Discharge of the Management - Significance and Effect in Different Corporate Forms

With the discharge, the shareholders of a company – usually in the general or a shareholders' meeting - subsequently express their approval of the management activity. The discharge is usually decided once a year at the general meeting of shareholders, together with the annual financial statements. The discharge serves as recognition of the managing director for his or her past work and at the same time forms the basis for further trusting cooperation in the coming year.

The legal consequences of the discharge resolution depend on the legal form of the company. In the case of German limited liability companies (GmbHs) and partnerships, the discharge resolution leads to the company waiving possible claims for damages against the managing director, at least to the extent that the underlying facts were known at the time of the discharge resolution. In the case of a  stock corporation (AG), however, the discharge does not constitute a waiver; the AG or individual shareholders may still assert any claims for damages against members of the management board and supervisory board after a discharge. If the general meeting also expressly withdraws its confidence in the management board - in case of a refusal to grant discharge - the supervisory board may dismiss the management board members concerned with immediate effect for good cause.

There is no entitlement to discharge. This also applies if the company was managed in an exemplary manner. After all, trust cannot be enforced. This was already decided by the German Federal Court of Justice in 1985. If the discharge is rejected, however, the management does not remain unprotected. If the shareholders threaten a GmbH's managing director with an action for damages, he or she can have it legally determined by the competent court that the accusations are unjustified and such claims do not exist (so-called negative declaratory action). The same possibility is also available to the management board of an AG, who see  themselves exposed to unjustified dismissal. In addition, the - unjustified - refusal to grant discharge entitles the executive board member or managing director to terminate his or her employment contract without notice for good cause and to demand compensation for the resulting damages. In this respect, any discharge decision should be carefully considered and examined.