What are the most common types of corporate business entity and what are the main structural differences between them?
Companies may be organized as capital companies, like the limited liability company (Gesellschaft mit beschränkter Haftung, GmbH), the stock corporation (Aktiengesellschaft, AG), the European stock corporation (Societas Europaea, SE) and, the partnership limited by shares (Kommanditgesellschaft auf Aktien) or as partnerships. Capital companies in the form of an AG, SE and GmbH are most common and will thus be focused on in the answers below. As the SE in its most prevalent form is treated like an AG, we will only address the SE separately in case of differences. The main structural differences are in the corporate governance structures and the corresponding rights of the shareholders.
Whereas an AG and some SEs follow the two-tier system with management board (Vorstand), which manages and represents the company, and supervisory board (Aufsichtsrat), which supervises the management board, and the general meeting of shareholders having correspondingly rather limited rights and influence on the management of the company, the SE may alternatively feature a one-tier corporate governance system with an administrative board (Verwaltungsrat) and managing directors (Geschäftsführende Direktoren) and the same limited rights of the shareholders.
However, such monistic SEs are rather rare in Germany. Contrary, a GmbH is managed by managing directors (Geschäftsführer) and only has a supervisory board in case of so called co-determination (Mitbestimmung). In a GmbH, shareholders have more rights, in particular the right to instruct the managing directors via shareholders’ resolution (aside from ordinary or extra-ordinary shareholders’ meetings and resolutions that can be passed in writing).
What are the current key topical legal issues, developments, trends and challenges in corporate governance in Germany?
The supply chain law was passed in June 2021. It intends to implement the UN Guiding Principles on Business and Human Rights. These principles aim to prevent the violation of human rights by companies, obliging them to respect human rights throughout the global supply chain. The law will come into force in 2023 as of 1 January 2023 (and further on as of 1 January 2024).
In response to the ‘Wirecard scandal’, the legislator passed the so-called Act to Strengthen Financial Market Integrity (Finanzmarktstabilisierungsgesetz, FISG). This law increases the duty of care of the board of directors of a listed company with regard to the establishment of an internal control and risk management system. In addition, the duties and requirements of the supervisory board of a listed company have been tightened, in particular by requiring the establishment of an audit committee.
The Covid-legislation and its amendments on virtual general meetings of AGs and SEs (strengthening the shareholders discussion and filing rights) as well as reliefs on passing shareholders’ resolutions in writing in GmbHs continue to apply until the end of August 2022. Depending on the further course of the pandemic, the regulations might be extended.
Another current development in corporate governance is the Second Leadership Positions Act on equal participation of women in leadership positions – commonly known as ‘women’s quota’ – which further develops the statutory provisions already established in 2015 with the so called First Leadership Positions Act.
Who are the key persons involved in the management of each type of entity?
In a two-tier system of an AG and corresponding in dualistic SE’s, key persons are the members of the management board (Vorstand) and of the supervisory board (Aufsichtsrat). In a one-tier system SE these are the members of the administrative board (Verwaltungsrat) and the managing directors (Geschäftsführende Direktoren). The latter can at the same time be members of the administrative board, unless their total number is less than the total number of non-executive board members. In a GmbH key persons are the managing directors (Geschäftsführer) and the shareholders. Only in case of co-determination (Mitbestimmung), a supervisory board and its members become relevant.
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Legal500_Corporate Governance 2022_Chapter Germany
This article was first published in: The Legal 500 Country Comparative Guide Corporate Governance 2022, Legalease Ltd.