Virtual General Meetings will remain

The format of a virtual annual general meeting is to be permanently established as an equivalent alternative to an in-person annual general meeting for German stock corporations  (Aktiengesellschaften), partnerships limited by shares (Kommanditgesellschaften auf Aktien) and European stock corporations (Societas Europaea, SE). On 9 February 2022, the Federal Ministry of Justice published a ministerial draft on the introduction of virtual general meetings for stock corporations. Below we give you an overview of the key provisions of the draft and provide you with an initial assessment for practice.

Goals of the legislation

At the start of the Covid-19 pandemic, the legislator, by necessity, for the first time offered the option of holding general meetings as purely virtual meetings, without the physical presence of shareholders at the meeting, via section 1(2) of the Act on Measures in Company, Cooperative, Association, Foundation and Housing Law to Combat the Effects of the Covid-19 Pandemic dated 27 March 2020 (Federal Law Gazette vol. I, pp. 569 and 570; last amended by Art. 15 of the Act of 10 September 2021 (Federal Law Gazette vol. I, p. 4147)) (“Covid-19 Act”). However, this pandemic-related special rule, which has restricted the exercise of certain shareholder rights in comparison to the in-person or hybrid meeting previously stipulated in the German Stock Corporation Act, will therefore expire at the end of 31 August 2022. See Corona crisis as a legal challenge for the General Meeting 2020-2022.

Based on the largely positive practical experience during the Covid-19 pandemic, the virtual general meeting is now to be established as a permanent format, alongside in-person and hybrid meetings:

• The level of shareholders’ rights at a virtual general meeting is intended to be comparable to that of a general meeting in person. In the virtual general meeting, it will therefore be possible to pass resolutions on all matters that can be the subject of an in-person general meeting, especially on important structural and corporate actions as well as measures under the German Transformation Act (Umwandlungsgesetz).
  
  
• The exercise of shareholder rights is to be moved to the period before the general meeting fully for some rights, and at least partially for other rights, since the informational and decision-making processes, including the casting of votes, increasingly take place before the general meeting, especially as far as institutional investors are concerned. The aim is to make general meetings more appealing to (institutional) investors who cannot attend in person. As a result, the procedure of the general meeting itself is to be streamlined.
  
  
• The possible risks of digitalisation for companies are to be taken into account through changes to the right to challenge. However, direct (and technically particularly vulnerable) two-way communication is only envisaged for shareholders’ speeches (not questions).
  
  
• The new regulations apply to both listed and non-listed stock corporations.
  
  

Overview and comparison of refinements

	Virtual general meeting pursuant to section 1(2) Covid-19 Act	Virtual general meeting pursuant to draft section 118a German Stock Corporation Act
Decision-making authority	Discretionary decision of the management board with the approval of the supervisory board	Annual general meeting: Provision or authorisation in the articles of association in favour of the management board for 5 years max. Transitional provision for general meetings until 31/8/2023: Management board with the approval of the supervisory board
Physical presence at meeting	Mandatory: management board, chairperson of the meeting, notary Supervisory board on site or via audio and video calls Optional: Company proxy Auditor (when annual financial statements are adopted by the general meeting)
Electronic participation of shareholders	Not mandatory
Exercise of voting rights	By electronic communication: electronic participation or electronic postal voting Granting of proxy
Countermotions and election proposals	Countermotions and election proposals (which are to be made available) made before the general meeting will be deemed to have been made “at” the general meeting. No right to propose motions during the general meeting without electronic participation	Countermotions and election proposals are deemed to have been made from the time they are made accessible It must be possible to vote on the proposal from the time it is made accessible There is no right in principle to propose a motion at the general meeting, but the company may allow this in the invitation
Requests for additions to the agenda	In the absence of an express provision, such requests are treated analogously to the right to make countermotions in practice	No express provision so far Possibly, fiction effect of published requests for additions (analogous to the right to make countermotions)
Procedural motions (“motions which are not countermotions”)	No right to propose motions during the general meeting without electronic participation	Right to propose motions during the general meeting obligatory, even if no general electronic participation right is granted
Right to information	Questions to be submitted at the latest one day before the general meeting No right of enquiry No obligation to publish shareholder questions	Questions to be submitted no later than four days before the general meeting Right of enquiry in the case of factual connection Obligation to publish shareholder questions in advance
Report of the management board	(Pre-)publication is voluntary	Advance publication of the report or its main content is mandatory at least six days before the general meeting
Shareholder statements and speaking rights	Only on a voluntary basis	Comments may be submitted by means of electronic communication Opportunity to speak at general meeting in the form of two-way direct connection and with prior registration four days before the general meeting
List of participants	Participants in the general meeting; in the case of a concealed proxy, only the company proxy Not: Shareholders watching audio and video transmission of the general meeting and (electronic) postal voters	Participants in the general meeting All connected shareholders and shareholder representatives
Right to object	By electronic communication (shareholder portal, email) Further requirement: Exercise of the voting right	By electronic communication (shareholder portal, email) Exercise of voting rights no longer a requirement

