GERMANY Law and Practice Contributed by: Christoph Nolden, Nicolas Ott, Stefan Mendelin and Thomas Glaser, SZA Schilling, Zutt & Anschütz
In contrast, in limited liability companies, the share- holders’ meeting appoints and dismisses the man- aging directors. Where the respective thresholds of 500 employees and 2,000 employees are exceeded, a limited liability company must – similar to a stock cor- poration – establish a supervisory board and, with it, shift the right to appoint and remove managing direc- tors from the shareholders’ meeting to the supervisory board. 6.2 Challenging a Decision Taken by Directors The general meeting of a stock corporation cannot challenge a management decision, but it may refuse to grant an annual discharge of the management. In contrast, the shareholders’ meeting of a limited liabil- ity company may issue instructions to the manage- ment at any time. 6.3 Rights to Appoint and Remove Auditors Certified auditors or auditing firms examine the annu- al reports ( Jahresabschluss ) and the management reports ( Lagebericht ) on an annual basis, making them an important institution for shareholders. Thus, in stock corporations, the general meeting resolves on the appointment of the auditor following proposal by the supervisory board. Additionally, the supervisory board may appoint an audit committee ( Prüfungsausschuss ) to monitor the accounting process as well as the selection and the independence of the auditor. For limited liability com- panies, the auditors are also appointed by the share- holders – although the articles of association may deviate from this and shift the right of appointment to, for instance, an advisory board ( Beirat/Aufsichtsrat ).
ognised standards of good and responsible corporate governance. It is published by the Federal Ministry of Justice. If a stock corporation deviates from the recommenda- tions of the DCGK, it must justify this deviation in its declaration (the “comply or explain” principle). The declaration must be made permanently available to shareholders and all other interested parties on the company’s website. Regarding the obligations of a controlling company, a distinction must be made as to whether or not an intercompany agreement exists between the compa- nies. Unless the companies are affiliated based on a profit and loss agreement or control agreement, the control- ling company that exercises a disadvantageous influ- ence on the dependent company is legally obliged to compensate for these disadvantages. In principle, this obligation to compensate exists only towards the dependent company and not towards its share- holders. If the controlling company does not fulfil this obligation to compensate and the shareholders of the dependent company have suffered damage as a result, the shareholders can assert claims against the controlling company. In addition, shareholders of the dependent company can apply for a special audit. The independent special auditor investigates the business relationship between the controlling and dependent company. 8. Controlling Company 8.1 Duties of a Controlling Company If the companies are affiliated by way of a profit and loss agreement or control agreement, the sharehold- ers’ rights just mentioned do not exist. Instead, the shareholders have the right to demand financial com- pensation. This financial compensation can be real- ised in two ways: • recurring payment to those shareholders who wish to remain in the dependent company; or
7. Corporate Governance Arrangements 7.1 Duty to Report
The management board of a listed stock corporation must issue an annual declaration of compliance with the standards of the German Corporate Governance Code ( Deutscher Corporate Governance Kodex , or DCGK). The DCGK represents essential legal regula- tions for the management and supervision of compa- nies and contains internationally and nationally rec-
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