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Corporate law in Germany
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Legal Information
Subsidiaries of foreign companies in Germany
Foreign companies expanding to Germany can do so in various ways. They can establish a German subsidiary, a German branch or a permanent establishment in Germany.
The German subsidiary
The subsidiary is a legally independent company with its own legal personality in which the foreign parent company holds a majority stake. It has its registered office in Germany and is subject to German law. In practice, the legal forms of limited liability company (GmbH) and public stock corporation (Aktiengesellschaft) are frequently used to conduct business activities through a German subsidiary.
The duties of a foreign shareholder
The shareholders exercise their shareholder rights in accordance with the articles of association and German law. In doing so, they must observe the typical duties they have as shareholders of a German company.
The duties of the foreign shareholders of a German GmbH include above all:
1. The approval of the annual financial statements and the appropriation of earnings;
1a. Decisions concerning the disclosure of separate financial statements in accordance with international accounting standards (section 325 (2a) of the Commercial Code) and concerning the approval of the financial statements prepared by the directors;
1b. The approval of consolidated financial statements prepared by the directors;
2. The calling in of capital contributions;
3. The repayment of additional contributions;
4. The division of, grouping and collection of shares;
5. The appointment and dismissal of the directors, as well as their discharge;
6. The regulation of audits and oversight of the management;
7. The appointment of those vested with the general commercial power of representation and those vested with the commercial power of attorney for the entire business establishment;
8. The assertion of claims for compensation to which the company is entitled from the formation or the management is entitled vis-à-vis directors or shareholders, as well as the representation of the company in proceedings being conducted against the directors.
The general meeting of the German stock corporation has the following main responsibilities:
1. The appointment of members of the supervisory board,
2. The appropriation of the net income;
3. The approval of the actions taken by the members of the management board and of the supervisory board and the granting of discharge to them;
4. The appointment of the auditor of the annual accounts;
5. Amendments of the by-laws;
6. Measures serving the procurement of capital and the reduction of capital;
7. The appointment of auditors who are to audit actions taken and events occurring in the course of the company’s formation or of the management of its affairs;
8. The dissolution of the company.
Mangagement and control rights
The management is responsible for the operational activities of the limited liability company. It is appointed by the shareholders‘ meeting and supervised by it.
The parent company has different possibilities to influence the business activity. If the German subsidiary is a limited liability company (GmbH), the foreign parent company can issue instructions to the managing director in individual cases through its right of direction. The managing director must generally follow these instructions. If, on the other hand, the German subsidiary is an stock corporation (AG), the foreign parent company does not have this instrument at its disposal. The executive board of an AG is in principle not subject to the instructions of the shareholders. Also, the supervisory board of the AG only exercises a controlling function vis-à-vis the executive board. German company law prohibits the general meeting and the supervisory board from interfering in the ordinary course of business. Compared to the managing director of the German limited liability company, the executive board of the German stock corporation is much more autonomous. Conversely, the foreign parent company must be aware that it has significantly fewer possibilities to influence the operational business of the German stock corporation than it does with the German limited liability company.
You like to learn more about the legal status of subsidiaries of foreign companies in Germany? Get in touch with us! Our specialist lawyers for commercial and corporate law will advise you on all questions concerning your economic activities in Germany.
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