The Liability of Corporations and Shareholders for the Capitalization and Obligations of Subsidiaries under German Law

Schiessl, Maximilian | January 1, 1986

The Federal Republic of Germany, one of the United States’ main trading partners, has a rather different approach to the liability of a parent corporation for the debts of its subsidiaries. In the United States, the affiliated enterprises doctrine is generally viewed as a subcategory of the piercing the corporate veil doctrine. Under German law, there is a sharp distinction between the general rules on piercing the corporate veil, which may also be applied to a parent-subsidiary relationship, and the special legal framework governing the Konzernrecht (law of affiliated enterprises). German corporation law is based on the assumption that in an independent corporation there is an equilibrium and common interest among shareholders which automatically makes the corporation’s best interest a guide for both management and shareholder decisions. This common interest is intended to serve as an indirect protection of the creditors. When one or several shareholders acquire a majority interest, the danger arises that they might take undue advantage of their influence.