Shareholders’ resolutions may appear to be purely formal and are often not obtained at all, or not obtained correctly. However, against the backdrop of potential liability risks The existence of valid shareholders’ resolutions often determines whether managing directors succeed or fail. Here is an overview of what needs to be taken into account and why.
Why do we need shareholders’ resolutions?
On the one hand, there are certain circumstances in which statutory provisions require a shareholders’ resolution. On the other hand, the articles of association or other regulations may set out lists of measures and legal transactions for which the shareholders’ prior consent must be obtained by means of shareholders’ resolutions. Thirdly, the managing director is required to obtain the shareholders’ consent in the case of extraordinary measures.
Managing directors of a GmbH or a UG, in particular, should make active use of the option to bring about shareholders’ resolutions. This is because shareholders’ resolutions are an effective means of documenting and legitimising decisions. Shareholder resolutions provide clarity and play a vital role in helping managing directors to avoid liability. (Click here for more information on directors’ liability)
Shareholders’ meeting and shareholders’ resolution
A shareholders’ resolution is passed at the shareholders’ meeting. The shareholders’ meeting is, on the one hand, the main governing body of the GmbH, through which the shareholders are represented in relation to the company.
On the other hand, the term ‘shareholders’ meeting’ also refers to the actual gathering of the shareholders, that is, the process by which the shareholders reach a decision.
A shareholders’ resolution is the expression of the shareholders’ collective decision regarding a specific matter, resulting from a vote. Through a shareholders’ resolution, the shareholders make a binding declaration of intent regarding the subject matter of the resolution. For example, instructions or approvals from the shareholders for management actions are given by
The resolution was declared binding on the management.
Shareholder resolutions may be passed either at shareholders’ meetings or outside of shareholders’ meetings.
When must, and when should, shareholders’ resolutions be passed?
1. Exceptional management measures
Under Section 49(2) of the German Limited Liability Companies Act (GmbHG), the managing director is required to obtain the approval of the shareholders’ meeting for extraordinary measures. The Act does not define what constitutes an extraordinary measure. This undefined legal term must be interpreted on a case-by-case basis. Extraordinary measures are understood to mean measures that go beyond the ordinary course of business, as well as particularly significant or high-risk measures and legal transactions. These may include, for example, the conclusion of a contract with
These may include long-term projects, the initiation of legal proceedings or corporate acquisitions.
If the managing director is unsure whether a measure is exceptional, he must, in case of doubt, secure a resolution from the shareholders, section 49(2) of the German Limited Liability Companies Act (GmbHG). It is also in the managing director’s own interest to ensure that the shareholders support him and have expressed this through a corresponding resolution. If it later transpires that the measure has caused damage to the company, the managing director may rely on the fact that he acted with the shareholders’ consent – that is, on their instructions.
2. Cases specifically provided for by law
In some cases The law expressly requires a resolution by the shareholders. The most important ones are:
Annual accounts, disclosure, consolidated accounts, determination of profit
• Approval of the annual accounts, Section 46(1) of the German Limited Liability Companies Act (GmbHG)
• Resolution on the appropriation of profits, section 46(1) of the German Limited Liability Companies Act (GmbHG)
• Approval of consolidated financial statements, Section 46(1b) of the German Limited Liability Companies Act (GmbHG)
• Decision on the disclosure of the annual accounts or their preparation and approval in accordance with international accounting standards, Section 46(1a) of the German Limited Liability Companies Act (GmbHG)
Measures relevant to the structure
• Amendments to the Articles of Association, Section 53(1) of the German Limited Liability Companies Act (GmbHG)
• Capital increases, capital reductions, Sections 53, 55 and 58 of the German Limited Liability Companies Act (GmbHG)
• Measures under the Transformation Act
• The conclusion, amendment and termination of corporate agreements (e.g. profit transfer and control agreements), Sections 291 and 293 of the German Stock Corporation Act (AktG) by analogy
• Division, consolidation and redemption of shares, section 46(4) of the German Limited Liability Companies Act (GmbHG)
• Winding up of the company and appointment of a liquidator, Sections 60(1)(2) and 66 of the German Limited Liability Companies Act (GmbHG)