 

Provision required in the articles of association (opt-in)

In future, the decision to hold a virtual annual general meeting will be placed in the hands of the shareholders. This clarifies that by law the in-person meeting remains the basic form of the general meeting and that the virtual general meeting represents another option, in addition to the hybrid form. In future, the purely virtual format will only be available to the company if it is expressly stipulated in its articles of association.

• An exception exists only for general meetings convened up to and including 31 August 2023. During this transitional period, the management board may, with the consent of the supervisory board, once again decide based on the new legal requirements to hold the general meeting as a virtual meeting without this being stipulated in the articles of association. This means that most companies still have time to pass the necessary amendment to the articles of association at their general meeting in 2023 without having to revert to an in-person meeting after the special regulation due to the pandemic has been abolished. The situation may be different for companies that plan to hold an (extraordinary) general meeting this year after 31 August 2022 if the new law has not yet entered into force by that time.
  
  
• There are two ways of stipulating a virtual general meeting in the articles of association: Either the articles of association directly state that the meeting will in any case be held as a virtual general meeting, or they authorise the management board to make the decision in individual cases (draft section 118(1) s. 1 German Stock Corporation Act).
  
  
• In both cases, the corresponding provision or authorisation in the articles of association must be limited to a maximum of five years and then renewed at the latest (draft section 118a(3) to (5) German Stock Corporation Act). If it turns out in the further legislative process that such resolution to amend the articles of association continues to be subject to contestation, then companies will have to consider not putting a renewal on the agenda until the last year of the authorisation period as a precautionary measure.
  
  

Key requirements of the virtual general meeting

Shareholders’ rights must be guaranteed at a virtual general meeting as follows (draft section 118a(1) s. 2 no. 1 to no. 8 German Stock Corporation Act):

1. Video and audio transmission of the entire meeting: Shareholders must be able to follow the meeting in its entirety; the use of live streaming via the website or a shareholder portal or video conferencing services is permissible.
   
   
2. Exercise of voting rights by electronic communication (electronic participation or electronic postal voting) as well as granting of proxy: Written postal voting can also be made possible, but will probably be the exception in future given the advance of digitalisation and the associated additional costs.
   
   
3. Restricted submission of motions at the meeting: Shareholders must (only) be able to submit “motions that are not countermotions pursuant to section 126 German Stock Corporation Act” by way of electronic communication at the virtual general meeting. However, shareholders do not necessarily have to be connected live via video communication to submit motions. A text box in the shareholder portal or an email to the company can also serve this purpose. This mainly concerns procedural motions, such as motions for the removal of the chairperson of the meeting or motions on agenda items. Motions for the removal or postponement of an agenda item are mostly classified as countermotions and are therefore not covered. It is unclear whether motions for the appointment of a special auditor must also be possible in the meeting or whether they can only be made in advance, like countermotions. This should be clarified in the further legislative process (see also “Bringing forward countermotions and election proposals” below).
   
