Share

Definition and Significance of the Share in Law

The term “share” describes, in a legal context, the participation of a person, usually a natural or legal person, in a legally independent entity, most commonly a company, an association, or an asset. The share entails various rights and obligations and forms the basis of membership, control, and property rights in numerous legal relationships.

In German law, the share is a central concept in corporate law, but also in inheritance law, property law, and tax law. Its structure, transferability, and legal consequences depend on the respective legal form, the articles of association, or statutory provisions.

Share in Corporate Law

Basic Classification

In corporate law, the share refers to the legal and economic participation in a company. It is necessary to distinguish between capital-based companies (e.g., stock corporation, GmbH) and partnerships (e.g., GbR, OHG, KG).

Share in Corporations

For corporations such as GmbH and AG, shares are usually referred to as membership interests (GmbH) or shares (AG):

• Ownership Structure: The shares determine the ownership structure as well as the allocation of voting rights and dividends.
• Effects on Property Rights: Shareholders are entitled to distributions and to any liquidation proceeds in proportion to their participation.
• Transferability: Shares are generally freely transferable (§ 68 AktG), whereas GmbH membership interests regularly require notarial certification (§ 15 GmbHG).

Rights and Duties of Shareholders

1. Membership Rights: Participation in the shareholders’ meeting, access to information, voting rights, minority rights.
2. Property Rights: Entitlement to profit participation, subscription rights in capital increases, share in liquidation proceeds.
3. Duties of Loyalty and Additional Contribution Obligations: Especially in limited liability companies and in the case of contractual provisions.

Share in Partnerships

In partnerships, the terms membership interest or participation quota are used:

• Partner Status: The partnership share forms the basis for being a partner with all attendant rights and obligations.
• Non-Certificated Shares: Shares are usually not evidenced by securities, and their transfer requires special form and approval.
• Individual Arrangements: The specific arrangement of the share primarily arises from the partnership agreement (e.g., provisions regarding profit and loss participation, voting rights, modalities of transfer).

Share in Property Law

In property law, the term share refers in particular to co-ownership share (§ 1008 BGB). This describes the proportional participation in the ownership of a thing (e.g., fractional co-ownership):

• Fractional Ownership: Co-ownership consists of notional shares; each co-owner has rights in the entire object and not in a specific part.
• Rights of Disposal: Each co-owner can generally dispose of their own share individually (§ 747 BGB); the entire object may only be disposed of jointly (§ 744 para. 1 BGB).
• Liability and Administration: Liability and administration are based on the size of the share; resolutions typically require a majority according to the size of shares.

Share in Inheritance Law

In inheritance law, the share plays a central role in the division of the estate:

• Inheritance Share: Indicates the quota by which a co-heir participates in the estate (§ 2032 BGB).
• Community of Heirs: Initially, each co-heir is only involved in the entire estate as a whole, not in individual estate assets (joint ownership by the whole).
• Settlement: Only through the partition of the estate do the co-heirs become owners of individual assets in accordance with their inheritance shares.

Share in Tax Law

From a tax law perspective, the key question is whether, and to what extent, shares constitute sources of income, interests, or taxable events:

• Interests in Corporations: This, among other things, entails tax consequences relating to dividends, capital gains, and gifts – for example, under the partial income procedure or as part of capital gains tax.
• Entrepreneurial Partnership Interest: In the case of partnerships, the entrepreneurial partnership interest is decisive for income tax treatment (§ 15 para. 1 no. 2 EStG).
• Valuation: For tax purposes, the valuation of shares is often based on the fair market value (e.g., in the case of gifts, inheritance, or business cessation).

Legal Transactions and Transfer of Shares

Shares may be transferred, encumbered, or pledged in accordance with the respective legal form and statutory provisions:

• Formal Requirements: Transfers of GmbH membership interests require notarial certification (§ 15 para. 3 GmbHG); shares may be transferred informally, provided they are bearer shares (§ 68 AktG).
• Consent Requirements: Frequently, the assignment of partnership shares is subject to the approval of the company or the other partners (transfer restriction, so-called ‘Vinkulierung’).
• Register Entries: In corporations, especially the GmbH, a change of shareholder must be reported to the commercial register (§ 40 GmbHG).

Splitting, Consolidation, and Merger of Shares

As part of structural measures, such as capital measures or transformations, the share is newly determined:

• Share Split or Nominal Value Reduction: This results in existing shares being split, for example, to increase their marketability.
• Consolidation: Several shares are combined into a larger share.
• Merger: In the case of corporate mergers, shares may be transferred to another company; the Transformation Act contains special provisions for this (§§ 2 ff. UmwG).

Conclusion

The term share, in the legal sense, encompasses a wide range of forms and regulatory content. It has particular significance in corporate, inheritance, and property law. The legal structure as well as the rights and obligations associated with a share depend primarily on the specific legal form, statutory provisions, and contractual agreements. The transfer, inheritance, and encumbrance of shares are regularly subject to statutory form requirements and approval obligations. Accordingly, the share is a key concept for the legal allocation, administration, and transferability of assets and membership rights within the legal system.

