LG Darmstadt Ruling on Attendance Requirements
Significant decisions are made in the shareholders’ meeting. Therefore, it is essential that the company’s articles of association include effective provisions on the representation of a shareholder in the meeting. Otherwise, resolutions passed at the shareholders’ meeting may be invalid or crucial decisions may be blocked. In a ruling dated March 4, 2024, the Darmstadt Regional Court (LG Darmstadt) confirmed that the representation of a shareholder in the shareholders’ meeting requires explicit permission within the articles of association (Case No. 18 O 34/21).
The shareholders’ meeting is an essential decision-making body. In partnerships such as the OHG, GbR, or KG, personal voting has particular importance. This is partly because a close personal relationship is presumed among the shareholders and due to the high liability risk of shareholders in a partnership. Consequently, the option to be represented in the shareholders’ meeting and during voting must generally be contractually established, according to the business law firm MTR Legal Attorneys, which advises on corporate law, among other fields.
Shareholder Dispute Between Father and Sons
The case before the LG Darmstadt involved a shareholder dispute within a general partnership (OHG). The OHG had three shareholders: a father and his two sons. Under corporate law, decisions could be made by a simple majority. The father held 60 votes, and each son held 20 votes. For the shareholders’ meeting to pass a valid resolution, all three shareholders were required to be present according to the contract. Each of the three shareholders was independently authorized and obligated to manage the business.
A long-standing dispute had been brewing among the shareholders. This led to several contentious shareholder meetings, some of which concerned the exclusion of one of the sons from the company. In July 2021, another shareholders’ meeting was held, which the father could not attend for health reasons. He therefore granted a lawyer power of attorney to represent him at the meeting. One of the sons immediately stated that he did not recognize the power of attorney. Despite this, the lawyer did not leave the room upon request and took minutes of the meeting. The LG Darmstadt then had to decide whether the shareholders’ meeting could pass valid resolutions in the absence of the father.
Personal Participation of Shareholders Required
The court clarified that the shareholders’ meeting could not pass valid resolutions. It reasoned that the father had not participated in accordance with the contractual provisions. The contract allowed for decision-making orally or in writing, by phone or telegram, and within or outside a shareholders’ meeting. However, it required the participation of all shareholders in decision-making. This provision should be interpreted as necessitating the personal participation of each shareholder for valid decision-making, according to LG Darmstadt. The court further noted that this seemed appropriate for a family company with only three shareholders. In a direct personal discussion immediately before the vote, aspects could be introduced that go beyond purely business considerations, the court explained.
It can be assumed that the father and sons had a similar expectation when drafting the articles of association, as they had not included a provision for representation in shareholders’ meetings or voting. The court stated that a general option for representation should not be established. The fact that one of the sons attended the meeting accompanied by lawyers did not justify the permissibility of representation.
Representation Must Be Contractually Regulated
“In a family-oriented company, shareholders generally have the legitimate expectation that company matters will be discussed and deliberated in a personal conversation and that it will be the co-shareholders who engage in this exchange,” the court continued. If a shareholder lacks the necessary expertise to adequately assess certain issues, they may be accompanied and advised by a lawyer, an accountant, or a tax advisor. However, this does not entail the transfer of shareholder rights.
This ruling demonstrates the importance of clear provisions in the articles of association to ensure clarity in the event of a shareholder dispute.
MTR Legal Attorneys advises on shareholder disputes and other corporate law matters.
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