In review: shareholder rights and responsibilities in Germany

All questions

Engagement with shareholders

As a general rule, all shares in a German stock corporation confer equal rights, including equal voting rights, rights to receive dividends and information rights.

Voting rights are usually exercised per share or in proportion to the par value of the share. The Stock Corporation Act prohibits the creation of shares with multiple voting rights. With the approval of the general meeting, a stock corporation may issue non-voting preferred shares in a nominal amount of up to half of its registered share capital.

The shareholders of a stock corporation, unlike shareholders of German limited companies, have no direct influence on the management board. Their influence is limited to electing the members of the supervisory board, who, in turn, appoint and remove the members of the management board.

Since a shareholder representing a majority of the voting rights or the share capital of a corporation may de facto have a controlling influence on the stock corporation's management because of its ability to elect and dismiss the shareholder representatives on the corporation's supervisory board, a controlling shareholder must compensate any disadvantage suffered by the corporation as a result of its exercising its influence.

The controlling shareholder may legalise its influence on the stock corporation by concluding a domination agreement with the stock corporation. Once a domination agreement has been concluded, the Stock Corporation Act recognises the shareholder's right to give instructions to the management board. To become effective, the domination agreement must be approved by the corporation's general meeting with a supermajority of at least 75 per cent of the share capital represented at the meeting. The controlling shareholder is obliged to compensate any loss incurred by the controlled company during the term of the domination agreement and to acquire a minority shareholder's shares in return for adequate compensation at that shareholder's request.

Certain decisions are reserved for the shareholders' meeting by statutory law: this includes the appointment of members of the supervisory board, the appropriation of distributable profits, the appointment of the auditor, any amendments to the articles of association, measures to increase or reduce the share capital, and obligations to transfer significant assets of the company.

In addition, the shareholders' meeting must approve management decisions that could fundamentally affect the shareholders' rights and economic position, such as the sale or the hive-down of a business division into a subsidiary if the division generates a significant portion of the corporation's revenue. Apart from these exceptional cases, the management board can make business decisions autonomously without the shareholders' consent. For example, the management board can decide to delist the company from the stock exchange without the consent of the general meeting (see Section II.v for further information about general meetings voting on board compensation).

In response to the challenges posed by the covid-19 pandemic, Germany enacted laws that provided for virtual general meetings and the ability to adopt shareholder resolutions without requiring the physical presence of the shareholders or their proxies at a meeting. Throughout the 2020 and 2021 general meeting season, virtual general meetings proved to have significant advantages for both companies and shareholders. Shareholder participation is possible from anywhere in the world. Virtual general meetings are also considered less costly to organise, and participation requires shareholders to devote less time and effort. In light of these advantages, the Stock Corporation Act was amended in 2023 to allow companies to hold virtual general meetings independently of covid-19. This ability exists if the articles of incorporation either expressly provide that general meetings will be conducted virtually or authorise the management board to decide, for each general meeting, to conduct it virtually. The new provisions on virtual general meetings, inter alia, provide that shareholders must be given an opportunity to exercise their right to request information on the affairs of the company by means of electronic communications. However, the management board may require shareholders to submit questions at the latest three days before the general meeting and may appropriately limit the number of questions that can be submitted.

All shareholders are subject to a duty of loyalty to the company and other shareholders. In particular, shareholders are prohibited from causing harm to the company.

In principle, the duty of loyalty is defined by the articles of association and the company's purpose. However, in exceptional circumstances, a shareholder may even be obliged to exercise his or her voting rights in favour of a specific measure that is deemed to be necessary for the avoidance of the collapse of the company.

Germany has experienced several waves of shareholder activism. Thanks to changes in the laws and restrictive court decisions, the practice of 'greenmailing' companies through lawsuits by individual minority shareholders seeking to set aside shareholder resolutions or to delay corporate transactions is largely a thing of the past. Nowadays, activist shareholders are often hedge funds that seek to influence the strategy and the share price of a company even though they hold only a minority stake in the company. This is typically done through exercising minority rights. Often, these attempts are accompanied by aggressive publicity and media campaigns designed to put pressure on the company's management to adopt the measures proposed by the activist shareholder. Another means by which activist minority shareholders exercise a disproportionate influence on a company is through proxy fights. Foreign and institutional investors, in particular, increasingly follow the voting recommendations of proxy advisers. If an activist shareholder succeeds in persuading a proxy adviser to favour the measures it proposes, this will result in a significant increase in the activist shareholder's factual voting power. Recently, Germany has also experienced campaigns of activist short sellers.

Another form of shareholder activism that is becoming increasingly relevant for companies is environmental, social and governance (ESG) shareholder activism. ESG activist shareholders seek to influence a company's strategies and business activities to render them more environmentally sustainable (e.g., by reducing carbon emissions) or more socially responsible (e.g., by considering the interests of stakeholders affected by the company's conduct when making business decisions). One example of ESG activism is the increasing number of climate change actions brought by consumer protection associations or other non-governmental organisations that have acquired shares in a company especially for the purpose of bringing such lawsuits.

Once a bidder has published its decision to make a takeover offer, the management board may no longer take any actions that could prevent the success of the offer. However, there are some statutory exceptions to this 'prohibition of frustrating action'. The management board remains entitled to solicit competing offers from third parties (white knights) and to take actions approved by the supervisory board. Moreover, the management board continues to be entitled to take all measures that are in the ordinary course of the company's business and not a subject of the takeover offer or measures that are intended to implement a business strategy on which the company had embarked before the publication of the takeover offer.

The management board may also take defensive measures that were authorised by the general meeting before the takeover offer was announced and approved by the supervisory board, including:

1. purchasing shares equalling up to 10 per cent of the registered share capital;
2. establishing increased majority requirements for shareholder votes;
3. selling important assets of the corporation; and
4. acquiring a direct competitor of the bidder.

Further, the general meeting may elect shareholder representatives to the supervisory board at different points in time to create a staggered board and increase the majority requirements for their dismissal.

Each shareholder may request the management board to provide information regarding the affairs of the company. A shareholder's information right, however, may be exercised only during a general meeting and is limited to information that is reasonably required by the shareholders to appropriately assess the topics on the agenda of the general meeting. The management board may refuse to provide the requested information only for a limited number of reasons enumerated in the Stock Corporation Act – in particular, if providing the information would, in the assessment of a reasonable businessperson, be harmful to the company. To the extent the management board proactively communicates with shareholders, it must observe the principle of equal treatment of shareholders and the rules regarding disclosure of inside information.

Corporations must identify their shareholders (know your shareholder). In particular, at the request of a company, financial intermediaries must provide the information that is necessary to identify the shareholders, including names and contact details.

Although fostering investor relations and communication with (potential) investors and other stakeholders of the company generally fall within the remit of the management board, the supervisory board and, particularly, its chair may, within certain limits, also communicate with the company's stakeholders. The Corporate Governance Code suggests that the chair of the supervisory board should be available – within reasonable limits – to discuss supervisory board-related issues with investors. The chair of the supervisory board, in particular, may also converse with political representatives and the press.

However, investor communication by the (chair of the) supervisory board is limited to issues that fall within the remit of the supervisory board. In particular, these do not include corporate strategy and the management of the company, which are the sole responsibility of the management board.