Key aspects of german business law

Key Aspects of German Business Law

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Michael Wendler ´ Bernd Tremml
Bernard Buecker (Eds.)

Key Aspects
of German Business Law
A Practical Manual
Third Edition

12
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Michael Wendler
Wendler Tremml Rechtsanwålte
Mærsenbroicher Weg 200
40470 Dçsseldorf
Germany


Bernard Buecker
1220 Tower Life Building
310 S. St. Mary's
San Antonio, Texas 78205
USA

Dr. jur. Bernd Tremml, M. C. J.

Wendler Tremml Rechtsanwålte
Martiusstraûe 5/II
80802 Mçnchen
Germany


The information contained herein is general information and is not
intended to provide legal advide. Should you require legal advice, you
should seek the assistance of counsel.
Copyright ° 2006 Michael Wendler, Bernd Tremml, Bernard Buecker

ISBN-10 3-540-28422-2 Springer Berlin Heidelberg New York
ISBN-13 978-3-540-28422-2 Springer Berlin Heidelberg New York
ISBN 3-540-43411-9 2. Auflage Springer Berlin Heidelberg New York
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Library of Congress Control Number: 2005938059
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Printed in Germany
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Preface

This book presents a clear and precise overview of the key aspects of German
business law. It was written by attorneys involved in the daily practice of business
law in Germany and is aimed at people who wish to orient themselves quickly
with the German legal system and the manner in which it impacts business
purchases, establishment, operations and liquidations.
The first section of the book is devoted to an explanation of the major issues to
be considered in acquiring or establishing a business in Germany. The second
section focuses on areas of commercial law that are important for an operating
business. The following sections deal with labor law as an independent part of
German business law and with computer law. Furthermore, procedural law and
European law are addressed. Finally, the last two sections of the book are devoted
to an overview over the German tax law, which has an enormous impact on
business decisions, and IP law. In all sections special attention has been paid to
highlighting and explaining the differences between the German legal system and
that of the United States. Nevertheless, the intention is to provide information that
will prove valuable to all foreigners, particularly business men and women and
lawyers advising clients with an interest in doing business in Germany.
Although it is the object of this book to provide readers with a general
orientation and the foundation for making informed decisions concerning business
transactions in Germany, it cannot possibly function as a substitute for casespecific professional advice and by no means purports to do so. Those readers who
wish to follow up on any decisions they may have formed on the basis of the

material presented here are well advised to seek the guidance of qualified
attorneys and tax advisors before entering into any binding obligations.
This holds particularly true in light of the fact that all information here is based
on the laws that were in effect in the Federal Republic of Germany on the first of
November 2005.

Michael Wendler
Attorney at Law
Dusseldorf, Germany

Bernd Tremml
Attorney at Law
Munich, Germany

www.law-wt.de

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Bernard Ben Buecker
Attorney at Law
San Antonio, Texas


Table of contents

Introduction ...........................................................................................................1
Overview of the German legal system and its role in light of Germany’s
membership in the European Communities.............................................................3
Bernd Tremml
Part I How to establish or acquire a business in Germany................................7

Recognized forms of business organizations...........................................................9
Bernd Tremml and Bernard Buecker
Establishment of a company or branch office .......................................................35
Thomas Fischl
The Acquisition of closely held Companies..........................................................41
Bernd Tremml
Valuation of business enterprises ..........................................................................57
Bernd Tremml
“Pseudo-foreign companies” in Germany - The Centros, Überseering
and Inspire Art decisions of the European Court of Justice...................................63
Kai F. Sturmfels
Part II Commercial law ......................................................................................69
The law of contracts ..............................................................................................71
Michael Luber
General terms of business (AGBs) ........................................................................85
Andreas Stadler and Michael Luber
Torts ......................................................................................................................97
Tobias Tremml
Product liability under German and European law..............................................111
Ralf Grote
Real-estate property law Germany ......................................................................121
Christian R. Wolf

