4.4.4.1 Introduction

The UmwG distinguishes three different types of demergers, namely the split-up demerger (Aufspaltung) the split-off demerger (Abspaltung) and the spin-off demerger (Ausgliederung). By means of a demerger, assets and liabilities are transferred to one or more acquiring entities onder universal title.1 An acquiring entity can be an already existing entity or a newly set-up entity. If a new entity is set up, in addition to all demerger steps, also all incorporation steps have to be taken. For clarity reasons, the three types of demergers are outlined below.

In the case of a split-up demerger, the demerging company ceases to exist, without being liquidated.2 In the case of a split-off demerger or spin-off demerger, the demerging company continues to exist, but splits off or spins off a part of its assets. A spin-off demerger is almost similar to a split-off demerger. However in the case of a spin-off demerger the shares in the acquiring company are acquired by the demerging company, whereas in the case of a split-off demerger the shares are acquired by the shareholders of the demerging company.

Only in the situation of a split-up demerger or a split-off demerger, an appraisal right is conferred on the shareholder of the acquiring entities. Therefore, I will not focus on the spin-off demerger below. A demerging GmbH can conclude a split-up demerger or split-off demerger with another GmbH, an AG, a KGaA, an OHG, a KG, a PartG, an e.V., an e.G., auditing association, or a VvaG.3

The steps to be taken in a legal demerger are quite similar to those for a legal merger. The representative bodies of the demerging entities must draw up a draft demerger contract.4 Moreover, the representative bodies must draft a detailed written demerger report.5Inter alia, this demerger report has to clarify and explain the amount of the cash compensation with respect to the appraisal right.6

The draft demerger contract and the demerger report must be sent to the shareholders (or partners) of the demerging entities at the latest when convening the general meeting in which the approval of the demerger contract will be dealt with.7 Within one week after receipt of the draft demerger contract and the demerger report,8a shareholder (or partner) may request that the draft demerger contract will be investigated by one or more independent auditors appointed by court.9 The auditors have to prepare an auditors' report that inter alia has to indicate whether the exchange ratio and possible additional payment in cash is appropriate.10

Subsequently, it is up to the general meeting of the demerging entities to approve the demerger contract. A resolution to approve the merger contract cannot be resolved by means of a resolution outside of a meeting of shareholders (or partners).11 The resolution requires a three-quarters majority of the votes cast.12 Upon approval of the demerger contract, the demerger contract becomes valid. The resolution approving the merger contract has to be included in a notarial deed.13 The draft demerger contract has to be annexed to the resolution of the general meeting.

After the general meeting has approved the draft demerger contract, the representative bodies of the demerging entities can conclude the demerger contract. Similar to the resolution of the general meeting, the demerger contract has to be included in a notarial deed.14 Finally, the demerger enters into effect when the demerger is registered with the trade register of the seat of the demerging GmbH.15