Authority to adopt resolutions at the shareholders' meeting

The authority to adopt a shareholders' resolution may be assigned to the head of the shareholders' meeting by majority resolution of the shareholders. This authorization is not at all only a formal position but can influence the course of shareholder resolutions.

Facts

The case decided by the Cologne Higher Regional Court concerned the authority of the chairman of the shareholders' meeting to determine whether a shareholders' resolution has been passed. The case was based on the following facts:

Three shareholders were involved in a limited liability company ("GmbH"), each of whom was also managing director of the GmbH.

After several years of cooperation, one of the managing partners - the plaintiff - decided to leave the company. Negotiations with his fellow partners about leaving the company by mutual agreement remained unsuccessful. As a result, the plaintiff declared his withdrawal as shareholder of the company as of the the end of the following calendar year. He also resigned from his position as managing director with immediate effect.

Shortly thereafter, his co-shareholders arranged for various shareholder resolutions to be adopted. Against the votes of the plaintiff, it was inter alia decided to significantly increase the managing director compensation for the remaining shareholders with retroactive effect. It was also decided (again against the votes of the plaintiff) that one of the co-shareholders should be authorized to formally adopt resolutions at shareholders' meetings as chairman of the meeting.

The plaintiff brought an action against the shareholder resolutions. The Cologne Regional Court upheld the action in part. Both parties appealed against this ruling.

Judgment of the Cologne Higher Regional Court of July 21, 2022 (Case No. 18 U 139/21)

The Higher Regional Court of Hamm dismissed both appeals. Like the Cologne Regional Court before it, it held that the resolution on the retroactive increase in the compensation of individual managing directors was invalid due to a breach of the principle of equal treatment. However, the Cologne Higher Regional Court considered the resolution to assign the authority to adopt resolutions to a co-shareholder to be effective.

Practical advice

If shareholders quarrel in the context of a shareholders' meeting it is not always clear which resolution has actually been passed in the end. This happens particularly often if the shareholders assert mutual voting prohibitions (i.e. in cases where shareholders want to exclude each other from the company for good cause). It is then often uncertain which vote was effective at all. In such situation the parties involved have to ask themselves which resolution has been validly passed or - to put it another way - for or against which resolution they actually have to take legal action.

The answer to this question is easier to find if the shareholders' meeting is led by a meeting chairman. As a rule, he or she will not only record the individual votes cast but will also formally declare that resolutions have or have not been passed (taking into account any voting prohibitions). Although this declaration is not constitutive, i.e. an invalid resolution does not become effective by it, the resolution is however binding at least for the time being. This means: If a shareholder does not agree with the shareholder resolution declared by the chairman, he or she must become active and take action against the resolution by filing an action for annulment. This court action usually is subject to a time limit. If the shareholder misses the deadline, the adopted resolution becomes effective.

A chairman of the meeting therefore does not only have a formal position, but can influence the course of shareholder resolutions. For this reason, it can make sense to secure this position within the shareholder meeting. Provisions in regarding of the chairing of shareholder meetings may already been set in the articles of association. For example, a chairman of the meeting can be named or the modalities of his appointment can be stipulated. The powers of the chairman of the meeting can also be regulated; this applies in particular to the question of whether he should be authorized to declare shareholder resolutions to be passed or not passed.