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VIII

Table of contents

The law of bankruptcy and security interests ...................................................... 131
Reinhard Nacke
Unfair competition .............................................................................................. 141
Henrik Schroeder
The law of public procurement ........................................................................... 149
Norman Müller
Distribution agreements ...................................................................................... 165
Michael Bihler
Private public partnerships .................................................................................. 179
Richard Pietrzyk and Kai F. Sturmfels
Copyright............................................................................................................. 187
Carsten Gerlach
Part III Labor law ............................................................................................. 203
Aspects of German labor law .............................................................................. 205
Wolf D. Schenk
Residence and work permit ................................................................................. 219
Michael Wendler and Sebastian Maiß
Essentials of social security law in the Federal Republic of Germany................ 231
Richard Pietrzyk and Sebastian Maiß
Part IV Computer law ...................................................................................... 235
Computer law ...................................................................................................... 237
Michael Karger
Electronic commerce........................................................................................... 245
Raimund Walch
Protection of internet domain names ................................................................... 251
Wolfgang C. Leonti and Henrik Schroeder
Part V Procedural law ...................................................................................... 257
Enforcement of rights and claims through the courts and arbitration
tribunals/The German attorney fees .................................................................... 259
Reinhard Nacke

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Table of contents

IX

Principles of the legal regulation of attorney fees ...............................................267
Stefan Sandrock
Notaries in Germany ...........................................................................................277
Christian R. Wolf
Part VI European law .......................................................................................287
Institutions of the European Community.............................................................289
Bernd Tremml
Antitrust law in the European community...........................................................301
Bernd Tremml and Michael Luber
Part VII Tax law................................................................................................311
German tax law ...................................................................................................313
Inge Badura
Part VIII IP........................................................................................................327
The PCT and the enforcement of patents in Europe............................................329
Kay Rupprecht
Trademark protection in Germany and Europe ...................................................377
Eugen Popp
List of authors....................................................................................................437

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Glossary of German terms and abbreviations

A
Abgabenordnung (AO)

Tax Code

Abstraktionsprinzip

abstraction principle

Abtretung

assignment

Allgemeine Geschäftsbedingungen
(AGB)

General Terms of Business

Amtsblatt der Europäischen
Union

Official Journal of the European Union

Amtsgericht

Court of Small Claims; municipal court

Änderungskündigung

a termination of a contract with the reserved
right to renew it under altered conditions

Änderungsvertrag

contract of amendment

Angestellte

employees; salary earners; “white collar”
workers

Aktiengesellschaft (AG)

stock corporation

Aktiengesetz (AktG)

Corporation Act

Aktionär

stockholder (of a stock corporation)

Aktie

a share of stock; stock certificate

Arbeiter

laborers; “blue collar” workers

Arbeitserlaubnis

work permit

Arbeitserlaubnisverordnung
(AEVO)

Work Permit Regulations

Arbeitsförderungsgesetz (AFG)

Work Promotion Act

Arbeitsgerichtsgesetz (ArbGG)

Code of Labor Procedure

Arbeitslosenversicherung

occupational incapacity insurance

Arrest

Freeze Order

Arzneimittelgesetz
(ArzneimittelG)

Pharmaceutical Products Act

Aufenthaltserlaubnis

temporary residence permit

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XII

Glossary of German terms and abbreviations

Aufenthaltsgesetz

Federal Residence Act

Aufsichtsrat

supervisory board of a company or
corporation

Ausländer

foreigner; alien

Ausländergesetz (AuslG)

Aliens Act

Ausländeramt

Aliens Office

Außenministerium

Department of Foreign Affairs

Außenwirtschaftsgesetz

Federal External Trade Act

B
Begehungsgefahr

danger of commission of an offense

Bergamt

mining authorities

Berufsgenossenschaft

administrative authorities in charge of providing social insurance due to occupational
accidents

