subsidiary
noun · Tochtergesellschaft
Tochtergesellschaft is the ordinary word and carries no statutory test. German law asks instead whether the company is abhängig, § 17 AktG, whether it belongs to a Konzern, § 18 AktG, and above all whether a Beherrschungsvertrag is in place, § 291 Abs. 1 AktG for an AG or KGaA and by analogy for a dependent GmbH, because that one turns control into a duty to make good every annual loss, § 302 Abs. 1 AktG.
Which translation, when
Why
English company law defines the word and leaves it there. Under s.1159 of the Companies Act 2006 a company is a subsidiary if the other holds a majority of the voting rights, or is a member with the right to appoint or remove a majority of the board, or is a member controlling a majority of the voting rights by agreement with other members, and what mostly follows from the label is consolidation and disclosure. German law does not have that one word doing that one job. It asks first about dependence, § 17 Abs. 1 AktG, then about a Konzern under einheitliche Leitung, § 18 AktG, and then about the route by which control is held, because the route decides who bears the losses. Where a Beherrschungsvertrag exists the parent may direct the company, and in exchange § 302 Abs. 1 AktG makes it compensate every annual loss arising during the term of the contract, a rule the courts apply in substance where the controlled company is a GmbH. Without such a contract the group is a faktischer Konzern, and there the statute reaches only so far: § 311 AktG forbids the parent to use its influence to bring about a disadvantage unless it makes that disadvantage good, but it does that for a dependent AG or KGaA. Where the dependent company is a GmbH, which is the ordinary case in practice, there is no codified faktisches Konzernrecht at all and the protection comes from GmbH law and the case law on it. So our German subsidiary tells a German reader who owns the shares and nothing about who carries the downside.
Typical mistakes
- Tochtergesellschaft looks like a term of art and is not one; where the point is a legal consequence the text has to say abhängiges Unternehmen, § 17 AktG, or name the Beherrschungsvertrag, § 291 Abs. 1 AktG.
- A group memorandum that treats German subsidiaries alike misses the divide that matters: with a Beherrschungsvertrag the parent owes the annual loss compensation of § 302 Abs. 1 AktG, and without one it owes at most the narrower Nachteilsausgleich of § 311 AktG, which the statute writes for a dependent AG or KGaA and not for a dependent GmbH.
- Reading the English definition across is unsafe in the other direction too, because the tests of s.1159 of the Companies Act 2006 turn on voting rights and board appointment while § 17 Abs. 1 AktG asks the broader question whether a controlling influence can be exercised at all.
What matters
Group structure charts that label a German company a subsidiary carry the question a German adviser asks first: is there a Beherrschungsvertrag. A financing paper or a comfort letter that answers it wrongly misstates the parent’s exposure by the whole of § 302 Abs. 1 AktG, which runs on every annual loss for as long as the contract lasts.
What the machine misses
Translation of subsidiary lands on Tochtergesellschaft in every engine, and the word is correct while being silent on the only thing a German reader wants to know. English usage lets the label carry a definition, s.1159 of the Companies Act 2006; German law puts the weight on whether the company is abhängig, § 17 Abs. 1 AktG, and on whether a Beherrschungsvertrag brings the loss compensation of § 302 Abs. 1 AktG with it, none of which the translated word carries.
Examples
| a wholly owned subsidiary | eine hundertprozentige Tochtergesellschaft |
| the parent and its subsidiaries | die Muttergesellschaft und ihre Tochtergesellschaften |
| to incorporate a subsidiary | eine Tochtergesellschaft gründen |
| a subsidiary undertaking | ein abhängiges Unternehmen |