Measures taken against directors and shareholders
• Appointment, dismissal and discharge of the management, Section 46(5) of the German Limited Liability Companies Act (GmbHG)
• Conclusion, amendment or termination of managing director’s employment contracts; Section 46(5) of the Limited Liability Companies Act (GmbHG) by analogy
• Audit and supervision of the management, Section 46(6) of the German Limited Liability Companies Act (GmbHG)
• Appointment of authorised signatories and authorised representatives, Section 46(7) of the German Limited Liability Companies Act (GmbHG)
• Recovery of outstanding capital contributions from shareholders, section 46(2) of the German Limited Liability Companies Act (GmbHG)
• (Resolution authorised under the articles of association) concerning the demand for or reimbursement of additional contributions from shareholders, Sections 26(1) and 46(3) of the German Limited Liability Companies Act (GmbHG)
• Asserting claims for compensation and providing legal representation in proceedings against managing directors or individual shareholders, section 46(8) of the German Limited Liability Companies Act (GmbHG)
3. Cases provided for in the contract
Irrespective of statutory requirements, managing directors may also be obliged by contractual provisions to bring about shareholders’ resolutions. This is because, under section 37(1) of the German Limited Liability Companies Act (GmbHG), the managing directors’ power of representation may be restricted in internal relations – either by the articles of association or by other provisions authorised by the shareholders. These restrictions on representation are typically governed by lists of measures that require the prior consent of the shareholders
are required. Such consent requirements are frequently found in the following sets of regulations:
Articles of Association = the company’s „Articles of Association“ as published in the Commercial Register
Shareholders’ Agreement/Shareholding Agreement = a contractual agreement between the shareholders and the management
Rules of Procedure for the Management Board = detailed rules governing the functions and operations of the management, which may be adopted and amended by a resolution of the shareholders.
Managing Director’s Contract of Employment = the contractual agreement between the managing director and the company
4. Instructions from the shareholders
Finally, a shareholders’ resolution is required if the shareholders wish to issue specific instructions to the management (Section 37(1) of the German Limited Liability Companies Act (GmbHG)). Even if the managing director does not agree with the substance of such an instruction, he is obliged, at the shareholders’ request, to bring about a shareholders’ resolution, by which he is then bound.
In what form are shareholders’ resolutions passed?
Always permitted: at shareholders’ meetings
Shareholder resolutions can always be passed at shareholders’ meetings, as provided for by law. The advantage of shareholders’ meetings is that they allow shareholders to
so that they can discuss the individual items before a decision is taken.
In practice: Resolutions taken outside shareholders’ meetings
The complex and time-consuming process of preparing for and holding shareholders’ meetings is inappropriate for most resolutions that are not particularly contentious and, fortunately, is not necessary either. Shareholder resolutions can, in fact, also be passed outside a shareholders’ meeting, which is the norm in practice – provided the conditions are met; more on that shortly.
Important: Consent from ALL shareholders is required
The disadvantage of passing resolutions outside of shareholders’ meetings is that the shareholders are not able to discuss the matter to be resolved as thoroughly as they would at a shareholders’ meeting. The possibility of,
The right to express an opinion on a matter to be decided is an expression of the protection afforded to minority shareholders. For even if a minority shareholder were to be outvoted in the subsequent vote, it may be that he
at a shareholders’ meeting, whilst the matter under discussion was being debated, he might be able to persuade some shareholders to support his position, with the result that the majority required for the resolution might not be achieved.
For this reason, it is necessary for all shareholders (including those who are excluded from voting) to agree to the procedure for passing resolutions outside a general meeting
explain. If even one shareholder objects to the resolution passed by written procedure, an extraordinary general meeting of shareholders would have to be formally convened, at which a vote would then be taken on the matter in question.
This means that a shareholder who objects to the substance of the shareholders’ resolution must nevertheless agree to the manner in which the resolution is passed outside a general meeting.
Check carefully what the terms are in the articles of association!