Berufungsverfahren

appellate proceedings (to the next higher

court)

Beschäftigungsverordnung
(BeschV)

Employment Regulation Order

Betriebsaufgabe

abandonment of a business enterprise

Betriebsrat

works council

Betriebsstätte

operational location (dependant branch
offiche)

Betriebsverfassungsgesetz
(BetrVG)

Employee Representation Law

Bezirk

district

BGB-Gesellschaft

see Gesellschaft des bürgerlichen Rechts

BGB-InfoV

Federal Ordinance on the Duty to Provide
Information to the Consumer

Bilanzrichtliniengesetz

commercial balance sheet

Bilanzrichtliniengesetz

Accounting Directives Act

Bundesagentur für Arbeit

Federal Employment Office

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Glossary of German terms and abbreviations

Bundesarbeitsgericht

Federal Labor Court

Bundesministerium für Arbeit und

Soziale Sicherung

Federal Department of Labor and Social
Order

Bundesfinanzhof

Federal Finance Court

Bundesgerichtshof (BGH)

Federal Supreme Court

Bundeshaushaltsordnung

Federal Budget Code

Bundesimmissionsschutzgesetz
(BImSchG)

Federal Emission Act

Bundeskartellamt

Federal Cartel Authority

Bundesrechtsanwaltsordnung
(BRAO)

German Bar Act

Bundesrechtsanwaltsgebührenordnung (BRAGO)

Attorneys’ Fee Ordinance

Bundespatentgericht

Federal Patent Court

Bürgerliches Gesetzbuch (BGB)

Civil Code

Bürge

guarantor

Bürgschaft

surety or personal guarantee

Bundesverfassungsgericht

Federal Constitutional Court

XIII

D
Darlehen

loan intented for consumption (normally a
monetary loan)

Delikt

tort, (compensatory) unlawful act

Deutsche Angestelltengewerkschaft White Collar Union
Deutscher Beamtenbund

Civil Servants’ Union

Deutsche Bundesbank

Federal Reseve Bank of Germany

Deutscher Gewerkschaftsbund
(DGB)

German Association of Industrial Labor
Unions

Dienstvertrag

contract for services (without any promise of
specific result, as opposed to a Werkvertrag

dinglicher Vertrag

real contract

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XIV

Glossary of German terms and abbreviations

dispositives Gesetzesrecht

non-mandatory statutory law

Duldung

residence toleration

Durchführungsverordnung zum
Ausländergesetz (DVAuslG)

Implementation Ordinance of the Aliens Act

E
Einfuhrumsatzsteuer

import turnover tax

Einführungsgesetz zum BGB
(EGBGB)

Introductory Act to the Civil Code

Einigungsgebühr

settlement fee

Einkommenssteuer

personal income tax

Einkommenssteuergesetz

Income Tax Act

einstweilige Verfügung

(preventive) injunction

Einzelunternehmen

sole proprietorship

Entscheidungen des Bundesgericht- Decisions of the Federal Court for Civil
shofs in Zivilsachen (BGHZ)
Cases
Entsendung

posting

Erbbaurecht

Inheritable Building Right

Erbrecht

Inheritance law

Erbschaftssteuer

Inheritance and gift tax

Erfolgshonorar

contigent fee

Erstbegehungsgefahr

danger of first-time commission of an offense

Europäische Gesellschaft

societas europaee (SE), European stock corporation

Europäisches Patentamt

European Patent Office

Europäische Wirtschaftliche Interessenvereinigung (EWIV)

Business for multinational enterprises comparable to the general partnership

Europäischer Gerichtshof (EuGH)

European Court of Justice (ECJ)

Europäischer Wirtschaftsraum
(EWR)

