Voting bans in case of shareholder resolutions in limited liability companies

If the shareholder of a limited liability company ("GmbH") is affected by resolutions directly or indirectly, he is subject to a voting ban.

Facts of the case: Resolution on the initiation of a legal dispute

The case decided by the Federal Court of Justice ("BGH") concerned a resolution at the shareholders' meeting of a GmbH.

The GmbH had three shareholders, namely the later plaintiff and two other shareholders. The two co- shareholders of the plaintiff also held shares in a competing company.

In connection with a trademark dispute in 2019, the question arose as to whether the GmbH should assert claims for damages against the plaintiff's co-shareholders personally and the competitor company in which they held a stake. A shareholders' meeting of the GmbH was held for this purpose. The plaintiff voted in favor of asserting the claims for damages, while his co-shareholders voted against and outvoted the plaintiff.

The plaintiff then brought an action against the resolution. After several instances, the BGH ruled in favor of the plaintiff for the most part.

The ruling of the BGH from 08.08.2023 (Ref. II ZR 13/22): Existence of a voting ban

The BGH declared the resolutions effective and justified this by stating that the plaintiff's co-shareholders had been subject to a voting ban. The court made it clear that if a resolution is to be passed on the initiation of a legal dispute against a third-party company, shareholders who hold shares in this third-party company may not vote. Otherwise, there is a risk that the shareholders concerned would not make a decision for the benefit of the GmbH, but rather with a view to their own interests as shareholders of the third-party company.

Practical tip: Be careful when "judging on your own behalf" at a shareholders’ meeting

When passing resolutions, no shareholder should become a "judge in their own cause". This is expressly regulated in GmbH law - specifically: in Section 47 (4) of the Limited Liability Companies Act ("GmbHG"). The principle also applies to other types of companies (limited partnerships, general partnerships, civil law partnerships etc.).

According to the statutory regulation, a voting prohibition always applies if a shareholder is to be discharged or released from a liability by the resolution or if the resolution concerns the execution of a legal transaction or the initiation or settlement of a legal dispute towards a shareholder. The unwritten cases go far beyond this; for example, voting bans also exist when it comes to the dismissal of a managing director or the redemption of shares for good cause. The BGH case shows that even indirect involvement can trigger a voting ban.

The articles of association can extend, specify and - at least partially - restrict voting bans. It is important that the provisions fit the specific company and the shareholder relationships. The articles of association should therefore (also) be carefully drafted in this respect.

It should not be forgotten however: Just because a shareholder is subject to a voting ban does not mean that they should be excluded per se from the decision-making process. This even applies if they are "biased" with regard to all items on the agenda and are not allowed to vote. Even in these situations, the shareholder has a right to participate in the shareholders' meeting. Otherwise, the resolution can usually be challenged.