Proving a foreign company’s existence and powers of representation: the German registry process with a focus on US companies
By Dr. Dirk Stiller
If a foreign company participates in legal relations in Germany, either as a shareholder in another company or as a seller or purchaser in the event of a real estate conveyance or the creation or deletion of collateral, the foreign company’s existence and the powers of representation of the individuals acting on its behalf must be demonstrated. Recognition of the company’s legal capacity is determined by foreign law. The rules for proof required from the company as part of the German registry process are, however, based on German law as the lex fori. Both in terms of entries in the German commercial register and in the land register, proof needs to be furnished by way of public or publicly certified documents (Section 12[I], sentence 1 of the German Commercial Code [Handelsgesetzbuch, HGB], Section 29[I], sentence 1 of the German Land Registration Code [Grundbuchordnung, GBO]). Foreign documents are documents within the meaning of Section 29 of the GBO if they meet the requirements of Section 415 of the German Code of Civil Procedure (Zivilprozessordnung, ZPO), i.e., if the foreign notary public is equivalent to a German notary (Notar) in terms of educational background and position. A foreign company cannot, however, always benefit from the simplified proof of representation by being issued a certificate of representation pursuant to Section 21 of the German Federal Notarial Code (Bundesnotarordnung, BNotO); Section 12(I), sentence 2 of the HGB; and Section 32 of the GBO.
In the following, I outline the options open to foreign companies for furnishing proof under the German registry process and the criteria on which the selection of a particular type of evidence depends.
Options for furnishing proof
Proof of the existence of a foreign com-pany or any ensuing powers of representation held by its members can be obtained using the German commercial register and a certificate issued by a German notary (Notar) following inspection of the foreign commercial or company register or the notarization by a foreign notary.
The German commercial register is a suitable source of evidence if the foreign company has a branch office in Germany that has been entered in the commercial register pursuant to Section 12a of the HGB.
A German notary may issue a certificate of representation pursuant to Section 21(I) of the BNotO after inspecting the foreign commercial or company register if the foreign register is similar to the German commercial register. This is the case if the body operating the foreign commercial register has the substantive authority to check the existence and validity of all the documents submitted. Countries with a similar register include France, Switzerland, Luxembourg, Belgium, the Netherlands, Italy, Austria and Japan.
It must be taken into account whether the register fully represents the powers of representation, i.e., whether the registration has constitutive effect (establishing rights) or declaratory effect.
In countries without such a commercial register, proof must, as a result, be furnished in a different way.
Proof of existence and powers of representation for US companies
US law sees no public register equivalent to the German commercial register. Requirements for proof of the company’s existence depend on the type of company.
Determination of company law
The type of company law is determined in accordance with the foundation theory (special provision in Article XXV, No. 5, sentence 2 of the Treaty of Friendship, Commerce and Navigation between the Federal Republic of Germany and the United States of America dated October 29, 1954). As company law is not regulated consistently across the US and different rules apply in individual states, the applicable regional laws must be determined.
Corporation: proof of existence
In contrast to German law, US company law assumes a uniform type of corporation.
A corporation is formed by submitting the articles of incorporation to the relevant public body. In Delaware, California and New York this is the secretary of state. In the German registry process, proof of formation can therefore be furnished in the form of the certificate of incorporation issued by the secretary of state. This appears to be sufficient proof of existence at first glance. The fact the corporation was validly formed does not, however, prove it continues to exist. To furnish proof of continued existence then, the secretary of state must issue a certificate of good standing. This confirms the due and proper formation as well as the continued existence of the corporation as a legal entity as of the certificate’s date of issue. The certificate also contains confirmation that the corporation has paid franchise taxes and complied with its annual reporting obligations. These details are relevant given that the corporation can be deleted ex officio if it does not comply with these obligations.
The certificate issued by the secretary of state is a public document within the meaning of Section 29(I), sentence 1 of the GBO as the secretary of state constitutes a government body. The signature on the certificate, which must be sealed with an official seal, therefore does not require notarization. Legalization is not required for the certificate to be used in Germany; an apostille is sufficient in this regard (the Hague Convention of October 5, 1961). An apostille, in turn, is issued by the secretary of state, which consequently confirms its own signature on the certificate. The cost for issuing a certificate of good standing including the apostille is approximately $50.
Proof of existence of a company may not be furnished by way of a certificate issued by a notary public because this does not meet the requirements set out in Section 415 of the ZPO and therefore those of Section 12 of the HGB and Section 29 of the GBO. Given the fact that a notary public has no legal training, this individual is not comparable to a German Notar, and there is no equivalent provision to that of Section 21 of the BNotO under US law that would authorize a notary public to issue a notarial certificate constituting conclusive public evidence.
Proof of powers of representation
For statutory purposes, a corporation is represented by its board of directors as a collegial body and, for purposes of legal transactions, it is represented by its officers.
The secretary of state does not have to be continually notified of changes to the way the corporation is represented, therefore the secretary of state is unable to issue any certificate meant to act as proof.
In practice, the secretary’s certificate of incumbency is therefore used as a reference; in this certificate, the company secretary or another officer entrusted with this role initially confirms the due and proper formation of the corporation and its continued existence as well as his or her due and proper election as company secretary. Moreover, this person confirms in the same statement that the acting person has been duly elected as a board member or officer, that the acting person continues to hold this office, and that this person is entitled to represent the corporation in the transaction in question and the fact that the corporation is bound by this.
The company secretary then confirms the information he or she has provided using a notary public, and the notary public certifies the secretary’s signature.
After these steps, the secretary of state confirms the company secretary’s signature is genuine by affixing an apostille. The special conclusive force of this statement derives from the fact that an inaccurate declaration of a power of representation is subject to a penalty under US law.
Proof of existence of a US partnership
The formation documents of a US partnership are not kept by the secretary of state. It is therefore not possible to rely on a certificate of incorporation and good standing to provide proof of a partnership’s existence. For this reason, proof of existence is based on proof of representation. If the company secretary issues a certificate of incumbency to furnish proof of representation, he or she also directly confirms the company’s due and proper formation and continued existence.
Proof of a limited liability company (LLC)
The existence of an LLC, which constitutes a partnership but is structurally akin to a corporation, is also proved by way of a certificate of incorporation. The power of representation derives from the articles of association in that the LLC’s managers have either already been appointed or, in the absence of a management team having been appointed, the partners are in charge of managing the LLC. If a manager is appointed at a later date or if the acting partner has subsequently become a member, proof must be furnished using appropriate documents (change in the articles of association, transfer agreement, partner’s resolution) or, as with a corporation, with a confirmation issued by the company secretary.
The company secretary can attach to this secretary’s certificate certified copies of the articles of incorporation and the board resolutions to demonstrate the certified power of representation.
As shown above, furnishing proof of existence or proof of powers of representation for the German registry process as foreign company, particularly as a US company, is a complicated process that strongly depends on the individual case. It requires carefully checking the company’s foreign legal position to precisely determine how to meet the requirements of Section 12(I), sentence 1 of the HGB and Section 29(I), sentence 1 of the GBO.