European Market


Glossary of German terms and abbreviations

XV

F
Fernabsatzgesetz

Act on Distant Sale Contracts

Fernstraßenbaufinanzierungsgesetz

Private Highway Construction Financing
Act

Finanzamt

tax office; tax authorities

Firma

legally: corporate name

Freizügigkeitsgesetz/EU

Freedom of Movement Act/EU

G
Gebührensatz

rate of charges/fee rate

Gebührenvereinbarung

fee agreement

Gefährdungshaftung

no-fault tort liability

Gegenstandswert

value of the subject matter

Gemeinde

community or municipality

Gentechnikgesetz (GenTG)

Genetic Technology Act

Geräte- und Produktsicherheitsgesetz (GPSG)

Equiptment and Products Safety Act

Gerichtskostengesetz (GKG)

Court Costs Act

Gerichtsvollzieher

sheriff’s officer (official debt collector)

Gesamtbetriebsrat

combined or overall works council (of more
than one business unit)

Gesamthandsvermögen

joint ownership (of the property of a partnership)

Geschäftsbesorgungsvertrag

contract for business services

Geschäftsführung ohne Auftrag

settlement of a third partyßs legal obligations without a contract

Geschäftsgebühr

fee for out-of-court work

Gesellschaft des bürgerlichen
Rechts (GbR)

(also: BGB-Gesellschaft) civil-law partnership

Gesellschaft mit beschränkter
Haftung (GmbH)

limited liability company


XVI

Glossary of German terms and abbreviations

Gesellschafter

shareholder (in a limited liability company)

Gesellschafterversammlung

shareholder meeting (limited liability company)

Gesellschaftsvertrag

articles of incorporation

Gesetz

law or act

Gesetz gegen Werbung auf dem
Gebiet des Heilwesens

Law against Advertising in the Health-Care
Sector

Gesetz gegen den unlauteren
Wettbewerb (UWG)

Unfair Competition Act

Gesetz gegen Wettbewerbsbeschränkungen (GWB)

Act Prohibiting Restrictions of Competition

Gesetz über den Vertrieb
ausländischer Investmentanteile
(AuslInvestmG

Law on Foreign Investment Shares

Gesetz zur Regelung des Rechts der Law for the Regulation of General Business
Allgemeinen Geschäftsbedingungen Terms
(AGBG)
Gewerbeaufsichtsamt/

Gewerbeamt

Trade Supervision Office

Gewerbeordnung (GewO)

Trade Supervision Law

Gewerbesteuer

trade tax

Gläubiger

creditor

Gläubigerversammlung

creditor´s meeting (in an insolvency proceeding)

Gläubigerverzug

delay of the creditor

GmbH & Co KG

business organizational form which is a
combination of a limited liability company
and a limited partnership

GmbH-Gesetz (GmbHG)

GmbH Act (law governing limited
liability companies)

Gründungstheorie

incorporation theory (of business enterprises)

Grundbuch

land register at the local court

Grunderwerbssteuer

real estate transfer tax


Glossary of German terms and abbreviations

Grundpfandrecht

Real-estate mortgages

Grundsätze ordnungsgemässer
Buchführung

principles of proper accounting

Grundsteuer

real estate/property tax

XVII

H
Haftpflichtgesetz (HaftpflG)

Liability Act

Haftungsausschluss

total exemption from liability

Haftungsbeschränkung

limitation of liability

Handelsgesetzbuch (HGB)

Commercial Code

Handelsgewerbe

commercial trade enterprise (owned and
operated by individuals who are merchants
by profession). Governed by the HGB.

Handelsregister

commercial register

Handlungsvollmacht (see also: Pro- full power of attorney (to represent an enterkura)
prise)
Handwerksordnung

Handicrafts Code

Hauptfürsorgestelle

Head Office for Public Assistance

Hauptniederlassung

company headquarters, main or head office

Hauptversammlung

stockholder meeting (stock corporation)

I
Industriegewerkschaft (IG)

industrial trade union

Industrie- und Handelskammer
(IHK)

Chamber of Industry and Commerce

Informations- und Kommunikationsdienstegesetz (IuKDG)

Federal Information and Communication
Service Act

Inhaberaktie

bearer stock certificate

Insolvenzordnung

Federal Insolvency Act

Insolvenzplan

insolvency plan

Insolvenzverwalter

insolvency administrator


XVIII

Glossary of German terms and abbreviations

Interessenausgleich

compromise on issues of disagreement involving conflicting interests (for example, of
employers and employees)

Investmentgesetz

Investment Act

K
Kapitalerhaltungsregeln

rules on capital maintenance

Kapitalertragssteuer

capital-yield/Withholding tax.

