The Limited Liability Company under German Law (the GmbH). Dr Alexander Schröder-Frerkes
target="_blank" rel="nofollow" href="#ulink_0e4340e1-4db3-5d5b-9166-b990cc024a8b">9 Since the right to information is mandatory by law, the shareholders may not exclude such a right from the articles of association. However, the shareholders are entitled to set out certain formal requirements with regard to the exercising of the right to information (eg, solely by written request, the dates and times when the books may be inspected, such as during normal business hours, etc) as long as the right to information remains unaffected in terms of its essential core.
42. Individual rights: right to profits
According to statutory law, the shareholders are entitled to receive the annual profits plus any profit carried forward minus any losses carried forward, unless the articles of association or a shareholders’ resolution stipulate otherwise.10 The profits are distributed among the shareholders according to their shareholdings in the company. However, the articles of association may stipulate another arrangement for the distribution of the profits.11 The articles may also stipulate, or the shareholders may resolve, that the company shall not make or distribute any profits at all. This is usually the case in non-profit or profitless companies. Profitless companies are typically those which only provide services for other (group) companies or their member companies and thus are only compensated for their ‘out-of-pocket’ expenses (subject to observance of the arm’s-length principle). In companies which make profit and have minority shareholders, a resolution not to distribute any profits at all but to keep them within the company may stand in conflict with the duty of loyalty of the majority shareholder.
43. Individual rights: subscription right in the event of a capital increase
Although the Act on Limited Liability Companies does not provide an explicit provision in this regard, it is generally recognised that in the event of an increase in the share capital of a GmbH, all shareholders are entitled to receive the newly created shares in relation to their current shareholding in the company. Thus the shareholders may maintain the respective voting and profit share entitlements in the company to which they were entitled prior to the capital increase. These principles have been established by the courts in line with German stock corporation law.12 In certain circumstances, however, the subscription right of one or even all shareholders may be excluded if there is a predominant interest on the part of the company to the effect that a new shareholder joining the company should receive the new shares. A predominant interest of this kind may for instance exist when a contribution in kind is necessary for the company and neither the company nor the shareholders are able to provide this (eg, a company or business as a whole). An exclusion of shareholders has also been found to be legitimate if the GmbH needs to cooperate with an external partner or if the company is in need of new funds which cannot be raised by the current shareholders.
44. Individual rights: the right to challenge shareholders’ resolutions
Each shareholder is entitled to challenge a shareholders’ resolution before an arbitration court by filing a claim either that the resolution is null and void or that it is contestable. With regard to the right to contest a shareholders’ resolution, it is not necessary that the shareholder claiming the invalidity of the resolution has participated in the shareholders’ meeting. The claim must be directed against the company itself and not the other shareholders.
A shareholders’ resolution may first be challenged by an action for nullity (Nichtigkeitsklage) if the resolution entails a severe violation of applicable law. Potential grounds which may constitute a severe violation of this nature could include the fact that the shareholders’ meeting has not been properly convened, a resolution has not been notarised although this is required by law, a resolution has been passed which does not comply with the nature of a GmbH, a resolution has been passed which violates provisions which exclusively or predominantly aim to protect the debtors of the company or are otherwise in the interests of the general public, or that a shareholders’ resolution is in direct violation of moral standards. In this regard, the conditions as outlined in the Stock Corporation Act under which a resolution of the shareholders is deemed to be rendered void, apply accordingly.13 There is no statutory time limit within which an action for nullity regarding a resolution passed within a GmbH must be filed with a court. However, since, if it goes unchallenged, a null and void resolution will become valid three years after its registration in the commercial register or the passing of the resolution respectively, the claim must be filed within this time frame at the latest.14 Before that point in time, the right to challenge a resolution may, however, also be forfeit according to general principles of law.
Aside from these specific reasons which may lead to a shareholders’ resolution being found null and void, a shareholders’ resolution may generally be challenged on the basis of a violation of applicable statutory law or the articles of association.15 Since any violation of the law or the articles of association gives rise to a right to challenge the respective shareholders’ resolution in question, a violation will only result in a successful challenge of the resolution if the violation of the law or the articles bore relevance where the passed resolution was concerned. Whether or not a violation was ‘relevant’ depends on the intention of the violated rule to protect the interest of each shareholder in adequately participating in the decision-making process of the company. Each case must be considered individually, taking into account the specific rule in question. A relatively substantial body of case law has been developed by the courts and legal scholars in this regard. The burden of proof as regards this lack of relevance lies with the company, wherein the shareholder filing the claim must specify the violation of the provision in question to the extent reasonably possible. This depends largely upon whether he or she had insight into the reasons for the violation of the provision.
The respective action of opposition (Anfechtungsklage) must be filed with the court within an appropriate period of time after the resolution has been passed. The Federal Supreme Court considers a period of four weeks to be appropriate, but this may also be extended if particular grounds to justify an extension are demonstrated.
The outcome of both actions (for nullity and of opposition) is that the respective shareholders’ resolution is declared null and void. The decision is binding on all shareholders, managing directors, the supervisory board (if applicable) and the company itself.16
45. Individual rights: actions on behalf of the company
It is the obligation of the managing directors or of the responsible corporate body as stipulated in the articles of association to assert claims against the shareholders based on their (corporate) relationship towards the company. In particular, this includes payment obligations, such as paying in the contribution to the share capital. Under particular conditions, however, a shareholder may be entitled to assert such a claim him- or herself on behalf of the company and request payment or the fulfilment of the obligation of the other shareholder towards the company (actio pro socio). In other words, the shareholder pursuing an actio pro socio may not require that the obligation is fulfilled towards himself, but only towards the company. An actio pro socio is a subsidiary remedy and may only be pursued if all other remedies fail. Prior to pursuing such a claim him- or herself, the shareholder must request the managing directors or any other competent corporate body to assert the claim against the other shareholder(s). If the respective corporate body refuses to pursue such a claim, the shareholder must then try to obtain a shareholders’ resolution instructing the managing director to require that the non-performing shareholder provide payment or fulfil his or her obligation. In the case of a negative shareholders’ resolution, the shareholder must challenge the shareholders’ resolution itself prior to acting on behalf of the company. The right to pursue an actio pro socio is mandatorily prescribed by law