   
4. Granting a right to information pursuant to section 131 German Stock Corporation Act by electronic communication.
   
   
5. Pre-publication of the management board’s report or its main content no later than seven days before the meeting. The management board’s report means the management board’s speech, containing in particular an explanation of the proposals pursuant to section 176(1) s. 2 German Stock Corporation Act. In the case of listed companies, the report must be made available on the company’s website. While the advance publication of the management board’s speech is already best practice for many listed companies, this provision will change previous practice at smaller non-listed companies.
   
   
6. Shareholders will be given the right to submit comments by electronic communication before the annual general meeting, which will then be made available to all other shareholders.
   
   
7. Shareholders must be given an opportunity to speak at the meeting by means of video communication.
   
   
8. It is possible to object to a resolution of the general meeting by means of electronic communication during the general meeting. As for the technical implementation, the provision of a text box or an “objection button” in the shareholder portal or a special email address is recommended according to customary practice.
   
   

Presence at the location and electronic participation

Even at the virtual general meeting, the shareholders must in principle be able to see the members of the management on a podium. Both the members of the management board and the members of the supervisory board will therefore be obliged to physically attend the meeting (draft section 118(2) German Stock Corporation Act). The same applies to the meeting chairperson and the notary (draft section 130(1a) German Stock Corporation Act). The auditor must also physically attend the meeting, but only if the general meeting has to decide on the adoption of the annual financial statements or the approval of the consolidated financial statements, i.e. as a rule only for German partnerships limited by shares [KGaA] (section 286(1) s. 1 German Stock Corporation Act).

For the members of the supervisory board, however, the articles of association may provide for certain cases in the virtual general meeting in which they may participate by video and audio transmission (section 118(3) s. 2 German Stock Corporation Act). However, this requires two-way transmission (a two-way direct connection) which allows the supervisory board member to follow the events in the meeting and to participate by speaking. Since the ministerial draft emphasises the importance of the visibility of the management to the shareholders in the virtual format, too, it seems conceivable that in this case the members of the supervisory board linked by video and audio must be just as visible to the shareholders as the people on the podium, i.e. they must be (permanently) integrated into the video of the live transmission. In this respect, it would be desirable for the explanatory memorandum to include a corresponding clarification and to deny this, since the role of the ordinary members of the supervisory board in the general meeting is in any case a regularly passive one.

The draft provides that proxies of the company may be present at the place of the meeting (draft section 118a(2) s. 2 German Stock Corporation Act). It is not entirely clear from this provision whether this means that the company’s proxies will in future be able to cast the votes they represent even without being present at the meeting (in contrast to the usual practice to date) or whether this “optional” provision is merely intended to reflect the fact that the appointment of proxies is a voluntary service provided by the company and not an obligation.

Electronic participation of the shareholders (section 118(1) s. 2 German Stock Corporation Act) in the form of a two-way direct connection in real time during the entire meeting is still not a mandatory requirement of the virtual general meeting. Rather, the two-way direct connection is only mandatory to give the shareholders the opportunity to speak. The companies are free to provide for such electronic participation or to enable the exercise of further rights (besides the opportunity to speak) by means of two-way electronic communication.

Bringing forward countermotions and elections proposals

Countermotions to resolutions proposed by the management as well as elections proposals by shareholders must be made at an in-person general meeting. This applies even if the motions have already been sent and made available by the company at least 14 days before the general meeting (section 126 German Stock Corporation Act).

In a virtual general meeting, it is not possible for shareholders to submit motions without electronic participation rights during the general meeting. For this reason, countermotions and election proposals submitted in the run-up to the general meeting and to be made accessible by the company pursuant to section 126 German Stock Corporation Act will be deemed to have been submitted at the time they are made available (draft section 126(4) German Stock Corporation Act). This statutory “fiction solution” also differs in two respects from the currently applicable provision for virtual general meetings in section 1(2) s. 3 Covid-19 Act, which fictitiously assumes such a motion has been submitted “at the general meeting”, but only on the further condition that the applicant is duly legitimised and registered for the general meeting.

• In future, the company must make it possible to vote on a countermotion or election proposal as soon as it is made available. According to the explanatory memorandum of the ministerial draft, the countermotions must then (in any case) be integrated into the electronic voting system in the shareholder portal. However, this already corresponds to the practice of many companies, which, as a precautionary measure, have voting boxes on voting and proxy forms as well as in the shareholder portal ready for any countermotions and election proposals.
  