Kapitalspiegelmethode

literally: capital-mirroring method. The
reflection of the actual net value of a partnership in its fiscal balance (as opposed to
using the purchase price as the means of
measure).

Kaufmann

merchant

Kausalitätsvermutung

assumption of causation in regard to tort
liability

Kommanditgesellschaft (KG)

limited partnership (for merchants)

Kommanditgesellschaft auf Aktien
(KGaA)

limited partnership combined with stock

Kommanditist

limited partner (in a Kommanditgesellschaft)

Komplementär

general partner; personally liable partner
(in a Kommanditgesellschaft)

Konkurs

bankruptcy

Konkursordnung (KO)

Bankruptcy Act

Kontrahierungszwang

obligation to enter into contracts

Kostenordnung (KostO)

Cost Regulation (for notary fees)

Kostenrechtsmodernisierungsgesetz Legal Costs Modification Act
(KostRMoG)
Körperschaftssteuer

corporate income tax

Krankenversicherung

private health care insurance

Kreditwesengesetz (KWG)

Lending Business Act

Kündigungsschutzgesetz (KSchG)

Termination Protection Act


Glossary of German terms and abbreviations

XIX

L
Ladenschlussgesetz

Store Closing Hours Act

Laienrichter

lay judges

Landgericht

Regional Court

Landkreis

county (approx. equivalent)

Leasingvertrag

leasing contract

Lebensmittel- und Bedarfsgegenständegesetz

Food and Essential Commodities Law

Leihe

gratuitous loan

Leitende Angestellte

senior executives; managerial employees
(with the ability to hire and fire); literally:

leading employees

Lohnsteuer

wage tax

M
Mahnverfahren

summary proceeding for debt collection

Markengesetz

Trademark Act

Mehrwertsteuer

(MwSt) (also: Umsatzsteuer) value-added
tax (VAT)

Mehrwertsteuergesetz (MwStG)

Value-Added Tax Act

Miete

rent

Minderkaufmann

small merchant

Mitbestimmungsgesetz
(MitbestG)

Co-Determination Law enabling employee
representation in a company’s management

Montan-Mitbestimmungsgesetz

Coal-and-Steel Co-Determination Law

Mutterschutzgesetz (MuSchG)

Maternity Protection Act


XX

Glossary of German terms and abbreviations

N
Namensaktie

registered stock

Niederlassung

branch office

Niederlassungserlaubnis

permanent settlement permit

Niederlassungsfreiheit

right of establishement of companies

Nießbrauch

usufruct

Notar

notary

O
Oberfinanzdirektion

superior finance directorate

Oberlandesgericht

court of appeals

Offene Handelsgesellschaft (OHG)

general partnership (for merchants)

ÖPP-Beschleunigungsgesetz

Private-Pubilc-Partnerships Acceleration
Act

P
Pacht

leasing (of an establishment or a real
property)

Patentanwalt

Patent Attorney

Pariser Verbandsübereinkunft

Paris Convention

Partnerschaftsgesellschaft

Professional Partnership

Personengesellschaft

partnership

Pflegeversicherung

long-term care insurance

Preisangabenverordnung (PAngV)

Price Indication Regulation

Produkthaftungsgesetz

Product Liability Act

Prokura

full power of attorney enabling company
representation by an employee


Glossary of German terms and abbreviations

XXI

R
Rahmengebühr

lum-sum fee with an upper and lower limit

Recht der Leistungsstörungen

law of irregularities in performance

Rechtsanwalt

attorney at law

Rechtsanwaltsvergütungsgesetz
(RVG)

