Company Management in Germany

Compliance management in Germany

Germany puts a great price on corporate governance and compliance management. The main legal frames of compliance management in Germany are the Stock Corporation Act (Aktiengesetz), the German Codetermination Act (Mitbestimmungsgesetz), and the German Corporate Governance Code. The Corporate Governance Act usually applies to European Companies (SE) according to the SE Regulations.

The Stock Corporation Act in Germany

According to the Stock Corporation Act and SE Regulations in Germany members of the management, the board cannot be part of the supervisory board in a German stock corporation.  Both management and supervisory board members must perform their duties according to the due diligence rules of their functions. They must act in the best interest of the company’s shareholders and employees.

Stock corporations in Germany (Aktiengesellschaft) have three corporate bodies:

• -        the annual meeting of the shareholders,
• -        the management board (Vorstand),
• -        the supervisory board (Aufsichtsrat).

The annual shareholders meeting in German companies

At the annual reunion shareholders must proceed according to the Stock Corporation Act and must decide on the following:

• -        The appointment of an auditor;
• -        The dismissal and appointment of the supervisory board;
• -        The modification of the Articles of Association of the German company;
• -        The remittance of new stock and bonds;
• -        The authorization of buying stock;
• -        Changes made in the company’s contracts;
• -        Decisions about the investment and reinvestment of the company’s net profits.

The management board in a German company

The management board in a German company, as it names states is in charge of the company management and representation in front of other parties. German stock corporations have a chairman that has a decisive role in the company’s management. The management board is subordinated to the supervisory board of a company. The members of the management board are usually elected for five years and can be removed from their duties because of a severe breach of duties according to the Stock Corporation Act provisions.

The supervisory board of German companies

The supervisory board of a German company is in charge of the supervision and the appointment of management board members. The members of the supervisory board do not have to be involved in the company’s management but their approval is necessary for management decisions. The Articles of Association of a company must encompass all the decisions that cannot be made without the supervisory board’s consent.

The supervisory board of a company is usually made of representatives of the shareholders and employees. Usually, the chairman of the supervisory board is a representative of the shareholders, while the deputy chairman is a representative of the employees.

Amendments to the Corporate Governance Code in Germany

During the last few years, corporate governance in Germany has become very important and amendments have been added. The amendments have put bigger pressure on supervisory boards in order to make sure companies respect management compliance regulations. The German Public Audit Institute (IDW) enabled a new assurance standard (PS980) in order to create official support for compliance management that would meet international regulations.

The new German compliance management framework is based on 7 principles:

• -       compliance culture
• -        compliance objectives
• -        compliance organization
• -        compliance risks
• -        compliance program
• -        compliance communication
• -        compliance monitoring and improvement

If you want to set up a company and need advice about compliance management you can contact our law firm in Germany.