federal Supreme CourtBundeshaushaltsordnung Federal Budget CodeBundesimmissionsschutzgesetz(BImSchG)

Federal Emission Act

Bundeskartellamt Federal Cartel AuthorityBundesrechtsanwaltsordnung (BRAO)

German Bar Act

Bundesrechtsanwaltsgebührenordnung (BRAGO)

Attorneys’ Fee Ordinance

Bundespatentgericht Federal Patent CourtBürgerliches Gesetzbuch (BGB) Civil CodeBürge GuarantorBürgschaft Surety or Personal GuaranteeBundesverfassungsgericht Federal Constitutional Court

Glossary of German Terms and Abbreviations xiii

Darlehen loan Intended for Consumption (Normally a Monetary Loan)

Delikt Tort (Compensatory), Unlawful ActDeutsche Angestelltengewerkschaft White Collar UnionDeutscher Beamtenbund Civil Servants’ UnionDeutsche Bundesbank Federal Reserve Bank of GermanyDeutscher Gewerkschaftsbund (DGB)

German Association of Industrial Labor Unions

Dienstvertrag Contract for Services (Without any Promise of Specific Result, as Opposed to a Werkvertrag)

dinglicher Vertrag Real Contractdispositives Gesetzesrecht Non-Mandatory Statutory LawDuldung Residence TolerationDurchführungsverordnung zum Ausländergesetz (DVAuslG)

Implementation Ordinance of the Aliens Act

Einfuhrumsatzsteuer Import Turnover TaxEinführungsgesetz zum BGB (EGBGB)

Introductory Act to the Civil Code

Einigungsgebühr Settlement FeeEinkommenssteuer Personal Income TaxEinkommenssteuergesetz Income Tax Acteinstweilige Verfügung (Preventive) InjunctionEinzelunternehmen Sole ProprietorshipEntscheidungen des Bundesgerichtshofs in Zivilsachen (BGHZ)

Decisions of the Federal Court for Civil Cases

Entsendung PostingErbbaurecht Inheritable Building RightErbrecht Inheritance LawErbschaftssteuer Inheritance and Gift TaxErfolgshonorar Contingent FeeErstbegehungsgefahr Danger of First-time Commission of an

OffenseEuropäische Gesellschaft Societas Europaee (SE), European Stock

CorporationEuropäisches Patentamt European Patent OfficeEuropäische Wirtschaftliche Interessenvereinigung (EWIV)

Business for Multinational Enterprises 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 (EWR)

European Market

Fernabsatzgesetz Act on Distant Sale ContractsFernstraßenbaufinanzierungsgesetz Private Highway Construction Financing

ActFinanzamt Tax Office; Tax AuthoritiesFirma Legally: Corporate NameFreizügigkeitsgesetz/EU Freedom of Movement Act/EUGebührensatz Rate of Charges/Fee RateGebührenvereinbarung Fee AgreementGefährdungshaftung No-Fault Tort LiabilityGegenstandswert Value of the Subject MatterGemeinde Community or MunicipalityGentechnikgesetz (GenTG) Genetic Technology ActGeräte- und Produktsicherheitsgesetz (GPSG)

Equipment and Products Safety Act

Gerichtskostengesetz (GKG) Court Costs ActGerichtsvollzieher 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 ServicesGeschäftsführung ohne Auftrag Settlement of a Third Party’s Legal

Obligations Without a ContractGeschäftsgebühr Fee for Out-of-Court WorkGesellschaft des bürgerlichen Rechts (GbR)

(Also: BGB-Gesellschaft) Civil-Law Partnership

Gesellschaft mit beschränkter Haftung (GmbH)

Limited Liability Company

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 Gebiet des Heilwesens

Law Against Advertising in the Health-Care Sector

Gesetz gegen den unlauteren Wettbewerb (UWG)

Unfair Competition Act

Gesetz gegen Wettbewerbsbeschränkungen (GWB)

Act Prohibiting Restrictions of Competition

Glossary of German Terms and Abbreviations xv

Gesetz über den Vertrieb ausländischer Investmentanteile (AuslInvestmG)

Law on Foreign Investment Shares

Gesetz zur Regelung des Rechts der Allgemeinen Geschäftsbedingungen (AGBG)

Law for the Regulation of General Business Terms

Gewerbeaufsichtsamt/Gewerbeamt Trade Supervision OfficeGewerbeordnung (GewO) Trade Supervision LawGewerbesteuer Trade TaxGläubiger CreditorGläubigerversammlung Creditor’s Meeting (In an Insolvency

Proceeding)Gläubigerverzug Delay of the CreditorGmbH & 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 CourtGrunderwerbssteuer Real Estate Transfer TaxGrundpfandrecht Real-Estate MortgagesGrundsätze ordnungsgemäßer Buchführung