When passing a resolution outside a shareholders’ meeting, the provisions of the articles of association must be strictly observed, as the specific requirements governing the voting procedure may vary from company to company.
This applies in particular to questions such as:
• Who is authorised to initiate a vote by written procedure?
• Is it not possible to adopt a resolution by written procedure?
• What is the (minimum) deadline for casting votes?
• Must votes be submitted to the company in writing (with an original signature, Section 126 of the German Civil Code (BGB)), or is it sufficient to cast a vote in text form (by email or fax, Section 126b of the German Civil Code (BGB))?
• What applies if a shareholder fails, within the specified time limit, to either vote in the written procedure or comment on the substance of the matter to be resolved (for example, feigned consent to the method of resolution whilst in substance voting ‘no’)?
If the articles of association do not specify how resolutions are to be passed outside a general meeting, the statutory provision in section 48(2) of the Limited Liability Companies Act (GmbHG), which permits resolutions to be passed by written procedure, shall apply.
Adoption of resolutions by written procedure
A written procedure means that each shareholder casts their vote individually in writing or in text form, and the votes are collected by the company. If a resolution may be passed outside a shareholders’ meeting, it must then be clarified whether votes must be cast in writing, or whether a text-based format – such as email or fax – is sufficient.
This is, once again, primarily governed by the provisions of the articles of association, which may vary from company to company.
In writing
‘In writing’ within the meaning of Section 126 of the German Civil Code (BGB) means that the vote must be signed by the voter in person and the original must be sent to the company by post or handed over to the managing director in person.
UNFORTUNATELY, IT IS NOT SUFFICIENT simply to sign the voting form, scan it and then send it to the company by email or fax; this is because the declaration bearing the original signature has not been received.
to the recipient of the explanation (the company).
In writing (by email or fax)
If votes are to be cast in text form only, it is sufficient for the vote to be submitted on a durable medium. It is recognised that transmission by email or fax is sufficient in this regard. For the written form, it is not necessary for the declaration to bear a signature. Therefore, for a resolution to be passed in writing, it would be sufficient for the vote to be included in the body of the email. Sending a scanned
It is not necessary to sign your ballot paper, but of course there is no harm in doing so.
Template for a provision in the articles of association for a resolution to be passed by email
If you are unsure whether your articles of association permit resolutions to be passed by email, it would be worth considering amending the articles of association to clarify this at the earliest opportunity. Thus
Such a provision in the articles of association might read as follows:
„Shareholders’ resolutions shall be adopted at a general meeting of shareholders or – provided that no shareholder objects to this procedure – by written procedure (in writing, by fax, by email or by any other means
(in writing) or a combination of the above procedures. In the case of votes cast in writing, a period of at least one week must be set for the casting of votes, commencing at the end of the day on which the ballot is dispatched. Any objection to the casting of a vote outside a general meeting must be made within the specified time limit. The date on which the vote or the objection to the procedure is received by the company shall be decisive.
However, if a shareholder fails to cast their vote within the specified time limit, this shall be deemed a rejection of the matter under resolution; the validity of the resolution adopted outside a general meeting remains unaffected in this respect.“
What are the rules for a GmbH & Co. KG?
The principles outlined above apply mutatis mutandis to the passing of resolutions in a GmbH & Co. KG or any other partnership – such as a GbR, oHG or KG. Here, too, it is advisable for the management to make the most extensive use possible of the resolution-making process for individual measures in order to minimise liability risks. When and in what form a shareholders’ resolution may be passed is, in this case as well, primarily governed by the articles of association.
In the case of a GmbH & Co. KG, it is particularly important to bear in mind that it comprises two separate companies – the limited partnership and the general partner GmbH. When passing resolutions, it is therefore essential to ensure that the shareholders’ resolutions are passed for the correct company and by the correct shareholders.
Conclusion
Shareholders’ resolutions are important and should be made use of extensively by the management, particularly to avoid liability.
The procedure for passing shareholders’ resolutions depends largely on the provisions of the articles of association, which must be observed.
Contact at GWGL:
Dr Conrad Grau (grau@gwgl-hamburg.de)