I. Succession in shareholder positions of commercial partnerships

The regulation of legal succession to the position of shareholder of a general partnership [Offene Handelsgesellschaft – OHG] or a limited partnership [Kommanditgesellschaft – KG] is of particular importance for family businesses. If a personally liable shareholder of an OHG or a KG resigns during his or her lifetime, e.g. due to termination of the company, or death, the law generally provides that the company is to be continued without the resigning shareholder. The shareholder (or his/her heirs) is entitled (only) to compensation from the company.
Section 177 German Commercial Code [Handelsgesetzbuch – HGB] provides for a special provision for legal succession to the status as a limited partner in the event of death. According to this provision, all heirs of the limited partner move into his position – in accordance with their inheritance quota. However, the legal transfer of a shareholder status is excluded by law and is therefore dependent – at least in the absence of provisions to the contrary in the company agreement – on the consent of all other shareholders. These legal regulations are often perceived by shareholders of (family-owned) commercial partnerships as insufficient and impracticable. They therefore regularly make use of the possibility of agreeing on deviating provisions in the company agreement.
So-called qualified succession clauses [Qualifizierte Nachfolgeklauseln], which make the company share inheritable and determine the possible circle of successors by stating certain criteria, are a popular means of structuring the legal succession due to death. It is not uncommon to find – especially in older company agreements – qualified succession clauses that are linked to the gender of the (one) successor. In its decision of 24 January 2019, the Supreme Court in Vienna had to deal with such a so-called gender clause.

II. Facts of the Case

The decision was based on the following facts: The partnership agreement of a KG from 1963 contained a gender clause which stipulated that shares in the KG may only be bequeathed to male descendants. Transferring shares to female family members during lifetime was only permitted with the consent of the other two partners. When one of the personally liable partners wanted to transfer his participation in the company to his daughter during his lifetime, the other two partners refused to consent to the transfer to the daughter. The shareholder concerned (and, after his death, his heirs) then requested a court decision declaring the nullity of the gender clause at issue to be null and void.

III. The decision of the OGH in Vienna

Both the Supreme Court and the lower courts declared the gender clause at issue to be unethical and therefore invalid, since it restricts women’s access to entrepreneurial activities in an inadmissible manner. In justifying its decision, the Supreme Court states that, although the contractual freedom of the shareholders guarantees them in principle a free structuring of their social relationship, this freedom of structuring is subject to its limits, e.g. by violating moral principles. In order to concretize of the general clause “immorality”, the general values of all those who think equitably and fairly should be taken into account. These values were derived from the fundamental rights (so-called indirect third-party effect of fundamental rights in private law [mittelbare Drittwirkung der Grundrechte im Privatrecht]), as were also basic rights in Germany.
According to the constitutionally guaranteed principle of equality, which has experienced numerous (simple) legal manifestations both in Austria and in Germany and at the level of the European Union, no one may be discriminated against on the basis of sex, descent, race, and religion (etc.). The Supreme Court derives from this that – nowadays – an abstractly general regulation of the company agreement may not make any non-objective differentiation according to gender and may deprive an entire group of persons of the possibility of obtaining a shareholder status and thus of access to the exercise of entrepreneurial activity. In its decision, the Supreme Court clarifies that the time of the conclusion of the contract is not (only) important for examining the violation of morality of clauses in the company agreement. Clauses in the company agreement which were effective at the time of conclusion of the contract may therefore no longer be applied if and to the extent that they contradict current values.

IV. Consequences for the practice (in Germany)

The German Commercial Code was largely applicable in Austria as of 1939. As of 1 January 2007, the Austrian Commercial Code was extensively amended and renamed into the Austrian Commercial Code [Unternehmensgesetzbuch – UGB]. Even after 1945, the Commercial Code remained in force in Austria. The German and Austrian Commercial Codes have since developed separately, even though the core provisions were still comparable. Nevertheless, many regulations and evaluations in Austria are very similar to those in Germany.
Even though the decision of the Supreme Court on Austrian partnership law has been issued and does not bind German courts, it is also considered to have a signaling effect on German law – especially since the Supreme Court often refers to German jurisprudence and literature in its reasons for its decision. Moreover, the Court’s decision partly derives a general principle. According to that principle, irrespective of the legal form chosen, gender clauses in company agreements should be ineffective to the extent that they discriminate against persons on the basis of their sex and restrict such persons in their access to entrepreneurial activities. In addition, the practice must expect that this principle could be applied to all discriminatory rules (whether based on sex, creed, religion or similar inequitable criteria). It should also be borne in mind that the prohibition of immorality applies not only to current (company) contracts but also to old contracts which have often been in force for decades. Against this background, shareholders of partnerships and corporations are recommended to review the validity of their company’s articles of association in the light of the Supreme Court decision and to have them corrected for discriminatory clauses.