Attorney Remuneration Act

Rechtspersönlichkeit

legal personality or nature (of a business
venture)

Rentenversicherung

retirement pension insurance

Repräsentanz

representative organization

Restschuldbefreiung

discharge of remaining debt (in an insolvency proceeding)

Revisionsverfahren

appellate proceedings (to the highest court
for judicial grounds)

Richterrecht

judicial law

S
Sachverständiger

public-appointed experts

Satzung

articles of incorporation of a stock corporation

Schachtelbeteiligung

intercorporate participation; mutual stockholding

Scheinauslandsgesellschaft

pseudo-foreign company

Schuldner

debtor

Schuldnerverzug

delay of the debtor

Selbstbelieferung

the ability to procure goods oneself

SE-VO

European Stock Corporation (SE) Implementation Regulation (VO)

Sitztheorie

real seat theory (of business enterprises)

Solidaritätszuschlag

solidarity contribution/surcharge

Sozialgesetzbuch (SGB)

Federal Public Welfare Act


XXII

Glossary of German terms and abbreviations

Sozialversicherung

social insurance

Sozialversicherungspflicht

compulsory social insurance

Stammaktie

common stock

Stammkapital

nominal capital of a business enterprise

Steuer

tax

Steuerberater

tax advisor

Stille Gesellschaft

silent or dormant partnership

Stuttgarter Verfahren

Stuttgart Procedure (a way of assessing the
value of a business, which was once the
standard procedure in Germany but has recently fallen out of use due to its inaccuracy
pitfalls)

T
Terminsgebühr

appointment fee

U
Überschuldung

excessive indebtedness

Umsatzsteuer

value-added tax (VAT). Literally: sales tax.

Umwandlung

transformation of a business enterprise from
one organizational form to another

Umwelthaftungsgesetz (UmweltHG)

Environmental Liability Act

Unbedenklichkeitsbescheinigung

clearance certificate

unerlaubte Bereicherung

undue benefit

unerlaubte Handlung

unlawful conduct

Unfallversicherung

accident insurance

Unterlassungsklagengesetz

law enabling the filing of suits for discontinuance of using unlawful general terms of
business

Urhebergesetz (UrhG)

Copyright Act


Glossary of German terms and abbreviations

XXIII

V
vereidigter Buchprüfer

certified bookkeeper

Verfahrensgebühr

litigation fee

Verfassung

Constitution

Vergabeverordnung (VgV)

Regulation on the Award of Public
Contracts

Vergütungsverzeichnis (VV)

Catalogue of Fees for Legal Services

Vermögenssteuer

Wealth tax

Vermögensübertragung

transfer of corporate assets and liabilities
into public ownership

Verschmelzung

corporate merger

Verschmelzung durch Aufnahme

take over; a merger with at least one other
company

Verschmelzung durch Neubildung

consolidation of one corporation with
another for the purpose of forming an
entirely new corporation

Versicherungsaufsichtsgesetz
(VAG)

Insurance Supervision Act

Versicherungsvertragsgesetz

Insurance Act

Vertrags- und Vergabeordnung
für Bauleistungen (VOB)

regulation for standard terms for contracting
construction work

Verwaltungssitz eines
Unternehmens

principle place of business

Vorschuß

retainer

Vorstand

board of management

Vorzugsaktien

preferred stock

W/X/Y/Z
Wasserhaushaltsgesetz (WHG)

Water Conservation Act

Werkvertrag

contract for work and labor promising a
specific result

Wertgebühr

fee based on case value

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XXIV

Glossary of German terms and abbreviations

Wettbewerbshandlung

competitive act

Wettbewerbsrecht

Law on competition

Widerrufsrecht

revocation right

Wiederholungsgefahr

danger of repetition of an offense

Wirtschaftsprüfer

certified public accountant (CPA)