Principles of Proper Accounting

Grundsteuer Real Estate/Property TaxHaftpflichtgesetz (HaftpflG) Liability ActHaftungsausschluss Total Exemption from LiabilityHaftungsbeschränkung Limitation of LiabilityHandelsgesetzbuch (HGB) Commercial CodeHandelsgewerbe Commercial Trade Enterprise (Owned

and Operated by Individuals Who are Merchants by Profession). Governed by the HGB

Handelsregister Commercial RegisterHandlungsvollmacht (see also: Prokura)

Full Power of Attorney (to Represent an Enterprise)

Handwerksordnung Handicrafts CodeHauptfürsorgestelle Head Office for Public AssistanceHauptniederlassung Company Headquarters, Main or Head

OfficeHauptversammlung Stockholder Meeting (Stock

Corporation)

xvi Glossary of German Terms and Abbreviations

Industriegewerkschaft (IG) Industrial Trade UnionIndustrie- und Handelskammer (IHK) Chamber of Industry and CommerceInformations- und Kommunikationsdienstegesetz (IuKDG)

Federal Information and Communication Service Act

Inhaberaktie Bearer Stock CertificateInsolvenzordnung Federal Insolvency ActInsolvenzplan Insolvency PlanInsolvenzverwalter Insolvency AdministratorInteressenausgleich Compromise on Issues of Disagreement

Involving Conflicting Interests (for Example, of Employers and Employees)

Investmentgesetz Investment ActKapitalerhaltungsregeln Rules on Capital MaintenanceKapitalertragssteuer Capital-Yield/Withholding TaxKapitalspiegelmethode 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 MerchantKausalitätsvermutung Assumption of Causation in Regard to

Tort LiabilityKommanditgesellschaft (KG) Limited Partnership (for Merchants)Kommanditgesellschaft auf Aktien (KGaA)

Limited Partnership Combined with Stock

Kommanditist Limited Partner (in a Kommanditgesellschaft)

Komplementär General Partner; Personally Liable Partner (in a Kommanditgesellschaft)

Konkurs BankruptcyKonkursordnung (KO) Bankruptcy ActKontrahierungszwang Obligation to Enter into ContractsKostenordnung (KostO) Cost Regulation (for Notary Fees)Kostenrechtsmodernisierungsgesetz (KostRMoG)

Legal Costs Modification Act

Körperschaftssteuer Corporate Income TaxKrankenversicherung Private Health Care InsuranceKreditwesengesetz (KWG) Lending Business ActKündigungsschutzgesetz (KSchG) Termination Protection ActLadenschlussgesetz Store Closing Hours ActLaienrichter Lay JudgesLandgericht Regional CourtLandkreis County (Approx. Equivalent)

Glossary of German Terms and Abbreviations xvii

Leasingvertrag Leasing ContractLebensmittel- und Bedarfsgegenständegesetz

Food and Essential Commodities Law

Leihe Gratuitous LoanLeitende Angestellte Senior Executives; Managerial

Employees (with the Ability to Hire and Fire); Literally: Leading Employees

Lohnsteuer Wage TaxMahnverfahren Summary Proceeding for Debt CollectionMarkengesetz Trademark ActMehrwertsteuer (MwSt) (also: Umsatzsteuer) Value-

Added Tax (VAT)Mehrwertsteuergesetz (MwStG) Value-Added Tax Act Miete RentMinderkaufmann Small MerchantMitbestimmungsgesetz (MitbestG) Co-Determination Law Enabling

Employee Representation in a Company’s Management

Montan-Mitbestimmungsgesetz Coal-and-Steel Co-Determination LawMutterschutzgesetz (MuSchG) Maternity Protection ActNamensaktie Registered StockNiederlassung Branch OfficeNiederlassungserlaubnis Permanent Settlement PermitNiederlassungsfreiheit Right of Establishment Of CompaniesNießbrauch UsufructNotar NotaryOberfinanzdirektion Superior Finance DirectorateOberlandesgericht Court of AppealsOffene Handelsgesellschaft (OHG) General Partnership (for Merchants)ÖPP-Beschleunigungsgesetz Private–Public-Partnerships

Acceleration ActPacht Leasing (of an Establishment or a Real

Property)Patentanwalt Patent AttorneyPariser Verbandsübereinkunft Paris ConventionPartnerschaftsgesellschaft Professional PartnershipPersonengesellschaft PartnershipPflegeversicherung Long-Term Care InsurancePreisangabenverordnung (PAngV) Price Indication RegulationProdukthaftungsgesetz Product Liability ActProkura Full Power of Attorney Enabling Company

Representation by an EmployeeRahmengebühr Lump-Sum Fee with an Upper and

Lower Limit

xviii Glossary of German Terms and Abbreviations

Recht der Leistungsstörungen Law of Irregularities in PerformanceRechtsanwalt Attorney at LawRechtsanwaltsvergütungsgesetz (RVG)

Attorney Remuneration Act

Rechtspersönlichkeit Legal Personality or Nature (of a Business Venture)

