The Limited Liability Company under German Law (the GmbH). Dr Alexander Schröder-Frerkes
give the shareholder additional voting rights within the articles of association. In the event of such a deviation from statutory law, the consent of all shareholders whose rights will be negatively affected by such a provision is required. This consent may be given when the articles of association are drawn up or at any later point in time in connection with a change of the voting rights.
83. Proxy voting
As outlined above,37 a shareholder is not required to appear personally at a shareholders’ meeting, but may send a proxy in his or her place. Unless otherwise stipulated by the articles, this form of representation requires a written power of attorney.38 The articles may also set forth more stringent criteria for the participation rights and stipulate that only a personal appearance of the shareholders at the shareholders’ meeting is allowed, that is, that proxy voting is excluded. A common regulation is that a shareholder may only be represented by other shareholders or by persons practising certain professions where they are subject to a professional duty of confidentiality, such as legal or tax advisers. A written power of attorney granted to a proxy for participation in the shareholders’ meeting can, in principle, be revoked at any time. It will not prevent the shareholder issuing the power of attorney from being able to appear in person at the shareholders’ meeting and exercise his or her participation rights. If an irrevocable power of attorney were to be granted, this would be very similar to a situation in which the voting right is separated from the shareholding, which is not acceptable under German law. It would have to be considered in each individual case in question whether or not a failure to observe the restrictions in this regard is present.
84. Voting agreements and pools
Within the limits prescribed by mandatory statutory law39 and standards of morality,40 shareholders are entitled to commit themselves to exercising their voting rights in a shareholders’ meeting in a certain way. The typical situation would be when a shareholder enters into a voting agreement with another person (this person being a shareholder or a third party), thereby committing him- or herself to exercising his or her voting rights according to the instructions of such a person. Such an arrangement is often found in the form of a supplementary provision attached to a pledge or lien agreement in which the pledgee is granted the right to instruct the shareholder as to how to execute his or her voting right relating to the pledged share. The pledging of the shares does not in itself grant or transfer the voting rights in these shares.41
Also not untypical are voting arrangements between the shareholders themselves whereby the shareholders promise to exercise their voting rights in a certain uniform way. The way in which the voting right is exercised is either determined by a majority vote of the ‘pooling shareholders’, by instructions given by one shareholder, or by any other way stipulated in the pooling agreement between the shareholders. By entering into such a pooling agreement, the shareholders establish a civil law partnership (Gesellschaft bürgerlichen Rechts). A valid voting arrangement may be enforced before the courts. It is, however, highly disputed among legal scholars and the courts whether an arrangement stipulated in such a voting agreement may also be enforced by way of injunctive relief.
Apart from the limits prescribed by statutory law and standards of morality, voting arrangements or voting pools may not be used to circumvent the exclusion of the voting right of one shareholder with regard to a certain resolution.42
85. Fiduciary duties to vote in a certain way
All shareholders are in principle entitled to exercise their voting rights at the shareholders’ meeting at their sole and unlimited discretion. In certain individual cases, shareholders may, however, be restricted in terms of the way they exercise their voting right, in particular on the basis of their fiduciary duties (also called duty of loyalty) towards their fellow shareholders and the GmbH.43 The fiduciary duties may even result in the consequence that a shareholder is obliged to exercise his or her voting rights in a certain way in order to prevent damages occurring to the company or other shareholders. If a shareholder votes contrary to his fiduciary duty, the respective vote is considered void. It will not be taken into account when establishing the outcome of the specific shareholders’ resolution. If the vote is taken into account and plays a decisive role as regards the outcome, the resolution is contestable.
86. Exclusion of voting rights
Under certain circumstances, a shareholder might not be entitled to make use of his or her voting right in a shareholders’ meeting with regard to a specific resolution to be passed. If a case such as this applies, the shareholder, or his or her agent or proxy, may not participate in the respective voting process. The same applies if solely the agent but not the shareholder is subject to exclusion rights of this nature. The reason for the exclusion of the voting right is to avoid an obvious collision of interests between the interests of the shareholder in question on the one hand and those of the company and the other shareholders on the other. No person is entitled to decide whether the company should enter into business with him or her or be a judge in his or her own case. The exclusion of the voting right, however, does not exclude the right of the shareholder to participate in the shareholders’ meeting and to speak on the issue. The shareholder is only excluded from casting his or her vote.
The first scenario in which a shareholder is excluded from taking part in the voting process is when a resolution is to be passed on whether he or she should be discharged (Entlastung).44 This scenario comprises situations in which a shareholder additionally holds an office as managing director or as a member of the supervisory board, liquidator, etc. The shareholder will not only be excluded from voting if the shareholders’ meeting is to reach a resolution on the discharging of an individual member of the corresponding corporate body (which it is entitled to do), but also if the respective corporate body to which the shareholder belongs is to be discharged in its entirety. Whether or not the exclusion also applies if the shareholders’ meeting reaches a resolution on discharging a fellow member of the respective corporate body is a matter of controversy.
Secondly, shareholders are not entitled to exercise their voting rights if this results in them being exempted from liability.45 The term ‘exemption’ must be interpreted broadly and includes any and all measures by means of which the shareholder is even partly relieved of such liability (also deferral of payment). The word ‘liability’ must equally be interpreted broadly and means any and all liabilities which may arise in the relationship between the company and a shareholder, irrespective of its legal basis. The exclusion of the voting right also applies to security grantors who are also shareholders and who provide security for a shareholder liability from which the respective shareholder in question would be exempted.
Thirdly, the voting right may not be exercised if the resolution relates to a legal transaction (Rechtsgeschäft) to be entered into between the GmbH and a shareholder.46 A legal transaction comprises agreements of all kinds as well as unilateral declarations (such as, eg, revocation, rescission, declaration of termination, etc) and the retroactive approval of legal transactions into which the company and the shareholder have entered.
In the last scenario in this regard, a shareholder is prohibited from casting his or her vote if the shareholders decide to initiate or settle a legal dispute with this shareholder.47 A legal dispute comprises proceedings of any kind, not only court proceedings but also arbitration proceedings and any other extrajudicial proceedings or proceedings preparatory to trial in court (eg, foreclosure or injunctive relief). In the same way, the initiation of a legal dispute not only comprises measures leading to a court trial but also other measures prior to such proceedings, such as the request of payment, threatening court proceedings etc. Finally, the settlement of a legal dispute comprises any and all measures leading to the conclusive termination thereof (eg, settlement or waiver).
In addition to the cases cited above, a shareholder who at the same time acts as a managing director is also excluded from taking part in the voting process if a resolution is to be reached regarding his or her removal as managing director ‘for cause’. The typical example for such a resolution is the aforementioned removal of a managing director for cause or the termination of his or her service agreement for cause. In these cases, the shareholder in question is not entitled to vote, as this would mean that he or she