The board of directors is the highest organ in a stock corporation and partnership limited by shares, and is entrusted with the management of the company’s business dealings. It is responsible for representing the company in court and extrajudicially. In principle, the board of directors does not operate under the direction of any other body or person, its activities being merely supervised by the supervisory body, which also elects the members of the board of directors.
In the exercise of its functions, the board of directors is subject to several duties, notwithstanding that it has a wide margin of discretion within the scope of its authority to generally manage the company. Thus, it may only conduct business dealings that a responsible and conscientious manager would have conducted. If it culpably breaches one of its duties of care, it is personally and fully liable vis-à-vis the company, i.e. with its own private assets. Furthermore, the board of directors must present a summary of the business developments to the supervisory board, draw up the annual financial statement report and summon the general meeting of shareholders.
From the perspective of the board of directors or investors, various questions often arise concerning legal issues within a company. The legal analysis of rights and obligations according to the board of directors is very complicated and must be examined taking into account the individual circumstances. Where there are disputes with the supervisory board or differences of opinion during the general meeting of shareholders, it is helpful to have an experienced lawyer at your side who can remove existing doubt with his expertise.
The supervisory board plays an important role as the supervisory organ in corporations. While the board of directors has the task of managing the business, the supervisory board monitors its activity. This is meant to prevent any misconduct or actions damaging to the company on the part of the members of the board directors. For stock corporations and partnerships limited by shares, the appointment of a supervisory board is prescribed by law.
The management of the board of directors can take place through various measures. The supervisory board must monitor business dealings, which is most often done by examining the annual financial report. Moreover, it can insist that certain business dealings are only allowed to be carried out with the approval of the supervisory board. The organ’s other duties include, among other things, appointing and dismissing the members of the board of directors.
The function of the supervisory board as the controlling and supervisory organ of the board of directors is often accompanied by legal problems. Various claims can arise in favour of the board of directors, as well as the supervisory board and the investors. The subject matter of the annual financial statement alone and its accompanying legal consequences are not easy to understand. Laymen and even experienced members of a supervisory board should seek legal assistance where there are questions and complex events. Where there are difficulties relating to the annual financial statement, the appointment of the members of the board of directors or the enforcement of investors’ claims, we shall support you and give complete attention to your possibilities.
D&O liability – Executive boards, managing directors, supervisory boards
Executive boards, managing directors and supervisory boards are increasingly at risk of incurring personal liability or being faced with criminal prosecution for misconduct.
Even in the case of simple negligence there is the risk of personal liability. Executive boards, managing directors or supervisory boards may, as governing entities of a company, be faced with both recourse claims by the company (internal liability) and damages claims by third parties (external liability). For governing entities, the statutory burden of proof is particularly difficult to shift for matters pertaining to internal liability.
Liability cases can typically occur where
- tax and social security obligations are not met,
- funds are used in a way that is contrary to the articles of association,
- obligations to provide information or to report are breached,
- there is misconduct during a crisis or insolvency.
Liability can arise here through action as well as from reacting too late or failing to act.
Company entities ought to take preventative measures to protect against personal liability. These begin with the internal rules of procedure or employment contracts, extend to setting up a compliance management system, all the way to taking out D&O insurance.
- Preventive counselling
- Drafting employment contracts, including with a view to limiting liability
- Drafting internal rules of procedure
- Advice on setting up a compliance management system
- Advice on the structuring of a D&O insurance policy
- Enforcing and fending off D&O liability claims
Arrange a consultation at one of our branch offices in Cologne, Bonn, Berlin, Düsseldorf, Frankfurt, Hamburg, Munich or Stuttgart.