The Gazette 1981

GAZETTE

APRIL 1981

German

Public

Companies

The Rights of Shareholders

by Nicola K. Barr, BA. (Mod.)

The shareholder is a necessary and integral part of the

German "public company" (Aktiengesellschaft). The

Aktiengesellschaft is comparable with the Irish public

company. To found an Aktiengesellschaft, a minimum of

five shareholders is necessary. When the shareholders

come together and form the General Meeting (Hauptver-

sammlung) they form, in theory, the highest organ of the

company. Although the shareholder is a necessary part of

a company, he possesses only those rights which are

expressly given him by law or by the Articles of

Association (Satzung). It is interesting to note, in contrast

to the Irish General Meeting, the German General

Meeting may only decide on those subjects expressly

permitted by statute or by the Articles of Association.

Otherwise, the Board of Management (Vorstand) is

competent to take all decisions affecting the company.

This is exactly the reverse of the common law position. At

common law, the Board of Directors may only act where

expressly allowed by the Articles of Association, other-

wise the General Meeting is competent to take decisions.

However, in practice, the Board of Directors takes most

managerial decisions (Table A, Article 80, Companies

Act, 1963). In Germany, questions regarding manage-

ment may only be discussed and decided when the Board

of Management has requested the General Meeting to

decide such questions. The Board of Management is

bound by this decision. In Ireland, Table A, Article 80,

Companies Act 1963, provides that the General Meeting

may give the directors directions with regard to manage-

ment, on any issue, at its own instigation.

The majority of German public companies issue

'bearer shares', which are rarely found in Britain or

Ireland. The Irish practice is that shares are registered in

a person's name and only that person, or his appointed

proxy, may exercise the right attaching to the share.

The rights of a shareholder in a German public

company may be divided into administrative and

monetary rights. The administrative rights include the

right to attend and speak at a General Meeting, the right

to information, or the right to contest a decision not in

accordance with the procedure laid down either by statute

or in the Articles of Association. With regard to

individual monetary rights, the members have the right to

vote in the dispensing of the year's profits (the amount of

which is calculated by the Board of Management and

approved by the Board of Supervisors). The General

Meeting only acts in determining the profits if the

Supervisors and Management cannot agree.

With regard to collective rights, the General Meeting,

as a body, elects the shareholders' representatives on the

Board of Supervisors (Aufsichtsrat), which in turn elects

the Board of Management, which body is the executive

organ of the company and is responsible for the

company's activities. The General Meeting in Germany,

in contrast to Ireland, does not have the power to dismiss

a member of the Board of Management. It has the right to

approve or disapprove of the way in which the Board of

Management or the Board of Supervisors are running the

company. This approval does not prejudice the General

Meeting, or individual shareholder, should it or he subse-

quently wish to sue the company or an individual member

of the Board of Management or of the Board of Super-

visors. The General Meeting, as a body, decides on how

the profits, as calculated by the Board of Management,

are to be applied, either as reserves or as a dividend. It

appoints the auditors of the company and has power to

alter the Articles of Association. All the rights conferred on

the shareholders acting in the General Meeting are set out

in the Aktiengesetz (Company Law Statute) or in the

Articles of Association.

Individual Rights of Shareholders

With regard to individual rights, possibly the most

important is the right to participate in the General

Meeting. This basic right may be regulated by the

Articles. Instead of our registration system, a share-

holder in Germany must identify himself and effectively

become known to the company a certain period before the

General Meeting. The basic right may not be taken away

by the Articles or by any act of the company. The indivi-

dual right to participate in the company may not be exer-

cised elsewhere other than in the General Meeting. The

shareholder may ask the Board of Management in

general, a question, but may not seek out one member

alone — nor may he direct a question to the Board of

Supervisors. The Board of Management has a duty to

answer these questions, unless it would be against the

interest of the company to do so. Should there be a

dispute as to whether it is in the company's interests, the

courts may decide. It is in this way that individual

minority shareholders may create difficulties for big

concerns. Under German company law a share does not

necessarily carry the right to vote; such a right may or

may not be attached to a share. A share may only carry

one vote. The exercise of this vote, as in Ireland, need not

be personal — it may be exercised by proxy. In contrast to

the common practice in Ireland, voting is usually by poll.

The right to contest a decision of the General Meeting as

invalid attaches to each member individually.

When a member of the Board of Management or

Supervisors, deliberately, exercises his influence to the

detriment of the company or its shareholders, the

company is liable in damages to the shareholder in respect

of any loss suffered by the company which may have

affected him as a shareholder. The member of Manage-

ment or Supervisors, who was responsible for the action.