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The Shareholder’s Right to Information - International Law Office

International Law Office

Company & Commercial - Germany

The Shareholder’s Right to Information

October 23 2000

Legal Basis
Constitutional Court Decisions

Legal Basis

Pursuant to Section 131(1) of the Stock Corporation Act, a management board must, upon request, provide each shareholder with information regarding the company's affairs at the shareholders meeting. This information need only be provided if it is necessary for proper evaluation of the relevant item on the agenda. The right to information laid down in Section 131(1) is an individual right. The statutory provision is mandatory and cannot be altered by the shareholders meeting.

Section 131(1) limits the right to information in two respects: time and subject matter. The shareholder may only request information at the shareholders meeting. According to Section 131(3) sentence 1, the right to information at the shareholders' meeting may be refused in the following cases:

  • if, according to sound business judgement, the provision of the information is likely to cause significant damage to the company or an affiliated enterprise;

  • if the information relates to tax valuations or the amount of certain taxes;

  • if the information would render the management board criminally liable;

  • with respect to the difference between the value at which items are shown in the annual balance sheet and a higher market value, unless the shareholders' meeting is to adopt the annual financial statements;

  • with respect to methods of classification and valuation, if the disclosure of these methods in the annex suffices to provide a factually accurate picture of the company's assets, financial position and profitability within the meaning of Section 264(2) of the Commercial Code (this does not apply if the shareholders meeting is to adopt the annual financial statements); and

  • in the case of a bank or a financial services institution, if the information relates to methods of classification and valuation applied, and set-offs made, in the annual financial statements, annual report, consolidated financial statements or consolidated annual report.

Constitutional Court Decisions

In two cases the Federal Constitutional Court considered whether the restrictions of the right to information set out in Section 131 violate the guarantee of ownership laid down in Article 14 of the Constitution. In both decisions the court stated that a share is protected by Article 14 of the Constitution because it embodies part of the shared ownership. Consequently, Article 14 also protects the position of the shareholder as a member of the public limited company. Again, the membership right includes an essential right to information about company affairs. Only a well-informed shareholder can fulfil his responsibilities in accordance with the corporate purpose. Further, without information the shareholder is de facto unable to dispose of his shares, as he lacks a basis of evaluation.

Restriction in terms of time and subject-matter
As mentioned, the shareholder can request information only at the shareholders' meeting and only to the extent that the information is necessary to permit proper evaluation of the relevant item on the agenda. In one case (1BvR 636/95) the Federal Constitutional Court held that it regards Section 131(1) as a permissible restriction of the guarantee of ownership. A restriction in terms of time is justified since all shareholders can only be provided with the same information at the shareholders meeting. A restriction in terms of subject matter is the result of a combination of the right to information and the right of membership. The right to information is limited by the shareholder's powers as a member of the company. The management board manages the company at its own responsibility (Section 76(1)) and the shareholders meeting may decide on matters concerning the company's management only if requested to do so by the management board (Section 119(2)). The supervisory board alone supervises the management of the company (Section 111(1)), not the shareholders themselves. Since the restriction of the right to information corresponds with the restricted membership powers, the Federal Constitutional Court regards Section 131(1) as a constitutional stipulation.

Further, the Federal Constitutional Court ruled that restrictions of speaking time are admissible when the right to information is exercised improperly. Since the shareholders meeting must be brought to an end by midnight, the person in charge of the meeting must ensure that the time available is allocated as fairly as possible. This time may not be used up through questions and contributions from individual shareholders which are not related to an item on the agenda. Excessive and obvious digressions from the subject disadvantage the other shareholders and restricts their right to information.

Refusal to give information about hidden reserves
In a second decision (1BvR 168/93) the Federal Constitutional Court had to decide whether the shareholder has a right to disclosure of hidden reserves. Based on Section 131(3) sentence 1(3), a management board had refused to disclose the company's hidden reserves. The complainant claimed that this infringed the shareholder's constitutional right of ownership, as it annulled the shareholder's rights of verification.

The Federal Constitutional Court affirmed the constitutional conformity of Section 131(3) sentence 1(3), although it stressed that the existence of hidden reserves is not straightforward with regard to the constitutionally guaranteed right of ownership. Since the annual financial statements do not show the hidden reserves, the shareholder will have difficulties in estimating the company's value. Nevertheless, because of the restrictions imposed by the Stock Corporation Act and the Commercial Code with respect to establishing hidden reserves, and because of the growing application of international regulations (eg, international accounting standards and US generally accepted accounting principles), the restrictions of the constitutionally guaranteed right of ownership are not very severe. The court took into account the company's interest in keeping hidden reserves to cover commercial risks and fluctuations with regard to the value of the assets shown in the balance sheet. The hidden reserves could not fulfil this function to the same extent when disclosed.

In addition, the court stated that the maintenance of secrecy is not only in the company's interests but also in the interests of those shareholders that have priority in the equity interest, and not in income, from shares.

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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