Abstract
The following chapter provides an introduction into the legal framework for the German stock corporation, the Aktiengesellschaft (AG). After outlining its characteristics and some of the reasons for entrepreneurs to choose this corporate form, the institutional design of the AG will be explained in detail. We will have a closer look at the corporate bodies (Organe) of the AG, covering their composition, their respective functions and competencies, and explaining their relationship to each other. Then, we will outline the capital regime of the German stock corporation, as one of the most distinctive features of the AG. Furthermore, we will briefly describe how an entrepreneur would establish an AG under German law and how it is dissolved. We will continue our presentation by discussing the German system of employee participation, including collective wage bargaining, works councils and board-level co-determination. In the final section, we will outline some of the most important rules to be aware of when considering ‘going public’, i.e. listing an AG on a stock exchange.
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Notes
- 1.
The GmbH will be dealt with in detail in the next chapter, see infra, Sect. 3.
- 2.
See Sec. 1 para. 1 AktG. In German stock corporation law, the shareholders of an AG are called ‘Aktionäre’; to reflect this we will use the English term ‘stockholders’.
- 3.
See infra, Sect. 3.5.
- 4.
See Secs. 118 et seq. AktG.
- 5.
See Secs. 95 et seq. AktG.
- 6.
See Secs. 76 et seq. AktG.
- 7.
In comparison, e.g. Swiss law does not know this principle. As a consequence, although the statutory provisions of Swiss law are very similar to those in Germany, the Swiss AG is considered to be a more flexible tool for economic activity. It is not limited to larger enterprises but is also appropriate for small and medium sized enterprises and has become the customary legal form for economic activity in Switzerland. In contrast, the GmbH traditionally has played only a very minor role in Switzerland; this has begun to change lately due to abandoning size limitations in the 2008 Swiss GmbH Act.
- 8.
See Sec. 23 para. 5 AktG. This is rarely the case. e.g. according to Sec. 179 para. 2 sentence 1 AktG an amendment of the articles generally requires the approval of three-quarters of the stockholders’ meeting. Sentence 2 of the provision, however, allows for this quota to be modified.
- 9.
See e.g. Sec. 111 Danish Companies Act (lov om aktie- og anpartsselskaber); Art. 2:158 Dutch Civil Code (Burgerlijk Wetboek); Secs. 70 et seq., 86 et seq. Austrian Stock Corporation Act (Aktiengesetz).
- 10.
See e.g. Sec. 1 subsec. A no. 3 UK Combined Code; Art. 707, 716, 716a Swiss Code of Obligations (Obligationenrecht); in France the two-tier board system is only applicable if provided for in the company’s articles of association, see Art. L225–7 French Commercial Code (Code de Commerce).
- 11.
In more technical terms: separate legal bodies for executive and non-executive managers may well amplify the asymmetric distribution of information between both, worsening the inherent principal-agent-problem. Of course, one-tier board structures are no guarantee for proper information sharing either, and in turn may well lead to a stronger factual influence on the non-executive board members, thus impairing their supervisory power.
- 12.
See infra, Sect. 5.2.
- 13.
See Sec. 105 AktG.
- 14.
See Sec. 84 AktG.
- 15.
See Sec. 84 (3) AktG.
- 16.
This authority is not to be taken for granted, since the supervisory board therewith decides against the explicit will of the corporation’s owners. It is but one example of the institutional principle of separating ownership and control in public liability companies.
- 17.
See Sec. 76 AktG.
- 18.
See Sec. 78 AktG.
- 19.
See Sec. 119 para. 2 AktG.
- 20.
BGHZ 83, 122, 25 February 1982, II ZR 174/80—Holzmüller.
- 21.
BGH, 26 April 2004, II ZR 154/02, NZG 2004, 575—Gelatine I; BGH, 26 April 2004, II ZR 155/02, NJW 2004, 1860—Gelatine II.
- 22.
BGH, 25 November 2002, II ZR 133/01, ZIP 2003, 387.
- 23.
See Sec. 82 para. 1 AktG.
- 24.
A violation of such obligations may, naturally, constitute a breach of duty and may entail the risk of personal liability vis-à-vis the company.
- 25.
See Sec. 112 AktG: In transactions between the corporation and members of the management board only the supervisory board may represent the corporation.
- 26.
See Sec. 293 AktG: Validity of enterprise agreements with affiliated companies is contingent to prior approval of the general meeting.
- 27.
See Sec. 90 para. 1 sentence 1 AktG.
- 28.
See Sec. 90 para. 1 sentence 3 AktG.
