Clause for dismissal can be effective

BGH ruling of February 10, 2026 – Az. II ZR 71/24

With its ruling of February 10, 2026 (Az. II ZR 71/24), the Federal Court of Justice (BGH) established important standards for the validity of so-called dismissal clauses. According to this, the exclusion of a shareholder without a substantive reason can be permissible in certain situations — especially in the context of management participation programs.

Dismissal clauses are provisions in the articles of association that allow the remaining shareholders to end the participation of a co-shareholder without specific cause (often via a call option). Such clauses are legally controversial because they interfere with the membership status of the shareholder. The BGH confirms the principle that exclusion mechanisms without cause are generally problematic, but at the same time clarifies: Invalidity does not automatically follow in every case.

The case: Departure of a manager and exercise of a call option

The ruling was based on a private equity management participation program. The plaintiff was employed as managing director and participated as a limited partner in an investment limited partnership through the program. The investment was oriented towards an exit situation: Distributions from ongoing profits were not intended; economic participation was primarily expected at a later sale (“exit”).

After the plaintiff left his operational role, the remaining shareholders exercised a contractually agreed call option. This provision allowed for the unilateral takeover of the co-shareholder’s participation without requiring a substantive reason for exclusion. The plaintiff received compensation for this.

The excluded shareholder challenged the measure, arguing that the clause was contrary to good morals and therefore invalid, as it enabled exclusion “at will” and unduly devalued his membership rights.

Principle: Exclusion “without cause” is generally contrary to good morals – but not without exception

The BGH confirms the general principle: Clauses that allow exclusion without substantive reason can violate good morals (§ 138 BGB) and therefore be invalid. The background is the protection of membership in a company. A shareholder should generally not be exposed to the arbitrary deprivation of their position.

However, the BGH emphasizes that this principle is not to be applied schematically. A comprehensive assessment of the specific design and the interests at stake is decisive. In the case decided, the BGH deemed the dismissal clause to be valid.

BGH: Management participation is not necessarily a classic capital investment

The BGH’s decisive factor was the classification of the participation: Within the framework of a management participation program, the participation may be designed less as an independent asset investment and more as part of an incentive and retention system. The aim of such programs is often to align the interests of management and shareholders and promote value-enhancing company development.

If the participation is closely linked to the operational role, it may be appropriate, according to the BGH, to terminate the participation when this role ceases. A permanent binding of a departed manager could contradict the purpose of the program and – depending on the structure – impair the functioning of the company. In this scenario, the possibility of unilateral termination can therefore be permissible.

Compensation: Validity of the call option and amount of compensation are to be separated

Furthermore, the BGH clarifies that the validity of the call option clause does not automatically depend on whether the compensation is “reasonable” in individual cases. Even if the compensation is too low, this does not necessarily lead to the invalidity of the dismissal clause itself. Rather, it is conceivable that (only) the compensation provision might be subject to a separate validity check and could be adjusted or declared invalid.

For practice, this means: The exclusion mechanism and the compensation mechanism must be legally separated and each properly structured.

What the ruling means for drafting practice

The ruling shows that dismissal clauses are not per se inadmissible. Whether they are effective depends heavily on the specific design and purpose of the participation. In management participation programs, such a clause is more likely to hold if it is understandably tied to the manager’s role and the nature of the participation as an incentive.

Important design and risk points include, in particular:

• Integration into a management/incentive concept: The clearer the participation is designed as part of an incentive system, the more likely effectiveness becomes.
• Contract clarity and transparency: Provisions should clearly describe who may exercise the option, when, with what deadlines, and what legal consequences follow.
• Avoid arbitrary exercise: Even if no “substantive reason” is required, mechanisms should be in place to hinder abusive handling (e.g., formal requirements, regulated deadlines, clear valuation mechanisms).
• Independently properly regulate the compensation provision: Valuation standards, cut-off date, maturity, installment payments, and rights to information should be clearly defined to avoid future disputes.

Conclusion

The BGH adheres to the line that causeless exclusion clauses are sensitive in company law and can often violate § 138 BGB. At the same time, it differentiates: In management participation programs, where participation is structured as part of a function-based incentive system, a dismissal clause can be valid. For companies and participants, careful, transparent, and coherent contract design is crucial.

Note: This post serves general informational purposes and does not replace an examination of the specific individual case.

MTR Legal Attorneys advises on corporate law: Corporate Law.

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