  
• With the legal fiction of the submission of the motion already at the time it was made available and not only “at the general meeting”, a vote on the motion seems to be mandatory and it is no longer possible for the applicant to withdraw their motion until the general meeting. In addition, a vote on the motion appears to take place even if the applicant has not registered for the general meeting or could no longer prove their identity. In this respect, the current provision in section 1(2) s. 3 Covid-19 Act would appear to be preferable and should therefore be the model for another revision of the provision in the further legislative process, in order not to completely decouple the right to file a motion from the filer’s participation or connection to the virtual general meeting in future. There is no need to depart from this principle, which continues to apply unchanged to in-person meetings (see section 126(2) no. 6 German Stock Corporation Act).

On the other hand, in the virtual general meeting itself spontaneous countermotions are no longer possible, unless the company expressly allows this when convening the meeting. Companies will have to carefully consider how to deal with this option on a case-by-case basis:

• Allowing spontaneous countermotions during the general meeting harbours the risk of unforeseeable imponderables for the course of the general meeting. On the other hand, it preserves flexibility, for example to be able to react to factual developments in the 14 days prior to the general meeting if these make it necessary to adjust the content of the previously announced management proposal and/or countermotion. Due to the uncertainties about the conditions in which a resolution proposed by the management and announced in the notice of the general meeting can be put to a vote in the general meeting in an amended form, the practice in these cases is often that a shareholder introduces an amended resolution proposal into the meeting via a countermotion. Also in supervisory board elections it is conceivable that it only becomes apparent shortly before or during the general meeting that a proposed supervisory board member will not receive the necessary majority. In this case, too, a new person can only be proposed as a candidate for election at short notice at the general meeting if the company has previously permitted this in the notice convening the meeting.
  
  
• The decision on allowing spontaneous countermotions at the meeting will in certain cases also depend on whether this reservation of the company’s right to grant permission also applies to motions to appoint a special auditor. On the one hand, these are not “real” countermotions that contradict a management proposal, but rather factually supplementary motions that, under certain conditions, can also be made without announcement of an agenda item (e.g. presentation of the annual financial statements or approval of the actions of the management board or supervisory board). This speaks in favour of formally qualifying them as “motions that are not countermotions pursuant to section 126 German Stock Corporation Act”, which shareholders should still be able to submit in the virtual general meeting in any case (draft section 118(1) s. 2 no. 3 German Stock Corporation Act). However, the objective pursued of streamlining the meeting with regard to motions in the meeting and, in particular, enabling shareholders who frequently exercise their voting rights in the run-up to the general meeting to do so, clearly speaks in favour of also moving the special audit motions in principle to period before the general meeting, also in order to prevent “minorities turning into majorities” in the case of spontaneous motions in the meeting, due to the fact that a large proportion of the shareholders can no longer vote on them. For practical reasons, the legislator should therefore clarify in a legally watertight manner how such special audit motions will be treated.
  
  
• In any case, it appears permissible for companies to take a compromise approach by allowing countermotions in the convening notice only for selected agenda items.
  
  

Shareholders’ right to information and right of enquiry

The shareholders’ right to information is also being modified, primarily with the aim of streamlining the general meeting and increasing the quality of the answers to questions.

• The management board may stipulate that shareholders must submit their questions by electronic communication (shareholder portal, email) no later than four days before the general meeting (draft section 131(1a) German Stock Corporation Act). From a practical point of view, it is very welcome that, compared to the virtual general meeting according to the Covid-19 Act, this deadline is extended from one to four days before the day of the general meeting. This gives the companies the necessary time to achieve a high quality of response.
  
  
• The management board may limit the scope of questions and make the entitlement to submit questions dependent on the shareholders having duly registered for the general meeting (draft section 131(1b) German Stock Corporation Act). This gives the management board the same means in advance as the chairperson of the meeting to ensure a reasonable time frame for the meeting. The maximum number of questions per shareholder as well as a restriction on signs may be specified thereafter.
  
