Principle of the simple majority
Fundamentally, stock corporation resolutions only require a simple majority at the Annual General Meeting, which represents the body of the shareholders. For example, decisions regarding profit distribution are made by simple majority.
This principle of the simple majority represents a common theme throughout the entire body of corporate law. Section 133 of the German Stock Corporation Act (AktG) describes the principle as it applies to stock corporations.
However, this provision expressly states that the law and the articles of association for the stock corporation may make exceptions to this principle by also defining different majorities for resolutions, for example.
Blocking minorities at stock corporations represent an exception to the principle of the simple majority
Blocking minorities with a legal basis represent exceptions to the principle of the simple majority.
They enable minority shareholders with a voting share of 25.1% to block fundamental decisions concerning the company. Such blocking minorities are recognized in stock corporation law for
- amendments to the articles of association, Section 179 (2) of the German Stock Corporation Act (AktG)
- capital reductions, Sections 222 et seq. of the German Stock Corporation Act (AktG)
- capital increases, Section 182 (1) of the German Stock Corporation Act (AktG)
- the dismissal of Supervisory Board members, Section 103 (1) of the German Stock Corporation Act (AktG)
- restrictions on the rights of preferential shareholders, Section 141 (3) of the German Stock Corporation Act (AktG)
- the dissolution of the stock corporation, Section 262 (1) (2) of the German Stock Corporation Act (AktG), or
- mergers, Section 319 (2) of the German Stock Corporation Act (AktG).
Yet, at the same time, this also indicates that the German Stock Corporation Act only intends for blocking minorities to have a say with regard to fundamental decisions. The German Stock Corporation Act does not recognize “legal emergency brakes” to protect minorities as part of normal day-to-day business.
Special audit: Resolution of the Annual General Meeting or motion before the court
Another aspect of minority protection at stock corporations is that shareholders have the option of launching a special audit.
Pursuant to Section 142 (1) of the German Stock Corporation Act (AktG), the Annual General Meeting may pass a resolution by a simple majority to have a special auditor investigate specific management activities.
If the resolution is not passed at the Annual General Meeting, individual (major) shareholders may even have the right to submit a motion before court for the appointment of a special auditor under certain circumstances.
However, this minority right must fulfill strict prerequisites:
Only shareholders who, alone or together, account for 1% of the share capital or the sum of EUR 100,000 and have been shareholders for at least three months may submit the motion.
Furthermore, there must be a suspicion of a serious breach of duty on the part of the Executive Board and Supervisory Board in order to justify the motion. Last but not least, the court may reject such a motion with the general justification of “prevailing interests of the welfare of the company”.
As a consequence, the motion to appoint a special auditor is not the most effective weapon in the minority shareholders’ arsenal.
Articles of association: room for specific provisions
While minority protection does exist in the Stock Corporation Act, it can and should be expanded through specific provisions in the articles of association as with other areas of corporate law.
Given that amendments to the articles of association require a 75% majority of the votes cast, implementing such amendments to the articles of association in favor of minorities can prove difficult once the company has been established. Therefore, individual provisions such as those governing differing majorities for resolutions should be formulated to align with the interests of the shareholders when the stock corporation is founded and incorporated into the articles of association from the outset.
Stock corporation law recognizes a number of exceptions to the principle of the simple majority when adopting resolutions at the Annual General Meeting, especially when it comes to fundamental decisions affecting the stock corporation.
Yet, it is also both sensible and essential to include additional exceptions in the articles of association of a stock corporation to ensure that the protection of minority shareholders in the stock operation is not limited to fundamental decisions alone.
