Recognition of U.S. Companies in Germany

On January 29, 2003, the German Supreme Court (Bundesgerichtshof, Docket Nr. VIII ZR 155/02) reached an important decision concerning the recognition of American companies in Germany: Companies that have been validly formed and exist in the United States are recognized as legal entities without the requirement of a formation under German laws to ensure their juridical status. In other words, companies established in the United States retain their legal capacities in the same way as companies formed under German law, regardless of where the headquarters are situated. The basis for the decision is the Treaty of Friendship, Commerce and Navigation between the United States of America and the Federal Republic of Germany signed on October 29, 1954, 7 U.S.T. 1839.

The controversy which led to the holding was a suit brought by an American corporation in a German court. The plaintiff claimed to be a validly formed U.S. corporation and alleged to be entitled to the purchase prize from the sale of a share in a German company. The defendant, however, asserted that the plaintiff had his headquarters in Germany, was not formed under German law and therefore lacked the status as a legal entity, specifically the capacity to sue and to be a party in court.

The Court stated that, pursuant to German international corporate law in general, a company’s legal status is determined by the law of the state where the company actually has its headquarters. That means that even though a company is validly established in its state of incorporation, if it subsequently moves the headquarters from that state to Germany, it will not be considered a legal entity unless it is constituted there. As a result, the company will have to satisfy the formation requirements set forth by German law to ensure its recognition in Germany. However, the Court further held that deviations from this general rule by means of a treaty are possible. In this case, the Treaty of Friendship, Commerce and Navigation between the United States of America and the Federal Republic of Germany, signed on October 29, 1954, was applicable. Pursuant to its provisions, in particular art. XXV para.5, a company constituted and existing under the laws of the United States is afforded continuous juridical status in Germany regardless of the location of the headquarters.

In addition, the Court clarified that the laws of the state of incorporation also determine if the company can act as a legal entity in the other state. With regard to this capacity, the treaty refers to the principles of national treatment* and most favored nation treatment**, which have to be accorded to any company incorporated in the territory of a party. As enumerated in the treaty, these principles cover in particular property and real estate in the territory of the other party, the right to sell or otherwise transfer property of any kind, the right of access to courts…