- 29.
See Sec. 90 para. 3 AktG.
- 30.
For further detail see infra, Sect. 2.5.3.
- 31.
Appointment is limited to one third of the members of the supervisory board, AktG, Sec. 101 para. 2.
- 32.
See Sec. 84 AktG.
- 33.
See Secs. 90, 111 AktG.
- 34.
See Sec. 111 para. 4 AktG.
- 35.
See Sec. 112 AktG.
- 36.
See Sec. 111 para. 2 AktG.
- 37.
According to Sec. 119 para. 2 AktG the stockholders’ meeting may, as a rule, pass a resolution concerning matters of the operative management of the corporation only if the management board explicitly requests it to do so.
- 38.
See Secs. 119 para. 1 no. 5, 179 para. 1 AktG.
- 39.
See Secs. 119 para. 1 no. 6, 222 para. 1, 237 para. 1 AktG.
- 40.
See Secs. 119 para. 1 no. 6, 182 para. 1, 192 para. 1 AktG.
- 41.
See Secs. 119 para. 1 no. 8, 262 para. 1 no. 2 AktG.
- 42.
See Secs. 119 para. 1 no. 1, 101 para. 1 AktG.
- 43.
See Sec. 103 para. 1 AktG.
- 44.
See Secs. 119 para. 1 no. 3, 120 para. 1 AktG.
- 45.
See Secs. 119 para. 1 no. 2, 174 para. 1 AktG.
- 46.
See Sec. 119 para. 1 no. 4 AktG.
- 47.
See Secs. 13, 65, 76 UmwG.
- 48.
See Sec. 193 para. 1 UmwG.
- 49.
See Secs. 125, 65 para. 1 UmwG.
- 50.
See Secs. 125, 65 para. 1 UmwG.
- 51.
See Secs. 125, 65 para. 1 UmwG.
- 52.
See Sec. 327a para. 1 AktG.
- 53.
See BGH, 25 November 2002, II ZR 133/01, ZIP 2003, 387—Macrotron.
- 54.
So-called ‘Holzmüller doctrine’, see see supra, Sect. 2.2.2.2.1.
- 55.
See Secs. 123 para. 1, 25 AktG; additionally, the articles of association may determine a national newspaper in which the invitation may be published.
- 56.
See Sec. 121 para. 3 AktG.
- 57.
See Sec. 124 para. 4 AktG.
- 58.
See Secs. 126, 127 AktG.
- 59.
See Secs. 124, 122 para. 2 AktG.
- 60.
See Sec. 134 para. 3 AktG; in case of institutional representatives (e.g. banks), the requirements are slightly reduced, see Sec. 135 AktG.
- 61.
Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of stockholders in listed companies, OJ L 184/17 as of 14 July 2007.
- 62.
See Sec. 118 para. 1 sentence 2 AktG.
- 63.
See Sec. 118 para. 2 AktG.
- 64.
This majority is—inter alia—required for: amendments of the articles of association (Sec. 179 para. 2 AktG); ordinary capital increase (Sec. 182 para. 1 AktG); restriction of subscription rights on a capital increase (Sec. 186 para. 3 AktG).
- 65.
Please note, however, that stocks granting multiple voting rights have been abolished for companies listed on a stock exchange.
- 66.
See Sec. 58 para. 4 AktG.
- 67.
See Sec. 271 AktG.
- 68.
See Secs. 12, 134 AktG.
- 69.
See Sec. 118 AktG.
- 70.
See Sec. 131 para. 1 AktG; this includes relations of the corporation to affiliated companies.
- 71.
See Sec. 131 para. 3 sentence 1 AktG.
- 72.
This includes resolutions addressing, inter alia, vital and time-critical topics such as capital increases, capital reductions or conclusions of enterprise agreements.
- 73.
For example, in a particular famous case the plaintiff filed an action to set aside a stockholders’ resolution pertaining to a capital reduction of the defendant, a real estate investment company. The plaintiff claimed a violation of his membership rights; at the time of the action, the plaintiff held a total of 47 stocks (0.0253%) of the company. However, as the proceedings have proved, the real reason of the action was to ‘persuade’ the company to enter into an amicable settlement which provided for further 3,500 stocks to be awarded to the plaintiff in return for his withdrawing the action. In its judgment of 23 January 2009 the competent Higher Regional Court (Oberlandesgericht) in Frankfurt dismissed the action to set aside the resolution and instead ordered the plaintiff to pay damages to the company on grounds of his behavior being contra bonos mores (Sec. 826 BGB).
- 74.
