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Legislative Update - International Law Office

International Law Office

Company & Commercial - Germany

Legislative Update

March 19 2001

The Role of Modern Media
Registered Shares
Proxy Voting
Post-Formation Acquisitions


The new Registered Shares Act took effect on January 25 2001. The German Parliament enacted the legislation in response to the advancement of global business technology and the growing preference for registered shares over bearer shares. The act has introduced important changes with respect to the use of modern media in German stock corporations. It sets out new regulations concerning the management of registered shares and the exercise of the right to vote of registered share owners. It has also introduced the possibility of proxy voting into the German Stock Corporation Act of 1965. In addition, amendments have been made to the rules of post-formation acquisitions in Section 52 of the Stock Corporation Act of 1965.

The Role of Modern Media

Supervisory board meetings can now be held via telephone or videoconference link-ups, if this is stipulated in the company's articles of association. Shareholders can be notified of all matters via e-mail; for example, they can be invited to attend shareholders meetings and informed of the agenda by e-mail. Further, the authorization of shareholders' representatives need no longer be confirmed in writing. They can be authorized via electronic media, as long as this is documented in an appropriate way. The attendance list for a general meeting can also be displayed on computer.

Registered Shares

The Registered Shares Act allows registered shares to be managed exclusively by way of electronic share registers. A shareholder's right of access to the electronic data is restricted to the information specific to himself; shareholders are no longer permitted to access co-shareholders' data. This allows for some degree of anonymity in a transparent registered share structure while safeguarding company policy against organized shareholder opposition. Provided that its shareholders do not object, a company is allowed to use the electronic data for publicity purposes.

The financial institutions involved must enter all transactions concerning registered shares in the electronic register. The issuing companies are liable for the costs entailed.

Before the Registered Shares Act took effect, the Stock Corporation Act of 1965 required the owners of registered shares to be named when exercising their right to vote. Now undisclosed voting is also possible for owners of registered shares, even when voting via a nominee. In order to remain anonymous, owners of registered shares are allowed to deposit their shares in the same way as owners of bearer shares do when establishing their entitlement to attend shareholders' meetings. As this involves a risk of double voting, it remains to be seen how the legislator's aim of undisclosed voting can be achieved for owners of registered shares.

Proxy Voting

The Registered Shares Act has introduced the concepts of disclosed and undisclosed proxy voting into German company law. Therefore, a representative of a company can be nominated to exercise the shareholders' votes conferred upon him. The nominees do not need to present written authorization from the shareholders in order to vote, but the company must document the authorization in an appropriate way for a three-year period. The provisions regarding proxy voting have been kept brief. Thus, no restrictions on the nominees' right to vote are stipulated. Nevertheless, a nominee will be allowed to vote only for shareholders that have given specific orders on how to vote so as to avoid a conflict of interests between the company and its shareholders.

Post-Formation Acquisitions

Finally, the scope of Section 52 of the Stock Corporation Act of 1965, which relates to post-formation acquisitions, has been reduced. Registration in the Commercial Register and the consent of the shareholders' meeting with a three-quarters majority is now required only for agreements entered into by the company with founders of the company, or with shareholders who hold more than 10% of the shares, provided they concern assets for a consideration of more than 10% of the nominal share capital and have been concluded within two years of the corporation's registration in the Commercial Register. Before the Registered Shares Act took effect, registration (of the agreement) in the Commercial Register and the consent of the shareholders meeting were necessary for agreements with any other party, provided the other requirements were fulfilled. The provision no longer applies to acquisitions on the stock markets. This change has retroactive effect from January 1 2000.

These changes may be of relevance for both mergers and acquisitions and corporation reorganizations into stock corporations, as the Business Reorganization Act of 1994 refers to Section 52 of the Stock Corporation Act of 1965.


For further information on this topic please contact Roman Bärwaldt at Clifford Chance Pünder by telephone (+49 30 254 65 800) or by fax (+49 30 254 66 900) or by e-mail (roman.baerwaldt@cliffordchance.com).


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