Introduction to core economic legal areas in Germany
Competition and antitrust law
German competition and antitrust legislation and jurisprudence is vastly governed by European competition law. The German Act against restriction of competition (GWB) prohibits prevention, restriction or distortion of competition by agreement, decisions by associations of undertakings and concerted practices as well as the abuse of a dominant market position by restricting competitors and discriminating against upstream and downstream market participants. German competition law also prohibits the abuse of any market position in case undertakings are dependent on another undertaking. German courts are active in enforce competition law, in particular damages claims in case of price cartels. Horizontal agreements between competitors, in particular in purchasing, distribution, or R&D, are largely governed by European Competition law as well.
Distribution law
Distribution law covers all areas of relationships with commercial agents and dealers, in general all market levels of product and service distribution. The European vertical block exemption regulation applies, in particular to selective distribution, exclusive distribution, and online sales restrictions. Commercial agents enjoy specific statutory protection, in particular regarding their access to the excerpts from the principal’s books to assess commission claims and agent’s statutory claim for compensation for loss of business at the end of the agency relationship. As German peculiarity, this claim for compensation will also apply to dealers if the dealer is incorporated in the distribution system like an agent, ie is obligated to regularly report, follow marketing instructions, or is bound by non-compete obligations, and is obligated to transfer its client base to the principal.
Corporate law
German law permits the establishment of companies with limited liability (GmbH) and partnerships. Partnerships may be set up so only specific partners will be personal liable. The most common form of corporate entities is the limited liability company (GmbH) with over 1 million GmbH currently established in Germany. The standard minimum share capital of a GmbH is EUR25,000. The share capital may not be redistributed the shareholders. Otherwise, the shareholders enjoy great flexibility in setting up their internal structure in the articles of association, in particular regarding voting rights, profit distribution, exclusion of shareholders, and non-compete obligations. A GmbH is taxed with up to 32.9% depending on the district in which the GmbH is set up. In cities, corporate taxing is usually higher than in outskirts. The establishment of a GmbH requires notarization, as is the case for the transfer of shares in a GmbH. Depending on the commercial register, the establishment and registration may be completed within two weeks. Cost of establishment include costs of the notary and the commercial register and depend on the amount of the share capital and are appr. EUR800 without involving a lawyer. Other ‘red tape’ like government approval or permits do not apply to the establishment process. A GmbH must have at least one managing director which is bound by the instructions of the shareholders’ meeting. The managing director may live abroad. German nationality is not required.
Commercial law
Commercial entities enjoy freedom of contract. European legislation applies. German courts tend to take a rather tough stance on general terms and conditions in b2b situations. Liability may be restricted in general terms and conditions for minor negligence only. Commercial entities are required to inspect delivered goods for defects and notify defects in due time in order to assess claims for supplementary performance and damages. Managing directors are liable to the company for negligence in their dealings on behalf of the company. Third parties may take recourse with the company if the managing director’ willful intent caused harm and financial loss, in particular in case of fraud, insolvency, or bribery.
Litigation
German courts have a reputation of efficient proceedings. The average time line of proceedings before commercial courts is between twelve and sixteen months for two court instances. The winning party is entitled to recover its legal costs from the losing party, however in case of lawyers’ fees limited to statutory amounts. The applicant is required to present all facts of a case and respective proof, eg witnesses, documents, expert hearings, in its own responsibility. German commercial courts do not have any legal power to collect facts on their own. Court proceedings are initiated by a legal action in writing. The defendant will be given a deadline to respond. The court is obligated to deal with a case in two hearings. The first hearing includes settlement phase and, if no settlement is reached, will end in the courts decision on how to proceed. The second hearing will involve the hearing of witnesses and experts. Further hearings may be required if further witnesses and experts need to be heard. Courts’ final verdicts may be appealed against. An appeal does not entitle the appellant to introduce further facts but is restricted to show errors in the decision of the first court. Hearings before commercial courts are open to the public at all times.
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