Management Board of the AG in Germany

Appointment, Duties, Contract of Service, Dismissal and Liability of the Executive Board in Germany

In german practice, the management board is the central body of the stock corporation. Although the management board is directly dependent on the supervisory board and indirectly dependent on the shareholders' meeting, the management board directs and manages the business of the stock corporation on its own responsibility and at its own discretion. This freedom is associated with numerous duties which, due to the complexity of german stock corporation law on the one hand and in german practice usually high involved assets on the other hand, have a particular weight.

Who appoints the management board, what its tasks and duties look like, when there is a risk of liability with private assets and what the management board contract is all about are explained below - together with practical tips.

Our expertise in german Stock Corporation Law

Our highly qualified and specialized team of lawyers and corporate law specialists at our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne will advise you on all questions relating to the management board. Members of our team are also academically involved in german stock corporation law, so we have special know-how in this area. We are one of only a few law firms with many years of experience in advising clients on german stock corporation law.

For a non-binding inquiry, please contact one of our experts directly by phone or e-mail or use the contact form at the bottom of this page.

Our Consulting Services for the Management Board in Germany

Our advisors support management boards, supervisory boards and shareholders primarily on the following topics concerning the management board of an AG:

  1. Advising management boards and supervisory boards on the appointment and dismissal of management board members
  2. Conclusion and termination of management board contracts (drafting, negotiation, termination agreement)
  3. Enforcement of claims arising from management board contracts
  4. Advice on preventive measures to avoid liability (corporate compliance / risk management systems)
  5. Advice on initiating / defending claims against the management board
  6. Investigation / preparation of breaches of duty by the management board (internal investigations, special audit)
  7. Advice and representation in out-of-court and in-court disputes concerning claims for damages against (former) members of the management board (assertion, defense)
  8. Advising the management board on day-to-day business

Who appoints and elects the Management Board in Germany?

The management board in Germany is not, as is often assumed, elected by the shareholders or the annual general meeting. Under the German Stock Corporation Act (AktG), sole responsibility lies with the supervisory board, which is composed either solely of representatives of the shareholders (stockholders) or - in co-determined stock corporations - of representatives of the shareholders and representatives of the employees. Shareholders and the general meeting in Germany therefore have no influence on who becomes a member of the board of management.

Who is and sits on the Executive Board of an AG in Germany?

In principle, any person of legal age can be appointed to the management board in Germany. A shareholder can also be a member of the management board. The law does not stipulate any particular professional or specialist qualifications for members of the management board. Irrespective of this, the supervisory board is required to appoint only suitable candidates.

For how long is an Management Board Member appointed?

The German Stock Corporation Act provides that an management board member may be appointed for a maximum of 5 years. Special rules apply to repeated appointments.

Who appoints or removes the Management Board in Germany?

The dismissal of the management board (sometimes also referred to as removal or revocation of appointment) in Germany is carried out solely by the supervisory board on the basis of a (majority) resolution of the entire supervisory board. 

The general meeting cannot remove the management board in Germany. It can only express a vote of no confidence in the management board as part of a resolution. This in turn can be cause for the dismissal of a member of the management board by the supervisory board.

What are the Duties and Responsibilities of the Management Board in Germany?

The duties of the management board in Germany can be divided into two categories: Firstly, the duty to perform its own tasks carefully and conscientiously (so-called duty of care). Secondly, the duty to safeguard the interests of the AG and to put aside conflicting interests of the company (so-called duty of loyalty). The duty of loyalty includes, above all, the duties not to compete with one's own company (non-competition clause) and not to exploit business opportunities of the AG oneself.

# Representation of the AG by the Management Board

The management board in Germany represents the stock corporation vis-à-vis other persons in legal transactions. This is an exclusive competence. The supervisory board represents the AG only in a few cases, primarily in contracts between the management board and the AG (e.g. management board contract). The representation of the AG by the management board in Germany includes in particular the conclusion of contracts with third parties. Unless stipulated in the articles of association of the AG, all members of the management board must represent the AG jointly ("joint representation").

