Term and Definition of “Secondary”
The term “Secondary” originates from English and literally means “secondary” or “subordinate.” In legal contexts, the adjective or noun “Secondary” is used to denote a second level, subordinate significance, or a supplementary role in numerous areas of law. The structure, responsibility, and legal consequences of a “Secondary” in the respective context are often regulated and are continuously specified by case law and literature.
Usage in Civil Law
Secondary Rights and Obligations
In civil law, “Secondary” usually refers to legal positions that are subordinate to primary (original) main rights and obligations. This includes, for example, secondary warranty rights in sales law, which a buyer can assert after unsuccessful subsequent performance.
Secondary Burden of Presentation and Proof
A particular area of application is the “secondary burden of presentation and proof.” It governs situations in which one party initially substantiates a claim in a coherent and detailed manner, and the opposing party is obliged, within reason, to assist in clarifying the facts of the case. The secondary burden of presentation is of considerable practical relevance, especially in mass proceedings such as copyright law, tenancy law, or liability cases in traffic.
Use in Criminal Law
Secondary Participation (Joint Perpetration and Incitement)
In criminal law, “Secondary” often refers to forms of conduct which, unlike direct or principal perpetration, include joint perpetration, incitement, or aiding and abetting. Secondary participation in a criminal offence generally entails lesser penalties, although the distinction between main and secondary involvement often entails complex definitions.
Secondary Responsibility in Corporate Criminal Law
Increasingly, a “secondary” responsibility of corporate bodies or executives in companies is being discussed, particularly if a breach of duty is not direct, but indirect through failure to supervise or toleration of criminal acts. Attribution can occur at both civil and criminal law levels.
Usage in Administrative Law
Secondary Administrative Interference
In administrative law, “Secondary” may indicate that a secondary interference with subjective rights is present – for instance, when an authority conducts a subordinate, yet still constitutionally relevant, intervention during an inspection. The necessity of justification, protection of fundamental rights, and proportionality also apply to such secondary measures.
Secondary Liability of Authorities
In the context of official liability claims, secondary duties to act become relevant, especially when authorities are obligated to avert or limit damage retrospectively.
Application in International Law
Secondary Sanctions
A highly significant field in public international and foreign trade law is the so-called “Secondary Sanctions.” These are measures by a state (for example, the USA) against third parties conducting business with states or persons already subject to primary sanctions. The legal admissibility and enforcement of secondary sanctions are regularly the subject of international legal debate and can lead to conflicts of interest between national and international law.
Secondary EU Law
In European Union law, a distinction is made between primary and secondary EU law. Primary law includes, in particular, the treaties (TFEU, TEU), while secondary law refers to derived legal acts such as regulations, directives, and decisions issued by EU institutions (Art. 288 TFEU). The interpretation and applicability of secondary EU law are crucial for the harmonisation of the internal market and the enforcement of European rights.
Usage in Commercial and Financial Law
Secondary Market
In capital markets and financial law, “Secondary” primarily refers to the “secondary market.” This is of central importance for securities and other exchange-traded financial instruments. In the secondary market, trading takes place between investors after the initial issue (primary market). The functioning of the secondary market is subject to extensive regulation and supervision, especially through compliance and transparency requirements.
Secondary Liability and Suretyship
In the area of liability in business life, “secondary liability” usually means a subordinated liability, for instance in the case of guarantees, letters of comfort, or collateral, where liability arises only after the main debtor has been called upon.
Subordinate Rights and Obligations in Other Areas of Law
Secondary Procedural Rights
In procedural law, secondary rights and obligations may arise, in particular, in appeals against judgments, reinstatement, or third-party interventions. Such rights depend on the initial main action or decision.
Secondary Rights in Data Protection Law
Secondary data subject rights are also referred to occasionally in data protection law, for example, when data subjects assert further claims (such as deletion, rectification) following the initial information.
Distinction and Legal Relevance
The understanding and interpretation of “Secondary” are essential for the legally compliant classification of claims, responsibilities, sanctions, and rights. Both in substantive law and in case law, the respective legal consequence is linked to whether a fact is triggered (only) at a secondary level. The secondary role is often accompanied by reduced rights or obligations, special formal requirements, or restrictive conditions.
International Comparisons and Special Features
While the German translation variant is often used in the German legal system, the English term “Secondary” is common in international business, cross-border criminal law, and particularly in the area of sanction regimes. National and supranational legislators are increasingly responding to the complexity of secondary responsibilities, reflected in the ongoing development of legal sources and their interpretation.
Summary
“In legal contexts, the term “Secondary” always refers to a subordinate or secondary level of rights, obligations, responsibilities, market mechanisms, or sanction effects. The precise legal classification depends on the area of law and the specific context. Proper application requires careful consideration of the relationship between primary and secondary elements to ensure legally secure actions, contracts, and enforcement.”
Frequently Asked Questions
What are the most important legal requirements for a secondary sale of company shares?
