Since the German Stock Corporations Act of 1965 no longer reflects practical needs, the government has decided to introduce some important changes relating to registered shares. The bill presented by the government on May 10 2000 also makes changes to the rules concerning dangerous post-formation acquisitions.

The changes made to registered share regulations have been made in response to the increasing importance of this kind of share in Germany in recent years. Several big companies, such as Deutsche Bank AG, DaimlerChrysler AG and Mannesmann AG, have switched from bearer to registered shares. The main reasons for the change have been (i) that registered shares are required for the listing of companies on the US stock exchanges (otherwise only American depositary receipts may be used) and (ii) the possibility of direct communication with the shareholders. Such 'investor relations' can be of great importance when avoiding takeovers and promoting advertising to the shareholders.

The bill proposes important changes with respect to post-formation acquisitions. Section 52 of the Stock Corporations Act 1965 provided that all agreements entered into by a stock corporation that concern assets for a consideration of more than one-tenth of the nominal share capital and that are made within the first two years of the date of registration in the commercial register may become effective only (i) with the consent of a three-fourths majority at the shareholders meeting and (ii) through registration in the commercial register.

This formal and complex procedure, which can be particularly dangerous in case of a stock market listing within the first two years, will in future be limited to agreements that are entered into between the company and the founders or shareholders holding more than one-tenth of the shares. Furthermore, Section 52 will no longer apply for acquisitions within the ordinary course of business or at the stock markets, which will be of great importance in the case of M&A transactions.

The changes to Section 52 will have retroactive effect as of January 1 2000. With regard to acquisitions made prior to this date, the revised Section 52 will apply as of January 1 2002.

The bill will probably be adopted (with possible minor changes) at the end of this year, to enable companies to use the important changes for the 2001 shareholders meetings.

For further information on this topic please contact Oleg de Lousanoff at Hengeler Mueller by telephone (+49 69 17 09 50) or by fax (+49 69 72 57 73) or by e-mail ([email protected]).
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