Corporate Law & Horak Attorneys at Law
Stock Corporation Law
What do we mean by that?
Stock corporation law is the special corporate law of the stock corporation and all the parties involved. The Stock Corporation Act regulates it, among other things and in Germany it is called “Aktienrecht”. Legal advice ranges from the formation of a stock corporation to all questions of company law in the course of its existence. This can concern shareholders and partners, forms of shares, management, supervisory board, executive board, general meeting (ordinary and extraordinary), company purchases and sales as well as the handling of interests of individuals against an AG or the defence of management bodies and the AG against such positions.
What special features must be taken into account when setting up an AG?
Due to the strictness of the articles of association, the possibilities for shaping the articles of association of a stock corporation are limited. The AG has a share capital divided into shares. The share capital serves to secure the creditors. At least one person must establish a statute (articles of association of the AG) as the founder. The foundation must be authorized by a notary. The formation deed must state the founders, in the case of par value shares the par value, in the case of no-par value shares the number, the issue amount and the class of shares which each founder assumes as well as the paid-up amount of the share capital.
The statutes shall include at least the following information:
- the name and registered office of the company;
- the object of the company;
- the amount of the share capital;
- the division of the share capital into shares of nominal value or no-par value, the number and class of shares;
- whether the shares are bearer shares or registered shares;
- the number of members of the Management Board or the regulation according to which this number is determined;
- Determination of the form of the Company’s announcement;
- the total expense incurred by the Company for the formation of the stock corporation.
Following the amendment of the German Stock Corporation Act (AktG) in mid-1994 (“kleine AG”), a minimum number of shareholders is no longer required even when the company is already founded. It is also possible to set up a one-man company. Founders of an AG can be natural and legal persons, including foreign ones, and commercial partnerships (OHG, KG and EWIV).
The share capital of the AG amounts to at least EUR 50,000 regardless of whether the capital market is used or not. The capital can be provided in the form of cash or non-cash contributions. Pursuant to Section 27 I AktG, contributions must already be stipulated in the Articles of Association.
An AG can pursue almost all purposes that are legally permissible. By law, the AG is always considered as a trading company irrespective of the purpose actually pursued (form merchant).
The company name of the AG can either be borrowed from the activity of the company (Sachfirma), the name of one or more shareholders (Namensfirma) or contain an imaginary name. Combinations of these elements are also possible; the real company must always contain an individualising addition. The addition “Aktiengesellschaft” or the abbreviation “AG” must be added to the company name in all cases.
A trademark and company name search is indispensable for finding the company.
The company must be registered at the register court by all founders and members of the executive board and supervisory board for entry in the commercial register. The notary takes over the registration and attaches to it the articles of association and the deed in which the articles of association were established, a calculation of the formation expenses charged to the company, deeds on the appointment of the board of directors and the supervisory board as well as the formation report and audit report and, if applicable, the report of the external formation auditors.
What rights and duties does the board have?
The Executive Board represents the stock corporation in and out of court and manages the business. The members of the executive board do not have to be shareholders (foreign bodies). The composition of the management board is determined by the articles of association. It may consist of one or more persons. The employment contract of the members of the executive board of the AG is a service contract.
The actual management is the sole responsibility of the executive board. This acts on his own responsibility. In principle, the management authority is unlimited (unless the approval of the Supervisory Board is provided for). The Executive Board represents the AG externally. The power of representation is basically unlimited.
The members of the Management Board are not liable to third parties for the obligations of the Company nor do they have to compensate internally for losses incurred by the Company during the period of its management. The entrepreneurial risk is borne solely by the Company. However, the members of the Management Board are legally obliged to conduct business with the diligence of a prudent businessman. If a member of the Management Board violates this obligation in relation to the Company, this may result in claims for damages by the Company.
What rights and obligations does the Supervisory Board have?
The main function of the Supervisory Board is to appoint, dismiss and supervise the Executive Board in its management of the company (control function). The Supervisory Board is responsible for convening the Annual General Meeting if the best interests of the company so require and for examining the annual financial statements, the management report and the proposal for the distribution of profits. The Supervisory Board shall consist of at least three members. The statutes may provide for more members, but the number must be divisible by three. In principle, any natural person may be elected. The members of the Supervisory Board are published in the commercial register. The Supervisory Board itself
may neither carry out management actions nor issue instructions to the Management Board. All members of the Supervisory Board, whether as shareholder representatives or employee representatives, have the same rights and duties. We also advise Supervisory Board members on the exercise of their participation rights, remuneration issues and liability cases.
What does the Annual General Meeting do?
The Annual General Meeting has to be voted by the shareholders. It is therefore the organ of the shareholders in which they exercise their rights in relation to the AG. The convening of the Annual General Meeting is the responsibility of the Executive Board. A number of formalities must be observed when convening and holding the Annual General Meeting. The General Meeting can only decide on management issues if the Executive Board so requests. It cannot issue instructions. The general meeting has an influence on the management only to the extent that it elects the shareholder representation for the supervisory board. In addition, the General Meeting elects the auditor and decides on the appropriation of the balance sheet profit. It grants discharge to the Executive Board and the Supervisory Board. Conflicts under stock corporation law often arise in connection with a general meeting.