See Sec. 246a AktG.
- 75.
See Sec. 246a para. 2 no. 2 AktG.
- 76.
For a comprehensive table see Wirth et al. 2010, pp. 161 et seq.
- 77.
Of course, external financing is limited as well—both in theory and in practice. It is, however, safe to assume that there is more money available outside the company than within it.
- 78.
While, e.g., interest on debt capital constitutes business expenditures and may be deducted from taxable income (see Secs. 4, 4a Income Taxation Act, EStG), the income resulting from a sale of tangible assets may be subject to taxation itself.
- 79.
In finance the term ‘equity ’ refers to the subjective value of an ownership interest in property, i.e. the amount of money someone is willing to pay for a property minus any attached liability.
- 80.
The financial term “mezzanine” derives from the architectural term ‘mezzanine’ (from ital. ‘mezzo’ for ‘half’) for an intermediate floor between two main floors of a building.
- 81.
Economic research suggests that given an ideal market, the source of financing employed by a company will have no influence on its corporate value (so-called Modigliani-Miller theorem). Reality, however, is not a perfect market but suffers heavily from information asymmetries, agency costs, bankruptcy costs and—of course—taxes.
- 82.
Additional disadvantages may arise from requirements to pledge assets of the company to the lender or to provide personal guarantees of the owners of the company for repayment. Furthermore, debt instruments often contain restrictions on the company’s activities, preventing the entrepreneurs from pursuing non-core business activities or alternative financial options.
- 83.
See Sec. 1 para. 2 AktG.
- 84.
See Sec. 8 para. 1 AktG.
- 85.
See Sec. 8 para. 2 sentence 1 AktG.
- 86.
See Sec. 8 para. 4 AktG.
- 87.
See Sec. 8 para. 3 sentence 2 AktG.
- 88.
See Sec. 8 para. 4 AktG.
- 89.
See Sec. 6 AktG.
- 90.
See Sec. 139 para. 1 AktG.
- 91.
See Sec. 139 para. 2 AktG.
- 92.
See Sec. 141 AktG.
- 93.
See Sec. 134 para. 1 AktG.
- 94.
See Sec. 10 para. 1 AktG.
- 95.
Bayer and Hoffmann 2011, p. 6.
- 96.
See Sec. 929 sentence 1 BGB.
- 97.
See Sec. 67 AktG.
- 98.
See Sec. 182 AktG.
- 99.
See Secs. 192 et seq. AktG.
- 100.
This specific (German) term is not to be confused with the Anglo-American concept of ‘authorized share capital’, which refers to the maximum amount of share capital that the company is authorized under its constitutional documents to issue to shareholders (also referred to as ‘nominal capital’).
- 101.
See Secs. 202 et seq. AktG.
- 102.
See Secs. 207 et seq. AktG.
- 103.
See Secs. 222 et seq. AktG.
- 104.
See Sec. 225 AktG.
- 105.
See Secs. 229 et seq. AktG.
- 106.
See Sec. 233 AktG.
- 107.
See Secs. 237 et seq. AktG.
- 108.
See Sec. 237 para. 1 sentence 2 AktG.
- 109.
See Sec. 54 para. 2 AktG.
- 110.
See Sec. 34 para. 1 no. 2 AktG.
- 111.
See Sec. 9 para. 1 AktG.
- 112.
See Sec. 64 AktG.
- 113.
See Sec. 65 AktG.
- 114.
See Sec. 57 AktG.
- 115.
See Sec. 71 AktG.
- 116.
See Sec. 71a AktG.
- 117.
See Sec. 23 para. 3 AktG.
- 118.
See Sec. 23 para. 2 AktG.
- 119.
See Sec. 29 AktG.
- 120.
See Sec. 23 para. 2 no. 2 AktG.
- 121.
See Sec. 30 AktG.
- 122.
See Secs. 36, 54 AktG.
- 123.
See Sec. 36a para. 1 AktG.
- 124.
See Sec. 36a para. 2 AktG.
- 125.
See Sec. 32 AktG.
- 126.
See Sec. 33 para. 2 AktG.
- 127.
See Sec. 38 AktG.
- 128.
See Sec. 275 AktG.
- 129.
See Sec. 265 para. 1 AktG.
- 130.
See Secs. 271 para. 1, 265 para. 4 and 5 AktG.
- 131.
See Sec. 273 AktG.
- 132.
Of course the legal rules governing employee participation also apply to the GmbH. However, since in particular mandatory board-level co-determination rules apply only to companies with a higher number of employees (500, 1,000 or 2,000 respectively), which typically are organized as stock corporations, for the purpose of this book employee participation is dealt with in the context of the AG.
