Purchasing a Shelf Company After the GmbH Reform: Problems and Practice

GERMAN M&A AND PRIVATE EQUITY NEWS - 4TH QUARTER 2010

So-called shelf companies are frequently used in connection with various corporate transactions. These shelf companies are typically incorporated by commercial service providers but are not initially involved in any entrepreneurial activities. Participants in a transaction, instead of newly establishing a company, may purchase all of the shares in a dormant shelf company from the service provider. Further, the sale and use of a company that had formerly been operative but has ceased to do business (a so-called shell company) in lieu of liquidation are of practical relevance. Acquiring a shelf or shell company is often faster than incorporating a company but also involves certain risks. In case a shell company is used, there is a particular risk that the purchaser of the shares will be responsible for any outstanding capital contributions that should have been paid in by its predecessor in title. In addition, there