GERMANY Law and Practice Contributed by: Christoph Nolden, Nicolas Ott, Stefan Mendelin and Thomas Glaser, SZA Schilling, Zutt & Anschütz
4.2 Buybacks Stock corporations and limited liability companies can both acquire and hold own shares. However, share buybacks are primarily important with regard to stock corporations. The following information therefore focuses on stock corporations. Pursuant to Section 71 of the Stock Corporation Act, a stock corporation may acquire its own shares up to an amount of 10% of its capital stock. Apart from in certain exceptional cases, share buybacks require an approval by the general meeting. The approval has a maximum term of five years. Listed companies are required to inform the German Federal Financial Supervisory Authority about the approval itself. They may also be required to publish an ad hoc announcement when the approval is actu- ally used to buy back their own shares. Share buybacks lead to a reduced number of shares in circulation (free float). Therefore, in many cases, rising share prices are to be expected. It should also be noted that shares bought back by the company: • do not grant voting rights; and • do not grant the right to participate in profits in the form of dividend payments. Therefore, share buybacks increase the voting rights and the dividend per remaining share. The Financing for the Future Act ( Zukunftsfinan - zierungsgesetz ) introduced a statutory framework for German SPACs (Börsenmantelaktiengesellschaften, or BMAGs), which includes special shareholder rights in case of de-SPAC transactions. For example, share- holders must be offered a cash exit option before the completion of the business combination. This gives dissenting shareholders a new path to exit prior to dilution or change in strategy.
ing on the size of the company, these need to be completed three to six months after the end of the financial year. In stock corporations, the executive board and the supervisory board may be allowed to allocate a share of the profits to the capital reserves of the company when preparing the annual financial statements, such that these amounts are no longer available for distri- bution to the shareholders. Once the amount of profits has been determined, the shareholders jointly decide on their appropriation. Usually, a resolution on the appropriation of profits determines which strategy is to be pursued. The following options are common at shareholders’ meetings: • open distribution of profits; • profit carried forward for the next financial year; and • allocation as retained earnings. If the shareholders decide to distribute profits, nor- mally the amount each shareholder gets depends on the proportion of the company’s shareholding. If the articles of association stipulate a different distribution, this stipulation must be followed. 6. Shareholders’ Rights as Regards Directors and Auditors 6.1 Rights to Appoint and Remove Directors The general meeting of a stock corporation cannot appoint and dismiss the members of the executive board; it is the competence of the supervisory board to do so. Thus, shareholders may only influence the executive board indirectly by appointing and dismiss- ing the members of the supervisory board. However, if a company exceeds a threshold of 500 employees, a third of the members of the supervisory board must be employee representatives, who are not appointed by the general meeting. If a company exceeds a threshold of 2,000 employees (including its subsidiaries), 50% of the supervisory board members must be employee representatives – with the chair of the supervisory board regularly being a shareholders’ representative.
5. Dividends 5.1 Payments of Dividends
Every stock corporation and limited liability company has to prepare annual financial statements. Depend-
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