Regierungspräsident President of the Regional AdministrationRentenversicherung Retirement Pension InsuranceRepräsentanz Representative OrganizationRestschuldbefreiung Discharge of Remaining Debt (in an

Insolvency Proceeding)Revisionsverfahren Appellate Proceedings (to the Highest

Court for Judicial Grounds)Richterrecht Judicial LawSachverständiger Public-Appointed ExpertsSatzung Articles of Incorporation of a Stock

CorporationSchachtelbeteiligung Intercorporate Participation; Mutual

StockholdingScheinauslandsgesellschaft Pseudo-Foreign CompanySchuldner DebtorSchuldnerverzug Delay of the DebtorSelbstbelieferung The Ability to Procure Goods OneselfSE-VO European Stock Corporation (SE)

Implementation Regulation (VO)Sitztheorie Real Seat Theory (of Business

Enterprises)Solidaritätszuschlag Solidarity Contribution/SurchargeSozialgesetzbuch (SGB) Federal Public Welfare ActSozialversicherung Social InsuranceSozialversicherungspflicht Compulsory Social InsuranceStammaktie Common StockStammkapital Nominal Capital of a Business EnterpriseSteuer TaxSteuerberater Tax AdvisorStille Gesellschaft Silent or Dormant PartnershipStuttgarter 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 FeeÜberschuldung 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 ActUnbedenklichkeitsbescheinigung Clearance Certificateunerlaubte Bereicherung Undue Benefitunerlaubte Handlung Unlawful ConductUnfallversicherung Accident InsuranceUnterlassungsklagengesetz Law Enabling the Filing of Suits for

Discontinuance of Using Unlawful General Terms of Business

Urhebergesetz (UrhG) Copyright Actvereidigter Buchprüfer Certified BookkeeperVerfahrensgebühr Litigation FeeVerfassung ConstitutionVergabeverordnung (VgV) Regulation on the Award of Public

ContractsVergütungsverzeichnis (VV) Catalogue of Fees for Legal ServicesVermögenssteuer Wealth taxVermögensübertragung Transfer of Corporate Assets and

Liabilities Into Public OwnershipVerschmelzung Corporate MergerVerschmelzung durch Aufnahme Take Over; A Merger with at Least One

Other CompanyVerschmelzung durch Neubildung Consolidation of One Corporation with

Another for the Purpose of Forming an Entirely New Corporation

Versicherungsaufsichtsgesetz (VAG) Insurance Supervision ActVersicherungsvertragsgesetz Insurance ActVertrags- und Vergabeordnung für Bauleistungen (VOB)

Regulation for Standard Terms for Contracting Construction Work

Verwaltungssitz eines Unternehmens Principle Place of BusinessVorschuß RetainerVorstand Board of ManagementVorzugsaktien Preferred StockWasserhaushaltsgesetz (WHG) Water Conservation ActWerkvertrag Contract for Work and Labor Promising

A Specific ResultWertgebühr Fee Based on Case ValueWettbewerbshandlung Competitive ActWettbewerbsrecht Law on CompetitionWiderrufsrecht Revocation Right

xx Glossary of German Terms and Abbreviations

Wiederholungsgefahr Danger of Repetition of an OffenseWirtschaftsprüfer Certified Public Accountant (CPA)Wohnungseigentum CondominiumZivilprozessordnung (ZPO) Code of Civil ProcedureZug-um-Zug-Leistung Mutual Simultaneous PerformanceZwangsvertrag Compulsory ContractZweigniederlassung Independent Branch Office

About the Authors

Inge BaduraTax 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 BihlerAttorney 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 BueckerAttorney 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 FischlAttorney 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 GerlachAttorney 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 GroteAttorney 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 KargerAttorney 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 KosnyAttorney 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. LeontiLegal 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, LLMEurDeputy 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 MüllerAttorney 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 NackeAttorney 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, LLMEducated 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, LLMEuropean 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 SandrockAttorney 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. SchenkAttorney 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 SchroederDeputy 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 StadlerAttorney 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 SteffensAttorney 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, LLMAttorney 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, MCJAttorney 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 TremmlHolding 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. WalchAttorney 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 WaltherAttorney 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 WendlerAttorney at Law in Düsseldorf, Germany – partner in the law firm Wendler, Tremml. His focus is on the provision of legal representation to German corpora-tions that operate globally and to foreign companies and associations concerning their business activities in Germany and in all EC-member states.

Christian R. WolfNotary 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.

M. Wendler et al. (eds.) Key Aspects of German Business Law – A Practical Manual 1© Springer-Verlag Berlin Heidelberg 2008

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 busi-nesses 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 inves-tors 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 con-trol. 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

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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 direc-tive 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 busi-ness 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 struc-tured 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 primarytask 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 jurisdic-tion 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 admin-istrative 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.

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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 deci-sions affecting both residents and businesses more efficiently and quickly.

In conclusion, it can be said that the legal system in Germany is precisely struc-tured. 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 rela-tively 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 con-siderably 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.