# Management of the AG by the Management Board

The business of the AG is managed by the management board. The management of the AG comprises on the one hand the management of the AG and on the other hand the day-to-day operations. The management board in Germany cannot delegate the management tasks to lower organizational levels. The management board is personally responsible for the planning, organization, finances and information strategies of the AG.

What Rights does the Management Board have in Germany?

The management board in Germany has the "right" to independently manage and run the stock corporation within the scope of the object of the company. By german law, it can fend off interference by the supervisory board and the shareholders. In this respect, the management board can decide on (almost) everything on its own. Only in the case of significant measures arising from the german law or determined by the supervisory board does the management board have to request the approval of the general meeting, the shareholders and/or the supervisory board.

The management board in Germany is also entitled to represent the AG in all matters. The principle of joint representation applies, i.e. only all members of the management board may represent the company jointly. Representation is permissible when it is a matter of the management board's own concerns - such as the conclusion of the management board contract.

Who concludes the Management Board Contract in Germany?

The management board contract in Germany is concluded between the management board and "its" stock corporation. The stock corporation is represented by the supervisory board. The supervisory board alone represents the AG in negotiating and concluding the management board contract (sometimes also referred to as the management board employment contract). Here, as well, representation by the entire supervisory board is required in Germany. However, the supervisory board can authorize a person to represent the supervisory board in concluding the contract, i.e. to sign it.

More details on the management board contract can be found on our special page.

What is the Compensation of the Management Board? What does an Management Board Member earn in Germany?

Management board compensation in Germany usually consists of fixed compensation and variable compensation. The amount of both components naturally varies to a not inconsiderable extent. The following aspects, among others, are relevant for the amount of the "salary" of the management board in Germany: economic strength of the AG, number of employees, industry, negotiating position of the management board, special prospects for the future.

Interesting to observe in german practice are also the variations in the design of the variable compensation component. Fixed and variable bonuses are just as likely to be encountered as a performance-related and occasion-related bonus. It is also not uncommon for real or virtual shares to be granted (shares, stock options, ESOP, virtual shares VSOP). In line with the requirements for listed stock corporations in Germany, a distinction is usually made between long-term and short-term variable compensation components. These are referred to as short-term incentives (STI) and long-term incentives (LTI).

In addition to these salary components, there are usually other fringe benefits (e.g. contributions to health insurance, pension insurance, company car).

In listed stock corporations, a so-called compensation system is mandatory in Germany. This system, to be drawn up by the supervisory board, sets out the key points of the management board's compensation (Art. 87a AktG).

More details on the compensation of the management board can be found on our special page.

Is the Management Board subject to Social Security Contributions in Germany?

Yes and no. Members of the management board in Germany are generally exempt from the statutory pension insurance obligation. The same applies to unemployment insurance. With regard to health insurance (including nursing care insurance), the german law provides for compulsory insurance. However, whether there is an insurance obligation in the statutory health insurance depends on the respective applicable assessment limits (salary).

How is the Management Board liable? To whom is the Management Board liable in Germany?

The management board of an AG or the individual members of an AG in Germany are liable to the AG if they violate their duties negligently or intentionally. The principle of joint and several liability applies here, according to which the individual member of the management board is jointly liable for the breaches of duty of other members of the management board - at least if he or she (indirectly) breaches the duty of supervision incumbent upon him or her vis-à-vis the other members of the management board.

A member of the board of management in Germany is liable to individual shareholders only in exceptional cases. In particular, a shareholder is usually prevented from objecting that the breach of duty by the management board member led to a loss in the share price, i.e. to an impairment of the value of the shares held by him. A member of the board of management in Germany is also liable to third parties if the law stipulates this separately or if the duty of the board of management in question has a particular creditor-protecting objective.

More information on liability and liability avoidance (compliance) can be found on our special page.

Action against Management Board by Supervisory Board and Shareholders in Germany?

On the part of the AG, damages are claimed by the supervisory board in Germany. The supervisory board also represents the stock corporation in legal action against the management board. If the supervisory board fails to act, the shareholders themselves can also initiate a liability action or even initiate a special audit in advance.

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