In a secondary sale of company shares, meaning the resale of shares outside of a capital increase by an existing shareholder, various legal requirements must be observed. Firstly, under German company law, particularly for a GmbH (§ 15 GmbHG), the share purchase agreement must be notarized. Without this form, the contract is void. The articles of association or shareholder agreement may also require approval for a share sale, such as pre-emption rights or approval rights of the shareholders’ meeting. Furthermore, it must be checked whether contractual lock-up periods apply that prohibit a sale within a certain timeframe. From a capital market law perspective, depending on the structure and type of shares, there may also be publication obligations under the Securities Trading Act (WpHG), for example, in the case of an IPO or transactions involving companies subject to publicity requirements. In addition, VAT and income tax implications must be carefully analyzed, especially the correct treatment of capital gains and any tax reporting obligations. The execution of a secondary sale therefore regularly requires the involvement of legal and tax advisors.
What are the effects of a secondary sale on existing shareholders’ agreements and side agreements?
A secondary sale can have significant effects on existing shareholders’ agreements (e.g. investment agreements, pooling agreements) and side agreements (e.g. voting agreements). First, it must be examined whether and to what extent such agreements contain provisions on transfers, accession rights (so-called accession clauses), tag-along or drag-along rights and duties. In many cases, the acquirers of the shares, as new shareholders, must expressly accede to the existing agreements to ensure that the regulations continue to apply. There may also be provisions for compensation or indemnification upon sale. Furthermore, the sale may result in certain thresholds being exceeded or not reached (e.g., for veto rights or controlling majorities), which may affect internal power distribution and decision-making processes. Legally compliant implementation requires the careful completion of all contractual procedures and, where appropriate, adjustments or new agreements during the transfer of shares.
Are secondary transactions subject to special notification requirements?
Whether secondary transactions are subject to notification requirements depends on the individual case. With shares in corporations such as a GmbH, there is generally no obligatory notification to a central register merely due to the sale. However, especially for listed companies, notification obligations may arise under the Securities Trading Act (§ 33 WpHG, obligation to report voting rights) and further requirements under the Securities Acquisition and Takeover Act (WpÜG), for example, when certain participation thresholds are reached or exceeded. In addition, for international participations, it must be checked whether foreign trade reporting obligations (AWV) apply. In the case of companies requiring approval in the field of critical infrastructure, notification obligations may arise under the Foreign Trade and Payments Act (AWG) to the Federal Ministry for Economic Affairs and Climate Protection. Notification requirements to the Transparency Register (§§ 20, 21 GwG) or commercial announcements relating to the shareholders’ list may also be relevant.
What forms of approval need to be observed for secondary transactions from a legal perspective?
The secondary sale of shares is often subject to various approval requirements. Under company law, prior approval of the shareholders’ meeting is usually necessary if this is stipulated in the articles of association. If this approval is refused, the sale may be legally ineffective. There are frequently further approval requirements arising from shareholder agreements, especially in the case of tag-along, pre-emption, or drag-along clauses. Certain third-party rights, such as those of investors or lenders, may also contain approval requirements. For listed companies, in exceptional cases, capital market-related lock-up periods or insider trading restrictions (MAR, Market Abuse Regulation) may also apply. Obtaining all necessary approvals in the correct form is a prerequisite for an effective and implementable transfer of shares in every respect.
How does the legal treatment of secondaries differ between GmbH and AG?
For a GmbH, the sale of shares must be notarized in accordance with § 15 GmbHG. All restriction clauses and approval requirements from the articles of association or existing agreements must be observed. The change in the list of shareholders is required by law and is performed by the notary; only after registration does the acquirer gain membership rights. By contrast, for an AG – especially with registered shares with restricted transferability (§ 68 AktG) – only a written assignment declaration and compliance with statutory approval requirements are necessary. Notarization is not required. For bearer shares, approval is generally not required unless the articles of association provide for restrictions. The transfer of shares in the AG is effected under civil law by agreement and delivery (or deposit booking), with capital market regulations also being observed for listed shares.
What liability risks exist for sellers and buyers in secondary transactions?
Sellers and buyers face a variety of liability risks. The seller is regularly liable for the proper transfer of the share as well as for the absence of legal defects (in particular, no encumbrances, restrictions, pledges). Often, the purchase agreement contains further guarantees and indemnities, for example regarding the existence and value of the share sold. If false statements are made or material facts are concealed, claims for damages (e.g., culpa in contrahendo) may arise. The buyer risks not effectively becoming a shareholder and not acquiring the corresponding legal position due to a defective contract structure or lack of approval. Risks of insolvency challenge should also be considered for transfers of shares when the seller is in crisis or close to insolvency. In cases of insider trading in listed companies or violations of approval requirements, both civil and criminal consequences may result.
What special tax considerations must be observed in secondary transactions?
Secondary transactions can have significant tax consequences. On the seller’s side, any capital gain realized is taxable, and taxation depends on the taxpayer type (individual, corporation, or partnership) and the holding period. For corporations, the participation privilege according to § 8b KStG applies. For the buyer, the question may arise as to whether the acquisition of shares and related expenses (e.g., financing costs) are tax-deductible. Real estate transfer tax may be triggered in the case of real-estate-owning companies (share deal, § 1 para. 3 GrEStG). Furthermore, for international shareholdings, the provisions of the Foreign Tax Act (AStG) and the application of double taxation treaties must be examined. In the event of absent or incorrect tax declarations, criminal consequences may result. In any case, comprehensive tax due diligence is recommended.
