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Corporate law in Germany
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The control of the board of directors of a German public stock corporation by the foreign parent company
The executive board of a German public stock corporation manages the company on its own responsibility.
Independence of the Board of Directors
According to German company law, in the German public stock corporation management tasks may not be transferred to other bodies of the company. It is therefore not possible to implement decisions made at the level of the parent company in the subsidiary company without the involvement of the board of directors of the subsidiary.
The enforcement of group guidelines by control agreement
The independence of the executive board of a German public stock corporation repeatedly interferes with the interests of its foreign parent company in enforcing group guidelines in the German subsidiary. For the foreign mother company it is not easily possible to impose decisions on a board of directors of a German public stock corporation. The board members are often appointed for a period of 5 years and can only be dismissed for good cause. The German group law solves this conflict by means of the contol agreement. However the control agreement has legal consequences that could interfere with the interests of the foreign parent company and the German subsidiary. For example, the parent company is obliged to assume the loss of the subsidiary if a control agreement has been concluded between the companies.
Other approaches in practice
Apart from the control agreement, there are no really effective instruments for imposing decisions of the parent company on the board of a German public stock corporation. In practice, the problem is often bypassed by appointing a board member of the parent company to the board of the German public limited corporation. However, this requires that the board members are in a position to oversee the management tasks in the subsidiary. Otherwise hey may expose themselves to an incalculable liability risk.
At the same, the problem cannot be solved by staffing the supervisory board of the German public limited company with members of the management bodies of the foreign parent company. The supervisory board in Germany may not interfere in the day-to-day management of the German public stock corporation. According to the German Stock Corporation Act, management measures cannot be transferred to the supervisory board.
Conversion of the company as the last and most effective option
If the foreign parent company wishes to exercise specific influence on management measures, a conversion of the stock corporation into a limited liability company (GmbH) may be considered. In the German GmbH, the shareholders‘ meeting can instruct the management in individual cases. It can also dismiss the managing director at any time. Thus, in contrast to the German public stock corporation, the parent company of the German GmbH has far-reaching possibilities to influence the management.
You want to know more about the German public stock corporation and its Board of directors? Get in touch with us! Our specialist lawyers for commercial and corporate law will advise you on all questions concerning the German public stock corporation (AG).
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