CORPORATE Virtual shareholders’ meeting of the GmbH

The coronavirus pandemic has also left its mark on company law. Because when meetings were not allowed to take place due to the pandemic, company law – including GmbH (German Limited Liability Company) law! – reached its limits and came under pressure to change. This effect is because GmbH law previously stipulated that shareholders had to meet in person to pass resolutions as a shareholders’ meeting.

This legal regulation has now been amended. On the one hand, to be prepared for situations in the future in which face-to-face meetings are not possible. On the other hand, it enables shareholders who live too far away from the meeting venue or who need to travel in person to attend.

Previous regulation for passing resolutions: Attendance

Until the start of the coronavirus pandemic, shareholder meetings were only possible if the shareholders met in person at one location. This consequence meant that the shareholders’ meeting of the GmbH was also classically intended as an in-person meeting. The German Limited Liability Companies Act (GmbHG) did not provide a legal basis for “virtual” shareholder meetings – digitalization had not yet found its way into GmbH law. Only in the articles of association could GmbHs deviate from the principle of face-to-face conferences and authorize virtual shareholder meetings.

With the ban on meetings during the coronavirus pandemic, this became a problem for GmbHs that had previously not made any provision for virtual shareholder meetings and were unable to amend the articles of association with the 75% of votes required to amend the articles of association (Section 53 (2) GmbHG) during the peak phase of the pandemic.

The legislator did ensure at short notice that a simple majority could pass resolutions without a meeting in person by way of circulation. However, this regulation only applied until the beginning of August 2022. Since then, the circulation procedure has only been possible as a voting option if all shareholders (unanimously) agree to it.

The basis for passing resolutions outside of physical meetings in the GmbHG

To keep up with the times and facilitate virtual resolutions in the future, the German Limited Liability Companies Act was amended when the temporary pandemic regulations expired. Since then, Section 48 (1) GmbHG has stipulated that virtual shareholder meetings are possible regardless of the provisions in the GmbH articles of association, i.e., they can also be held “by telephone” (telephone conference) or with the help of video communication.

However, the legal regulation has a catch: all shareholders must agree to such a virtual meeting (unanimity!). This demand can be a significant hurdle, even if consent can be given by email.

Should we meet in person, in virtual shareholders’ meeting, or as hybrid?

If a virtual shareholders’ meeting is held, the physical presence of the shareholders is “merely” waived. Simultaneous participation via conference call or video conference remains necessary. But do you have to choose between a physical or virtual meeting?

No, because it is also possible to combine the meeting forms, i.e., add shareholders to an in-person meeting virtually. In theory, this makes the organization of the shareholders’ meeting relatively flexible in the future, as the company now has a range of different options available to it by law.

Individual regulations in the articles of association make sense

The German Limited Liability Companies Act now contains a provision for virtual shareholders’ meetings, which is also directly applicable. And yet – as is so often the case in company law – it makes sense to make individual provisions for the virtual shareholders’ meeting in the articles of association.

Firstly, it is essential to check whether the articles of association still need to align with the new legal situation and should be amended. Suppose there are no provisions for the virtual shareholders’ meeting. In that case, allowing a simple majority to suffice for a vote on the “whether” of a virtual or hybrid shareholders’ meeting makes sense – as is the case for most GmbH resolutions. You should also include details on the invitation and organization so that the devil can only creep in quickly in this new territory, and, for example, a similar situation can be created concerning discussions as with an in-person meeting.

Innovations for company meetings: a long overdue step

It is a significant step forward that legal options have been created to allow shareholder meetings to be held virtually or in hybrid form using modern means of communication: not every shareholder has to travel long distances to exercise their voting rights – this also makes sense from an efficiency and sustainability perspective. At the same time, virtual and hybrid meetings allow people who do not want to or cannot travel to exercise their voting rights. In this respect, the amendment of the GmbHG makes GmbH law more flexible, sustainable and democratic. A reasonable and necessary step!

Yet, in the future, it will be necessary for companies to first think about how they want to hold their shareholders’ meetings and then include these requirements in the articles of association of the GmbH.