Frequently Asked Questions

What legal provisions apply to the acquisition and transfer of shares in a corporation?

The acquisition and transfer of company shares, particularly in corporations such as a GmbH or AG, are subject to specific legal provisions in Germany. The main regulations are found in the Limited Liability Companies Act (GmbHG) for GmbHs and the Stock Corporation Act (AktG) for stock corporations. For GmbHs, the transfer of membership interests requires a notarial deed (§ 15 GmbHG). In addition, the articles of association may provide for further consent requirements or pre-emption rights for co-shareholders. For AGs, the transfer of shares is generally informal through agreement and delivery (in the case of bearer shares), or by endorsement and delivery (in the case of registered shares), unless the articles of association provide otherwise. Furthermore, share transfers may be subject to the Transformation Act (UmwG) as well as to tax considerations such as real estate transfer tax or speculation period. For special forms, such as the limited partnership, the provisions of the Commercial Code (HGB) apply.

What rights and obligations arise from owning a share?

Ownership of a company share is associated with various rights and obligations arising from the relevant articles of association and legal provisions. The key rights include in particular the right to vote in the shareholders’ meeting, the right to profit participation (dividend), and the right to access and inspect the company’s records. In addition, there is usually a right to receive a share of the liquidation proceeds in the event of the dissolution of the company. On the other hand, obligations include the payment of capital contributions according to the articles of association, any additional funding obligations, the duty of loyalty to the company, and, where applicable, non-competition clauses. In a limited partnership, for example, there is typically no additional funding obligation beyond the liability contribution unless this has been extended by law.

How are shares valued in the event of sale, inheritance, or gift?

The valuation of company shares is of particular relevance in legal contexts such as sales, inheritance, or gifts. It is generally based on the fair market value of the share, i.e., the value the share would fetch in a sale on the open market. In cases of inheritance or gift, this value is determined under the tax rules of the Valuation Act (BewG). For GmbH shares, a simplified earnings value method is often applied. Articles of association may include their own valuation provisions, such as a specific valuation metric or a previously agreed expert valuation process. The so-called settlement value is often subject to dispute, for example in the case of a shareholder leaving or in minority holdings.

What consent requirements can exist when transferring shares?

In addition to statutory requirements, the articles of association or bylaws may stipulate further consent requirements for a share transfer. Commonly, GmbHs have so-called transfer restriction clauses (‘Vinkulierungsklauseln’) which tie the transfer of shares to the approval of the shareholders’ meeting or individual shareholders. In stock corporations, the articles of association may require the company’s consent for the transfer of registered shares (§ 68 AktG). Furthermore, as a means of protecting minority shareholders, pre-emption or prior acquisition rights may be granted. If a shareholder fails to comply with these consent, notification obligations, or an existing transfer prohibition, the transfer is generally pending ineffective until approval is granted afterward.

How are voting rights and profit entitlements determined for different shares?

The voting right and profit entitlement of a company share are generally based on the nominal share of the company’s registered or share capital. Articles of association may make different arrangements, such as issuing preference shares (with or without voting rights, with preferential dividends, etc.). In the case of no-par-value shares, each share carries one vote; for par-value shares, the voting right is based on the par value. The entitlement to profit distributions is measured against the share in equity capital, unless otherwise stipulated in the articles of association or bylaws. Special regulations exist for cooperatives, silent partnerships, and limited partnerships, where the articles of association may provide for deviations regarding voting rights and profit participation.

What legal considerations apply in the event of insolvency of a shareholder?

If insolvency proceedings are opened over the assets of a shareholder, their share generally becomes part of the insolvency estate. The insolvency administrator then assumes the rights and obligations of the shareholder, but is also subject to the corporate restrictions, such as approval requirements for share transfers. Many articles of association contain clauses granting a special right of termination or a redemption right in the event of insolvency. However, the effectiveness of such clauses is limited by insolvency law and creditor protection. In the case of redemption or transfer of the share, the equivalent value must be paid into the insolvency estate.

How are shares treated for tax purposes upon acquisition or sale?

The tax treatment of shares is complex and case-specific. Acquisition or sale of shares may trigger various taxes, including income tax, corporate tax, gift and inheritance tax, as well as, if applicable, real estate transfer tax for companies holding real estate. For natural persons, upon sale of shares, gains are generally subject to capital gains tax (§ 20 EStG), unless a substantial participation exists or the seller is acting within a business context – in these cases, the partial income or business disposal rules (§ 17 EStG) apply. For corporations selling shares in other corporations, the so-called participation exemption (Schachtelprivileg) regularly applies. Specialist advice should be sought for the precise tax treatment, especially in cross-border situations.