  
• Another modification is that the company must make questions submitted in due time available to all shareholders before the meeting, in the case of listed companies via the company’s website (draft section 131(1c) German Stock Corporation Act). According to the explanatory memorandum of the ministerial draft, the questions do not have to be published continuously without delay after receipt by the company, but it is sufficient if they are made available collectively on the website after expiry of the deadline. Nevertheless, it should be added in the further legislative process that questions do not have to be made accessible if they contain obviously false or misleading information on key points or insults or if the management board would make itself liable to prosecution by making them accessible (analogously to section 126(2) s. 1 no. 1 and 3 German Stock Corporation Act and corresponding to such a regulation for the publication of comments under draft section 130a(3) s. 3 German Stock Corporation Act).
  
  
• If the management board decides to move the right to information to the period before the general meeting, the shareholders no longer have the right to information “at” the general meeting, but only the right of enquiry.
  
  
• The right of shareholders to ask questions at the general meeting, which has already been granted voluntarily by some large listed companies in this and the previous general meeting season, becomes law in this respect (draft section 131(1d) German Stock Corporation Act). Following the answers to the shareholders’ questions submitted in advance, the shareholders are to be granted a right to query the answers given by the management board (and probably also by the supervisory board) during the meeting. These queries must be made by means of electronic communication. The ministerial draft expressly emphasises that the queries do not have to take the form of a live video link. They can also be permitted by means of a (re-enabled) text box in the shareholder portal or, for example, by email. The right to ask follow-up questions is also limited by the fact that there must be a factual connection to the preliminary question and its answer by the management board. In this respect, difficult questions of demarcation are likely to arise for the management and the back office, which the explanatory memorandum of the ministerial draft anticipates to the extent that this factual connection is to be assumed in case of doubt. It is also noteworthy that all shareholders are entitled to ask follow-up questions and not only the shareholder who asked the actual preliminary question.

The chairperson of the meeting may, on the basis of an authorisation in the articles of association, impose reasonable time limits on the shareholder’s right to ask questions and determine further details (section 131(2) s. 2 German Stock Corporation Act). In particular, they may limit the period of time during which questions may be asked or determine the number of permissible questions per shareholder. The ministerial draft explicitly refers to the suggestion A.4 of the German Corporate Governance Code, which states that the meeting chairperson for ordinary general meetings should aim for a meeting to last four to six hours.

Submission of comments and opportunity to speak

In order to make interaction between shareholders and management more similar to the format of the in-person meeting, and at the same time to move some of the process of providing information to the period before the general meeting, shareholders will in future be given the opportunity to submit comments before the general meeting and to speak at the general meeting (draft section 130a German Stock Corporation Act). This is intended to establish a culture of debate in the virtual general meeting and to avoid the impression that the process of a virtual general meeting merely follows the management’s script. At virtual general meetings to date, these opportunities have only been tested in very isolated cases and voluntarily at large listed companies, mainly because of the technical effort involved.

Submission of comments

• The company must make it possible for shareholders to submit comments on the agenda items by electronic communication before the virtual general meeting.
  
  
• The electronic communication channel (e.g. text in the form of email or video messages) created by company for this purpose is at the discretion of the management board. The scope of comments may also be appropriately limited, for example by a maximum number of characters or a time limit for video messages.
  
  
• Comments must be submitted no later than 4 days before the general meeting.
  
  
• Comments submitted must be made available by the company to all shareholders, in the case of listed companies via the company’s website. A statement does not have to be made accessible if the management board would thereby render itself liable to prosecution, if the statement is obviously false, misleading or insulting or if the shareholder indicates that he will not participate in the virtual general meeting and will not be represented.
  
