Last Updated on May 29, 2021 by LawEuro
Stock Corporation Act (Laws / Regulations of Germany)
Subchapter 3
Capital reduction by redeeming shares of stock. Exception for no-par-value shares
Section 237
Pre-requisites
(1) Shares of stock may be redeemed mandatorily or following a purchase by the company. A mandatory redemption shall be permissible only if it was stipulated or permitted in the original by-laws, or by an amendment of the by-laws, prior to the shares being acquired or subscribed.
(2) In redeeming the shares of stock, the regulations governing the ordinary capital reduction are to be observed. The by-laws or the resolution adopted by the general meeting are to specify the pre-requisites for a mandatory redemption and the details of its implementation. Section 225 (2) shall apply mutatis mutandis to the payment of the fee granted to stockholders in the case of a mandatory redemption or in the case of a purchase of shares of stock for redemption purposes, and to the release of these stockholders from the duty to make contributions.
(3) The regulations governing the ordinary capital reduction need not be complied with if the shares of stock for which the issue price has been fully paid:
1. Are made available to the company without monetary consideration, or
2. Are redeemed out of the net income or out of freely disposable reserves, insofar as they may be used for such purpose, or
3. Are no-par-value shares and the resolution adopted by the general meeting stipulates that the redemption will have the effect of increasing the stake that the remaining shares have in the share capital pursuant to section 8 (3); where the management board is granted authority to perform the redemption, it may also be granted authority to amend the number stated in the by-laws.
(4) In the cases governed by subsection (3) as well, the capital reduction by way of redemption may be resolved upon only by the general meeting. A simple majority of the votes cast shall suffice for the resolution to be adopted. The by-laws may stipulate a greater majority ratio and may impose further requirements. The resolution is to specify the purpose of the capital reduction. The management board and the chairman of the supervisory board are to file an application for entry of the resolution in the Commercial Register.
(5) In the cases governed by subsection (3) nos. 1 and 2, an amount is to be allocated to the capital reserves that is equal to the amount of the share capital allocated to the redeemed shares of stock.
(6) Inasmuch as the redemption is a mandatory redemption stipulated in the by-laws, no resolution need be adopted by the general meeting. In such event, the decision of the management board as to the redemption shall take the stead of the resolution adopted by the general meeting in applying the regulations as to the ordinary capital reduction.
Section 238
Entry into force of the capital reduction
Upon the resolution or, if the redemption is subsequent to same, upon the redemption having been entered in the register, the share capital shall have been reduced by the amount allocated to the redeemed shares of stock. Where the redemption is a mandatory redemption stipulated in the by-laws, the share capital shall have been reduced upon the mandatory redemption having been performed unless the general meeting adopts a resolution as to the capital reduction. The redemption shall require an action to be taken by the company targeted at the permanent cancellation of the rights attaching to certain shares of stock.
Section 239
Application for entry in the register of the implementation
(1) The management board is to file an application for entry in the Commercial Register of the fact that the reduction of the share capital has been implemented. This shall apply also in the case of a mandatory redemption stipulated in the by-laws.
(2) The application for entry in the register, and entry in same, of the fact that the reduction has been implemented may be joined to the application for entry in the register, and entry in same, of the resolution as to the reduction.
Subchapter 4
Reporting the capital reduction
Section 240
The amount obtained from the capital reduction is to be separately recognised in the income statement as “revenue from capital reduction,” following the item “withdrawals from retained income.” An allocation to the capital reserves pursuant to section 229 (1) and section 232 is to be separately recognised as an “allocation to the capital reserves according to the regulations governing the simplified capital reduction.” An explanation is to be provided in the notes whether and, if so, in which amount the amounts obtained from the capital reduction and from reversing the retained income will be used:
1. To offset impairments in value,
2. To cover other losses, or
3. As allocations to the capital reserves.
Where the company is a small share capital company (section 267 (1) of the Commercial Code (HGB)), it need not apply the third sentence.
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