In line with established case law, the Austrian Supreme Court ruled that the obligation to use a notarial deed for the purchase and transfer of shares in private limited liability companies as set out in the Austrian Limited Liability Company Act (GmbH-Gesetz) must be applied to both legal transactions involved, the undertaking (Verpflichtungsgeschäft) and the transfer of title (Verfügungsgeschäft). What is new, however, is that a further notarial deed may become necessary for the closing if the transaction is split up into a signing and a closing process.

The decision by the Austrian Supreme Court – OGH 23/4/2020, 6 Ob 59/20z

The Supreme Court was called upon to decide on an appeal brought against a decision handed down by the Linz Regional Court. The lower-instance courts had held the purchase and transfer of limited liability company shares to be null and void for lack of a notarial deed.

There was one phrase in particular in the shareholders’ agreement that was disputed, namely that the shares were to be transferred “no later than by 31 March 2016”. In the absence of an “intent for immediate transfer”, the Supreme Court found that undertaking and transfer of title (signing and closing) did not coincide. While the undertaking had been made out as a notarial deed in line with applicable form requirements, the transfer of title in the case at hand failed to coincide with the undertaking, which is why it would have been necessary to draft a separate notarial deed for the transfer of title, which was deemed to have been separately agreed upon.

According to prevailing legal opinion, this defect of form in the transfer of title is an incurable defect that entails the share transfer becoming null and void.

Consequences of the decision

When drafting contracts, it is therefore especially important to pay attention to the wording of share purchase and transfer agreements for limited liability companies. As the Supreme Court elaborates in its decision, undertaking and transfer of title will, as a rule, coincide. Where the transfer of the shares is to be effected in a separate act, such act will be subject to the obligation for a notarial deed as set out in section 76 (2) Limited Liability Company Act in the same way as the agreement creating the obligation to perform, i.e. the undertaking. As a consequence, it will be necessary to draft two separate notarial deeds, which does come with a hefty price tag, however.

If the parties want to effect the share transfer by way of a single notarial deed, the intent to transfer must be set out explicitly in the corresponding agreement. How these contractual provisions should be worded exactly depends on the nature of the given case.

In the case now ultimately ruled on by the Supreme Court, the wording according to which the shares were “to be transferred no later than by 31 March 2016” was found to be insufficient to effect the transfer. To avoid such problems, contracts should include very clear provisions that explicitly and unequivocally set out the intent to transfer already at the time the undertaking is entered into. It is, of course, possible to subsequently link such explicit contractual inclusion of the intent to transfer to what is called “closing terms and conditions” and “closing acts” – requirements that have to be met for the shares to be successfully transferred. What is key is to use accurate and precise wording for what the agreement is supposed to regulate, as failing to do so risks the incurable voidance of the transfer.