The Limited Liability Company under German Law (the GmbH). Dr Alexander Schröder-Frerkes
General
The rights of the shareholders in a GmbH may be divided into three categories: individual rights, minority rights, and the collective rights of all of the shareholders as a whole. The most important rights represented within these groups shall be briefly described in the following sections.
38. Individual rights
Each shareholder has certain individual rights, ranging from the right to participate in shareholders’ meetings and information rights to rights on profits, to name some of the most important of these here. The following subsections describe specific individual rights.
39. Individual rights: the right to participate in shareholders’ meetings
Every shareholder in a GmbH is entitled to actively and passively participate in each shareholders’ meeting. The active participation right comprises the right to speak and to vote at the shareholders’ meeting (see Section 40). The passive participation rights comprise the right to appear at the shareholders’ meeting and to receive all the information provided at or prior to the shareholders’ meeting. The participation right is generally an irrevocable right. A (partial) exclusion of a shareholder from participation in the shareholders’ meeting is only possible under very rare and exceptional circumstances, that is, when the participation of a shareholder at a shareholders’ meeting is unacceptable to the other shareholders. This may be the case if a participating shareholder might use the information he or she receives in the course of the shareholders’ meeting for his or her own purposes or against the company (for instance a competitor who has managed to become a shareholder of the GmbH).
A shareholder does not necessarily have to appear at a shareholders’ meeting in person. Unless the articles of association stipulate otherwise, shareholders may send a proxy or an agent to represent them at the shareholders’ meeting. In such cases, a written power of attorney is required and deemed sufficient.1 The articles may, however, set out further requirements regarding the representative and allow only certain persons, for example, other shareholders or persons practising certain professions (lawyers, tax advisers etc) to act as proxies.
40. Individual rights: the right to vote and restrictions upon the right to vote
Generally, all shareholders in a GmbH are entitled to exercise their voting rights during the shareholders’ meeting at their sole discretion. Some restrictions on the right to exercise voting rights, however, apply by virtue of the duty of loyalty towards the company and the other shareholders. This duty may sometimes result in the shareholders being obliged to vote in a certain way in order not to harm the interests of the company or the other shareholders (for details on the duty of loyalty see Section 64).
According to statutory law, each euro of a share grants the right to cast one vote at the shareholders’ meeting.2 The articles of association may, however, contain provisions which amend this rule entirely at the discretion of the shareholders. The articles may, for example, stipulate that the voting rights of certain shareholders are excluded, that the voting rights of a shareholder are limited to a certain number of votes (Höchststimmrecht) or may increase the number of votes of a shareholder to a level beyond the nominal amount for his or her share (Mehrfachstimmrecht). Since these regulations affect the voting rights of the other shareholders, they may only be granted with the consent of the affected shareholders.
The right to vote is exercised by the shareholder him- or herself, but may also be exercised by proxies based on a power of attorney. This power of attorney must be submitted in writing. The articles of association may set out further requirements for exercising the right to vote on behalf of a shareholder. These requirements may be of a formal nature (eg, the agent must be nominated sufficiently in advance) or of a material nature (eg, only certain qualified persons are acceptable as agents, like lawyers, tax advisers etc). The right to vote at a shareholders’ meeting cannot be legally separated from the share it relates to. A permanent transfer of the voting rights is only possible if the share itself is transferred. This also applies to any other administrative rights (such as information rights) in the company. Nevertheless, shareholders may enter into agreements either with their fellow shareholders or with third parties which oblige them to exercise their voting rights in a certain way (Stimmbindungsvertrag). Several or more shareholders may agree to exercise their voting rights collectively and in a certain way by creating a voting pool (Stimmrechtskonsortium). The scope of such voting arrangements is prescribed by accepted principles of morality (gute Sitten)3 and statutory prohibitions (gesetzliche Verbote).4 Also, the voting rights may of course not be exercised contrary to the fiduciary duties of a shareholder towards the company.
Finally, shareholders are excluded by law from exercising their voting rights if by so doing they end up adjuducating over their own affairs. Cases such as these constitute an evident conflict of interests between the shareholder and the company. Conflicts of this nature would occur if the shareholder were to be disencumbered in some way by the resolution or discharged from an obligation, if the company were to resolve on entering into an agreement with the shareholder, or if the company were to resolve on initiating or settling a legal dispute with a shareholder.5
41. Individual rights: information rights
At the request of a shareholder, the managing directors must: (i) provide information on the company’s business affairs; and (ii) allow the shareholder to inspect the books and records of the company, in each case without undue delay.6 As opposed to the case where a stock corporation is concerned, such a right to information may be exercised at any time and not only in or in connection with a shareholders’ meeting.7 The ‘affairs of the company’ constitute the subject matter of the information rights. This term is to be interpreted broadly. In basic terms, there should not be any secrets between the company and its shareholders. The affairs of the company encompass all facts relating to the assets, the management, the business strategy and the calculation and distribution of profits, as well as all other legal and economic relationships within the company or towards third parties. The right to information also extends to the affairs of subsidiaries and affiliated companies. If necessary, the management of the GmbH must collect the information relating to the subsidiary or affiliated company. The right to information allows the shareholders to be fully informed with regard to their investment and provides them with the factual foundation on which to base the exercising of their voting rights. The shareholder is entitled to commission a qualified professional to review the books and records of the company. It is highly disputed whether or not the articles may stipulate that the right to inspect the books and records may only be exercised by a qualified professional nominated by the shareholder. This position is rather difficult to uphold in a GmbH with just a few shareholders.
The managing directors may, however, refuse to provide information and to agree to the inspection of the books if they suspect that the shareholder will use the information provided for purposes which are not related or detrimental to the company (in particular pursue competition), thereby giving rise to a disadvantage for the company or an affiliated company. The refusal requires a shareholders’ resolution to this effect.8 Therefore, if the managing directors are of the opinion that a shareholder is not entitled to access information of the GmbH, they must request that a resolution be passed by the shareholders. If the shareholders’ meeting denies such a right to information, the shareholder requesting the information in question may seek a decision from a competent court as to