- 133.
On the history of collective bargaining in Germany see Kronstein 1952, pp. 199 et seq.
- 134.
Gesetz gegen die gemeingefährlichen Bestrebungen der Sozialdemokratie as of 21 October 1878, Reichsgesetzblatt 1878, p. 351.
- 135.
Socialist: 2.5 million; Christian: 343.000; Liberal: 107.000; see Wehler 1994, p. 95.
- 136.
Verordnung über Tarifverträge, Arbeiter- und Angestelltenausschüsse und Schlichtung von Arbeitsstreitigkeiten as of 23 December 1918, Reichsgesetzblatt 1918, p. 1456.
- 137.
Gesetz zur Ordnung der nationalen Arbeit as of 20 January 1943, Reichsgesetzblatt 1943 I, p. 45.
- 138.
Law No. 22 of the Allied Control Council as of 10 April 1946, Official Gazette of the Control Council in Germany, p. 133.
- 139.
Directive No. 31 of the Allied Control Council as of 3 June 1946, Official Gazette of the Control Council in Germany, p. 160.
- 140.
In doing so a high collective bargaining coverage was reached. Traditional estimations show a coverage rate of 90% for Germany; see OECD, Employment Outlook 1994, p. 173.
- 141.
See e.g. Fitzenberger et al. 2008.
- 142.
Law No. 22 of the Allied Control Council as of 10 April 1946, Official Gazette of the Control Council in Germany, p. 133.
- 143.
The Coal and Steel Co-Determination Act stipulates special requirements for the size of the supervisory board deviating from the general rules of Sec. 95 AktG.
- 144.
As a general rule the statute is applicable regardless of the specific business purpose of the company. However, within the scope of its applicability (more than 1,000 employees, coal and steel) the Coal and Steel Co-Determination Act takes precedence over the One-Third Co-Determination Act.
- 145.
For a more detailed review see Mertens and Schanze 1979, pp. 75 et seq.
- 146.
By derogation from the general rules of Sec. 95 AktG, the size of the supervisory board depends on the number of employees: in companies with up to 10,000 employees, 12 representatives (six from each side) have to be elected; in companies with between 10,000 and 20,000 employees, 16 representatives (eight from each side) have to be elected and in companies with more than 20,000 employees, 20 representatives (ten from each side) must be elected.
- 147.
For instance in an AG with 11,000 employees, six members of the supervisory board will be elected by the shareholders’ meeting, four by the employees and two members will be appointed by the labor union.
- 148.
See Davies 1997, p. 234.
- 149.
For more detail see Heiser 2000, pp. 60 et seq.
- 150.
An English translation of the most important supervisory legislation is available at www.bafin.de.
- 151.
See infra, Sect. 4.5.
- 152.
For further detail on the following see Möllers 2010, pp. 133 et seq.
- 153.
See Frankfurter Allgemeine Zeitung as of 9 April 2009, p. 11.
- 154.
An average of 20 months was required to pass the four Level 1 Directives as opposed to an average of nine years for the enactment of a Directive prior to the introduction of the Lamfalussy process; see European Commission, The Application of the Lamfalussy Process to EU Securities Markets Legislation—A preliminary assessment by the Commission services, Commission Staff Working Document as of 15 November 2004.
- 155.
Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation, OJ 2003 L 96/16.
- 156.
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments, OJ 2004 L 145/1.
- 157.
Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, OJ 2005 L 390/38.
- 158.
Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading, OJ 2003 L 345/64.
- 159.
See Sec. 12 WpHG; an ‘organized market’ within the meaning of the WpHG is a market which is regulated and supervised by state-approved bodies, is held on a regular basis and is directly or indirectly accessible to the public, see Sec. 2 para. 5 WpHG.
- 160.
Detailed requirements for this self-exemption procedure are regulated in the WpAIV.
- 161.
For further detail see van Kann et al. 2007, pp. 255 et seq.
- 162.
See Sec. 26 WpHG.
- 163.
See Sec. 22 WpHG.
- 164.
See Sec. 22 para. 1 no. 5 WpHG.
- 165.
See Sec. 27a para. 1 sentence 1 WpHG.
- 166.
See Sec. 27a para. 1 sentence 3 WpHG.
- 167.
See Sec. 28 para. 1 sentence 3 WpHG.
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Schulz, M., Wasmeier, O. (2012). Stock Corporation (AG). In: The Law of Business Organizations. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-17793-4_2
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