How is a stock corporation controlled

Organs of the public limited company

A stock corporation has three organs. These are the management board, the supervisory board and the general meeting. In addition, special committees and an advisory board can be formed. Each individual body has a specific function as well as rights and obligations. However, the management board, the supervisory board and the general meeting can only enable a company to act if they work together.

In this lesson you will learn which functions and tasks the organs of a stock corporation fulfill and which rights and obligations the management board, the supervisory board and the general meeting have. You can use the exercises at the end of the lesson to check your level of knowledge.

English: organs of stock company | organs of corporation | organs of public limited company

When are the organs of a stock corporation important?

The organs of a joint stock company ensure the functioning of a joint stock company. On the one hand, the tasks of the board of directors, the supervisory board and the general meeting are strictly separated from one another; on the other hand, an AG can only function when all organs work together.

The board of directors, the supervisory board and the general meeting of a stock corporation play an important role in:

  • Managing directors
  • Representation of the public limited company
  • Compliance with due diligence and liability
  • Annual accounts
  • Management reports
  • Distribution of profits
  • Composition of the committees

Why are the bodies of a stock corporation important?

The ability to exert influence differs depending on the governing body of the stock corporation, with the influence of the management board being the most significant.

The organs of a stock corporation can exert influence:

  • Managing directors
  • Securing the functionality of a company
  • Success of the company
  • Influence on the composition of the management board and the supervisory board
  • Use of balance sheet profits
  • Investments
  • Measures aimed at rationalization or expansion
  • Measures to raise and reduce capital
  • Influence on strategic, personal and financial decisions

The bodies of a stock corporation can only exert influence in the interaction of the board of directors, the supervisory board and the general meeting.

The various organs of a public limited company

The organs of a corporation are

  • the board
  • the board of directors
  • the general meeting.

The board of an AG

As a body of a stock corporation, the executive board fulfills the following functions:

  • The board of directors is the management body of an AG and as such is responsible for the management.
  • The board of directors acts and decides independently and is not subject to any instructions.
  • He is appointed by the Supervisory Board for a maximum of five years.
  • A member of the Management Board cannot be a member of the Supervisory Board at the same time.
  • The board of directors of an AG can consist of one person or several people.
  • If the board is composed of several people, they have overall power of representation. This means that all decisions affecting the stock corporation must be made jointly. This is different if the statutes stipulate a sole power of representation.
  • The members of the board of directors of an AG must be entered in the commercial register.
  • The board members must be named on all business letters.
  • The board of directors is not liable provided that the principle of conscientious and careful management is observed.

Liability for Loss

The board of directors only has to pay for possible losses incurred during their term of office and if they have not acted conscientiously and carefully.

  • Example 1:
    The board of directors plans to build another factory. He fails to get all the important information because he is under time pressure. A hasty decision that is not made on the basis of all important information is a breach of duty of care, which is only punished if it results in economic damage.
  • Example 2:
    As a result of a share buyback decided by the board of directors of the AG, the stock market price of the company's own shares falls, causing economic damage. For the liability of the board of directors, however, it must be clarified whether the share buyback was actually responsible for the falling price.

The supervisory board of an AG

As a body of a stock corporation, the supervisory board fulfills the following functions:

  • The supervisory board is the controlling body of an AG.
  • He has no direct influence on entrepreneurial activity.
  • In its function as a controlling body, the Supervisory Board monitors the Management Board.
  • The Supervisory Board is elected by the Annual General Meeting for a period of four years.
  • The number of members on the supervisory board depends on the amount of the share capital of the AG.

The general meeting of an AG

As a body of a stock corporation, the general meeting fulfills the following functions:

  • The general meeting is the meeting of shareholders.
  • It has no direct influence on entrepreneurial activity.
  • The general meeting is convened by the board of an AG, and the date is announced in certain media.
  • Every shareholder is obliged to provide information about internal affairs of the AG upon request at the general meeting.

Obligation to attend the general meeting

A stock corporation is required by law to hold an ordinary general meeting once a year. The board is responsible for the implementation and organization. This means that he prepares the general meeting and invites the shareholders. The invitation is published in company gazettes and in the publication media that are laid down in the articles of association of the stock corporation. If the company knows all shareholders by name, a registered letter to each shareholder is sufficient as an invitation.

The organs of a stock corporation and their tasks

The management board, the supervisory board and the general meeting each have certain tasks that they must fulfill in order to ensure the functioning of the stock corporation.

The tasks of the board of an AG

  • The board of directors is authorized to manage and represent the stock corporation under its own responsibility.
  • The board of directors takes all necessary entrepreneurial measures with regard to finances, personnel and corporate strategy.
  • The executive board of an AG is the official representative of the company in out-of-court and judicial disputes.
  • The board of directors is responsible for ensuring that the company fulfills the purpose set out in the articles of association.
  • The management board reports to the supervisory board of the AG on the course of business, the profitability of the company and the intended business policy.
  • The board of directors is responsible for the preparation of the management report and annual financial statements as well as for submitting the management report and annual financial statements to the auditors.
  • He is responsible for calling, holding and organizing the general meeting.

Duties of the supervisory board of an AG

  • Supervision of the board of directors of the AG with regard to management and representation
  • Appointment and removal of the board of directors of the AG
  • Review of the management report and annual financial statements
  • Reporting on the result of the audit to the general meeting of the AG
  • Convening of the general meeting of the AG
  • Approval of certain transactions listed in the articles of association as requiring approval

Number of members of the supervisory board

The number of members of the supervisory board is regulated in the Codetermination Act (MitbestG). It depends on the number of employees in the company.

Thereafter, the number of members of the supervisory board is:

  • with 2,000 to 10,000 employees a total of 12 members
  • if there are more than 10,000 employees, a total of 16 members
  • if there are more than 20,000 employees, a total of 20 members.

According to the Codetermination Act, half of the total number of members of the Supervisory Board is made up of employee representatives and half of the shareholders.

Duties of the general meeting of an AG

  • Election of the shareholders as members of the supervisory board
  • Resolution on important questions of the AG, for which a change in the statutes is necessary
  • Resolution on the appropriation of the balance sheet profit
  • Discharge of the members of the management board and the supervisory board
  • Resolution on the increase in the share capital
  • Appointment of the auditor

Shareholders

Shareholders are to be understood as shareholders or holders of shares.

Practice questions