  
• According to the explanatory memorandum of the ministerial draft, comments only have to be made available in the language and format they were submitted in, e. speeches not in German would not have to be translated by the company for publication. From an organisational point of view, this is understandable, as the companies would otherwise have to reserve translation capacity 4 days before the general meeting and timely publication before the general meeting would be considerably delayed again by translation work. On the other hand, it is questionable with regard to the equal treatment of shareholders (section 53a German Stock Corporation Act) if statements were published in a foreign language that only some of the shareholders understand. The working language of the general meeting is generally German, which is why in practice, speeches in English, for example, are usually only permitted if a translation (or at least a translated summary) is possible. However, the proportion of foreign shareholders in German stock corporations has risen significantly. In this respect, a regulation or clarification could be suggested in the further legislative process which, on the one hand, allows the companies to specify the language of the comments and, on the other hand, encourages listed companies with a typically international group of shareholders to accept comments in English and to translate them as text for publication.

Opportunity for shareholders to speak

• At the general meeting, shareholders must be given the opportunity to speak live via video using a two-way direct connection to the management and shareholders connected to the meeting. A chat function on the shareholder portal is therefore not enough. However, in the convening notice the company may reserve the right to check whether video communication works. If video communication does not work or if the shareholder does not appear on the technical check date, the speech may not be allowed. In that case, the shareholder could still submit their speech in text format as a written statement, if necessary.
  
  
• The company may specify in the convening notice a reasonable total time for all shareholders to speak and a reasonable total number of possible speeches. The chairperson of the meeting will decide on the order of the speeches. However, the chairperson of the meeting may, as at a general meeting in person, further reasonably limit the total time on the basis of a corresponding authorisation in the articles of association or further reasonably limit the speaking time. As for the implementation in practice, at least in the initial phase, the particular challenge will be to determine the appropriate scope and time frame for speeches in advance in the convocation. While the chairperson of the meeting can base restrictive management measures on an advanced time (duration) of the general meeting in the overall view of the addressed questions and follow-up questions as well as the speeches, it is difficult to estimate in advance at the time of the convocation how much time remains for the shareholders’ speeches in addition to the answering of questions. A conceivable option could be to stagger the appropriate framework for speeches in the convening notice and to make it dependent on a certain number of submitted shareholder questions (i.e. reduction of the share of speeches with increasing number of shareholder questions).
  
  
• Shareholders only have the opportunity to speak at the general meeting if they have registered their speech at least four days before the general meeting. This registration of the speech must in principle be made separately from the registration for the general meeting and will not replace the latter. Rather, it may be restricted to duly registered shareholders.
  
  
• If the number of registered speeches exceeds the number of speeches admitted by the company, the chronological order of receipt of the registration will determine whether the speech is allowed. The remaining registered speeches do not have to be allowed. It would therefore be good if the share capital represented by the speaker were also recognised as a further criterion for the selection of speeches. Otherwise, there is a risk that speakers will rush to register their speeches, which could lead to shareholders and shareholders’ associations with a significant shareholding being too late in registering their speeches. The companies would then in fact be forced to also accept speeches that exceed the permitted number. In that case, the responsibility to reduce the total number of speeches to an appropriate level would only be moved to the chairperson of the general meeting.
  
  
• Video communication must remain limited to the speech. Shareholders are therefore not allowed to ask questions, make procedural motions or - if even permitted by the company during the general meeting- submit countermotions and election proposals via the live link.
  
  

Limitation on contestation due to technical faults

The companies that opt for a virtual meeting shall be protected from increased risks of contestation due to the technology to be used. Therefore, contesting the general meeting resolutions can generally not be based on the violation of shareholders’ rights due to a technical fault, unless the company can be accused of wilful intent or gross negligence (draft section 243(3) s. 1 no. 1, s. 2 German Stock Corporation Act).

Conclusion

Given the positive experiences with the virtual general meeting format during the pandemic, the ministerial draft is to be welcomed from a practical point of view. It essentially creates a refined legal framework for the virtual format, which was to be expected after the discussions in academia and practice. Nevertheless, in some places there is still room for improvement and clarification in the further legislative process.

In general, it would be welcome if the legislator went one step further by applying the intended move of essential informational and decision-making processes, including the associated shareholder rights, to the period before the general meeting in the same way for in-person and hybrid meetings. Otherwise, it is to be expected that the virtual format, given its increased attractiveness for institutional investors and the quality of shareholder information, will replace the in-person meeting as the new default form of the general meeting and that in-person meetings will become less popular for this reason alone.