Wohnungseigentum

condominium

Zivilprozessordnung (ZPO)

Code of Civil Procedure

Zug-um-Zug-Leistung

mutual simultaneous performance

Zwangsvertrag

compulsory contract

Zweigniederlassung

independent branch office


Introduction


Overview of the German legal system and its role
in light of Germany’s membership in the
European Communities
Bernd Tremml
Foreigners interested in starting a business or investing in German companies are
generally attracted by the prospect of expanding into other European markets.
Germany’s membership in the European Communities (EC) is a beneficial factor
when deciding whether to invest in Germany, especially, because of the recent
broadening of the EC. However, there also have been concerns about the
implications of the dual European and German legal systems. Investors may
wonder whether a German venture requires familiarization with two, oftenconflicting bodies of law, or if businesses in Germany frequently have to deal with
administrative authorities at both the national and international level with regard
to the same transaction. The answer to such questions is “no”. Given the structure
of the EC and particularly the manner in which EC institutions pass laws, an
investment in Germany does not place investors in a legal quagmire.
As a fundamental principal, the EC and its institutions possess the power to
pass legislation in only those areas in which an express delegation of national

authority exists. For this reason alone, large numbers of regulatory areas remain
outside of the EC’s control. For example, most civil, criminal, and administrative
laws remain the sole province of the Member States. In general, the EC’s authority
is limited to those regulatory areas, which are essential to the establishment of a
common market. Furthermore, the laws that have been passed by the EC tended to
take the form of “directives.” As will be explained in detail in the Chapter entitled
“Institutions of the EC”, directives do not, as a general principal, take effect until
after they have been incorporated into national law. This special characteristic of
directives is intended to give the Member States the flexibility of choosing the
manner in which a directive becomes law in their own country. Accordingly,
Member States can choose a directive that is most compatible with their particular
legal system. For individuals and business enterprises alike, it is often not easy to
recognize whether or not a national law is based on a European directive. In sum,
EC directives do not constitute an overlay of regulations which investors must
familiarize themselves with, but rather comprise an integral part of a Member
State’s national law.
Much the same applies to those areas in which the EC has enacted a type of
legislation known as a “regulation”. A regulation does not require incorporation
into national law in order to be effective, but as a rule is implemented by the
national authorities. For example, if a German administrative authority applies an
EU regulation in its dealings with German residents and they feel an error has
occurred, action can be taken only against the national authority and, in doing so,


4 Bernd Tremml

such action usually operates solely within the German administrative or judicial
systems.
For these reasons, the direct effect of EC law on German residents or
businesses is relatively small. However, that is not to say, that the EC’s influence

should be downplayed. The numerous areas of law impacting the establishment
and operation of businesses in Germany are often reflective of EC law.
Nevertheless, for the most part EC laws have been incorporated into national law
and are subject to Germany’s legal system. It is within this system that foreign
investors will predominantly conduct their business transactions.
For the most part, Germany’s legal system is stable and smooth working. It is
based on the Continental European legal tradition as opposed to Anglo-Saxon law
upon which the U.S. legal system is based. The primary difference between the
two systems is that the Continental European legal system is based on “code law’
as opposed to “case law”. In accordance with the Continental tradition, the
German legal system consists essentially of written laws. Nearly all potential
regulatory areas are the subject of formal and detailed codification. Many of
Germany’s legal codes are the final product of decades of careful deliberation and
refinement. This offers foreign entrepreneurs and investors considerable
advantages. German law is so clearly structured and transparent that contract
terms can be standardized to a very large extent. All the standard practices and
regulations governing a business’s conduct are codified in the German Civil Code
(BGB, or Bürgerliches Gesetzbuch). Therefore, if no special terms are agreed upon
between the parties, the terms and provisions of the BGB automatically apply. In
other words, in the U.S., business contracts require the clear and detailed
statement of all the terms the parties agree to. Contracts in Germany tend to be
considerably shorter, which lowers their drafting costs accordingly.
German law has undergone numerous reforms in recent years, which, for the
most part, have had a very positive impact on business activities, even though
there have been some less favorable developments. The Commercial Code was
liberalized by broadening the definition of “merchant”, thus, making it easier for
people to get started in business. Additionally, the Handcrafts Code (Handwerksordnung) was modified to make it easier to demonstrate professional qualification.
Business activities in the domestic market were also facilitated through a
considerable loosening of the laws regulating unfair trade.
On the other hand, disadvantageous are the new regulations in contract and

