The Shareholder and his Rights
Voting Rights, Information Rights, Severance Claims, etc.
In economic terms, the shareholder is the owner of the german stock corporation. He gives the company in trust the funds required to finance the company. The assets of the german AG therefore belong indirectly and proportionately to him in economic terms.
As a result, german stock corporation law, above all the German Stock Corporation Act (AktG), assigns a large number of rights to the shareholder. These differ
- according to the point in time at which they are asserted - within or outside the annual general meeting,
- the type of rights - administrative rights or property rights, and
- the size of the shareholding - individual rights, minority rights or majority rights.
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Enforcement and Defense of Claims in Germany
Our lawyers and specialist attorneys advise and represent shareholders as well as AGs, management boards and supervisory boards in the following areas of german stock corporation law, among others:
- Strategic advice on the enforcement of and defense against claims arising from shareholders' rights, in particular rights to information
- Preparation and examination of resolutions of the shareholders' meeting
- Conducting and defending actions for contestation and actions for annulment against resolutions of the general shareholders' meeting
- Advice in connection with insider trading and reportable securities transactions
- Exercise of minority rights, in particular with regard to assertion of claims against management board, supervisory board (special audit, special representative, action admissibility proceedings)
- Advice in "squeeze out" matters
- Measures in interim legal protection, e.g. interim injunctions in connection with resolutions of the shareholders' meeting
Notwithstanding the multitude of rights available to shareholders, the focus of our practice in german stock corporation law is on the complexes of the shareholders' meeting and the right to information, assertion of defects in resolutions of shareholders' meeting resolutions, exercise of minority rights for clarification and enforcement of liability claims against the management board and supervisory board:
Detailed information on shareholder challenges to AGM resolutions can be found here: Shareholder lawsuit annual general meeting
Rights in relation to the Annual General Meeting in Germany
Right to attend
Individual shareholders in Germany are initially entitled to attend all annual general meetings of the company. This also applies to preferred shareholders. Attendance is linked to the obligation of the management board to invite the shareholder to all shareholders' meetings. The provisions of the AktG relating to invitations to annual general meetings are very comprehensive and formal. Any errors - which occur frequently in german practice - usually result in all resolutions of the relevant shareholders' meeting being invalid.
Rights to Convene and Supplement the Agenda
Shareholders whose shares together amount to 5% of the share capital may - if the other requirements set out in Art. 122 AktG are met - request in writing that a general meeting be convened, stating the purpose and the reasons. In the same way, shareholders whose shares together amount to 5% of the capital stock or the pro rata amount of 500,000 EUR may request the management board to place items on the agenda and publish them. In this context, in Germany the request concerning the respective new agenda item must be accompanied by a statement of reasons or a specific draft resolution.
In contrast to the law governing limited liability companies (shareholders' meeting) in Germany, the management board and supervisory board in general are obliged to make a resolution proposal concerning every point of the agenda that is to be the subject of a resolution, which must be published together with the agenda (Section 124 (3) of the German Stock Corporation Act (AktG)). If the proposals of the management board and supervisory board agree, in german practice the announcement is regularly made jointly. If the management board and supervisory board do not agree, each body must submit its own proposal. Irrespective of the resolution proposals of the management, each individual shareholder - irrespective of the size of his shareholding - has the right to submit countermotions to the resolution proposals of the management and to have these published.
At the annual general meeting in Germany, each share confers a voting right which is generally proportional to the shareholding. Exceptions to this principle apply only to non-voting preferred shares and so-called maximum voting rights. Non-voting preferred shares grant the holders a preferential share in profits; in contrast, they do not grant any voting rights. Maximum voting rights, which are only permitted in the case of unlisted companies, limit the voting power of shareholders who exceed a shareholding level specified in the articles of association. The multiple voting shares that used to be found in the past are no longer permissible today. In german practice, the prohibitions on voting rights set out in Art. 136 AktG must also be taken into account. These exclude a shareholder's voting rights in specific individual cases, in particular in cases where the shareholder would be subject to a conflict of interest if he voted.