civil process law. Contract law now ensures an extraordinary high degree of
consumer protection at the expense of merchants. Furthermore, the extent and
complexity of the reforms have led to a certain degree of legal confusion. The
changes made in civil process law make it more difficult to acquire access to
appellate courts, which very often necessitates cost-and-effort intensive
proceedings right from the start.
As in the U.S., it is the task of the courts to interpret the written law. Because a
number of German codes are more than a hundred years old, the case law
pertaining to certain individual provisions of them is very extensive. The courts
have the primary task of interpreting the statutes, regulations, and Constitution,
and they also play a role in filling in the gaps of laws where necessary. However,


Overview of the German legal system 5

the reliance on precedence plays a much smaller role in the German legal system
than in American jurisprudence, since German laws are explicitly detailed and
codified.
The sharp differentiation between the various areas of law in Germany and the
separate codification of them have led to a strict division of subject-matter
jurisdiction among the different types of courts. As in the U.S., there are separate
civil courts responsible for deciding legal disputes among private persons, and
there are criminal courts for criminal prosecutions brought by the State against
individuals. In contrast to the U.S. legal system, there are also separate court
systems for administrative matters or legal disputes involving measures taken by
public authorities against residents and for labor-law and financial matters.
Germany has a special body of law governing taxation and a court system
specialized in trying tax cases as well. It should also be noted that, in contrast to
the U.S. judicial system, there is no duality between state and federal courts. In
Germany, their areas of jurisdiction are clearly kept separate. Each of the various

court systems has its own supreme court. The Constitutional Court is the final
authority.
The judges who serve on the courts are judges by profession and are specialized
in one type of law. They do not rotate from one type of court to another as U.S.
judges do, but generally serve on only one type of court throughout their careers.
They are not elected but rather appointed by the government of the particular state
of Germany where the court is located. Germany does not make use of the jury
process. However, in certain cases the judges are assisted in making their
decisions by common citizens who do not necessarily have a legal background of
any kind (Laienrichter/lay judge) and who are chosen to serve on the court for a
limited time period.
Regardless of which type of court is handling a particular dispute, the parties’
trial preparation consists primarily in the drafting and presentation of legal briefs
in which evidence is presented and the issues in dispute are argued. In doing so,
the parties rely on the court’s special procedural rules. Each type of court has its
own rules, such as determining case procedure, the kind of evidence it will admit,
etc. The courts make extensive use of independent public-appointed experts
(Sachverständiger), whose professional input almost always influences the ruling
to a very large extent and often determines the outcome of a case. Due in part to
the judicial system’s reliance on the parties’ briefs, the reports of independent
experts and other written submissions, the trial itself (in particular the in-court
presentation of live testimony and other evidence) takes considerably less time
and involves less costs than U.S. court proceedings. This will be discussed
extensively in Chapter “Enforcement of Rights and Claims”. With the exception
of criminal cases, most trials last no longer than one or two days.
An overview of Germany’s legal system would not be complete without a few
comments about the governmental administrative apparatus. The Federal Republic
of Germany is, as its name expresses, a federal state. That means that legislative
powers are divided between the federal government and each of the country’s
sixteen states. The most important areas of law are the exclusive domain of the

federal government. However, because individual states of Germany are generally