Right to Information
Unlike the GmbHG, the AktG regards the shareholder as one of many financial investors. Consequently, the rights of the german shareholder regarding information about "his" stock corporation are limited and very structured. The most important information right is the right to information, which is exercised at the annual shareholders' meeting.
This grants every shareholder in Germany the right to request information from the management board at the annual general meeting on all matters relating to the company, insofar as and to the extent that this is necessary for the proper assessment of an item on the agenda. The duty to provide information also extends to the legal and business relations of the company with an affiliated company, i.e. above all with subsidiaries.
The particular practical relevance of the right to information in Germany lies in the fact that any improper and inadequate information provided to the shareholder entails the risk for the company that a resolution of the annual general meeting may be challenged and thus declared invalid by the courts. More on the action for defects in resolutions: Action by the shareholder against the annual general meeting
Rights in connection with Resolutions of the Annual General Meeting in Germany
The AktG allows every shareholder in Germany, irrespective of the size of their shareholding, to have the legality of resolutions of the annual general meeting reviewed by the courts. The individual shareholder can thus act against the will of major shareholders / majority shareholders and against the will of the management board and supervisory board.
The grounds which are particularly relevant in german practice can be grouped as follows:
- Errors in convening and taking minutes of the annual general meeting.
- Violation of duties to provide information, especially the right to information
- Violations of the law or the articles of association
- Procedural errors in passing resolutions
- Deficiencies in the content of the resolution
More detailed information on challenging resolutions of the annual general meeting, defects in resolutions and actions for defects in resolutions can be found here: Shareholder lawsuits against resolutions of the annual general meeting
Rights in connection with the Enforcement of Claims against the Management Board and Supervisory Board
German stock corporation law designates the management board as the essential management body of the company. Although the supervisory board in Germany must determine a catalog of transactions requiring its approval, in all other respects the management board acts alone. Neither the supervisory board nor the shareholders' meeting can issue instructions to the management board. Against this background, the AktG has not only provided the supervisory board with monitoring and control instruments, but also the shareholders.
Under certain conditions, both the annual general meeting and, subsidiarily, a minority of shareholders may, on their own initiative, commission an external special auditor to investigate management measures in accordance with Art. 142 AktG. The annual general meeting can do this directly. The minority of shareholders must appeal to a court for the commissioning.
Enforcement of Liability Action against Management Board/Supervisory Board in Germany
If the management board and supervisory board refuse to assert claims of the company arising from the formation or from the management of the company against the members of the management board and supervisory board, the shareholders' meeting can pass a binding resolution to this effect by a simple majority of votes (cf. Art. 147 para. 1 AktG). The claim for compensation must then be asserted by the competent body within six months.
However, the annual general meeting in Germany may also assign the assertion of claims for damages against the management board and / or supervisory board to a so-called special representative. The special representative then brings the liability action before the court on behalf of the company.
Minority shareholders - if their shares together amount to 10% of the capital stock or a pro rata amount of one million euros - can also appoint a special representative via the court to assert claims for damages.
Lawsuit Enforcement Procedure in Germany
Art. 148 AktG offers a more extensive minority right to shareholders whose shares together amount to 1% of the capital stock or a pro rata amount of 100,000 EUR. These shareholders can apply to the court for permission to assert claims for damages in their own name against the management board and/or supervisory board. The german court will allow the action if the requirements set out by german law are met. Specifically, the shareholders must present facts justifying the suspicion that the company has suffered damage through dishonesty or gross violation of the german law or the articles of association.
Rights in Relation to Interests in Property
As a shareholder, the stockholder is also entitled to a number of property rights in Germany. These include in particular
- the right to the unappropriated profit / dividend Art. 58 para. 4 AktG
- subscription rights in the event of capital increases pursuant to Art. 186 para. 1 AktG
- the claim to severance pay and compensation in accordance with Art. 304, 305 AktG
- the claim to cash compensation in group, conversion, squeeze-out and other takeover situations (Art. 327 a,b AktG, Art. 39 a para. 1,3 WpÜG, Art. 30, 207 et seq. UmwG)
The scope of the shareholder's property rights is generally determined by the amount of his capital participation.
If you are interested in advice or representation by one of our lawyers and specialist attorneys, please contact our experts in our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne.