Now the time has finally come: the long-awaited revised stock corporation law came into force on 1.1.2023 and enables further digitization steps in the administration of joint stock companies. The main innovations include the introduction of general meetings using electronic means and, as a special type of them, virtual general meetings.
These new forms of general assembly are subject to strict legal requirements, which we would like to examine below.
GM with electronic means - the different types
Under certain conditions, shareholders who are not present at the place of the general meeting can exercise their rights electronically. The general meeting therefore takes place physically at a specific location, but shareholders who are not present at the location of the general meeting can attend it electronically, for example via the Internet or by telephone. Since some of the shareholders attend physically and some of the shareholders participate electronically, such general meetings are referred to as hybrid general meetings.
A virtual general meeting is a general meeting that is held entirely online. This means that all participants connect via the Internet and attend the general meeting online.
In both cases, participants can participate in the General Assembly via electronic media and, in particular, exercise their vote electronically (so-called “direct voting”). Until now, it was only possible to issue instructions electronically for the attention of a proxy.
The direct electronic participation of shareholders enables them to vote in a more informed manner following a discussion or question and answer session held at the general meeting. This is clearly seen as strengthening shareholder rights. The opportunity to attend a general meeting directly and vote without having to take the time and effort to travel to a physical general meeting also represents an extension of shareholder rights and is in line with modern forms of work and communication.
Common requirements for holding general meetings by electronic means
For both hybrid and virtual general meetings, the Board of Directors must regulate the use of electronic means. Ideally, he does this in accordance with appropriate regulations. In doing so, the Board of Directors ensures that
- the identity of the participants is established;
- the votes in the General Assembly are transferred directly;
- any participant can make proposals and take part in the discussion;
- the result of the vote cannot be falsified.
Special requirements for hybrid general meetings
In connection with hybrid general meetings, the law only requires that the board of directors can provide that shareholders who are not present at the general meeting location can exercise their rights electronically. The competence to hold a virtual general meeting therefore lies exclusively with the Board of Directors.
Special requirements for virtual general meetings
Compared to hybrid general meetings, the requirements for holding virtual general meetings are somewhat higher: the law requires an explicit statute provision that authorizes the board of directors to hold a virtual general meeting. This, of course, requires that shareholders approve a related amendment to the articles of association at an ordinary physical or hybrid general meeting. Therefore, before a first virtual general meeting can be held under new law, at least one more physical or hybrid general meeting must be held.
If the statutory basis for holding a virtual general meeting has been created, the Board of Directors must appoint an independent voting representative when convening it. This takes account of the principle of directness: even if a virtual general meeting is held, hardly all shareholders will be able to attend live due to scheduling reasons; however, the principle of directness prohibits legally valid voting before the general meeting, which is why absent shareholders must always be represented by a proxy even at a virtual general meeting.
The new stock corporation law allows joint stock companies whose shares are not listed on a stock exchange to waive an independent proxy in accordance with the statutory provisions. This, too, requires a resolution by the General Assembly first. For the sake of good order, it should be stated here that this is simply a waiver of the independence of the voting rights representative and not the waiver of the voting representative per se. This means that even if there is an appropriate statutory basis, the Board of Directors must ensure that shareholders who are unable to attend the virtual general meeting are represented by a proxy.
What now — next steps for the Board of Directors
Boards of directors who want to give their shareholders more flexibility through the use of electronic means and involve them more closely in the development of the company should therefore consider the following steps:
- Enactment of regulations for the use of electronic means, which state how participants are identified, votes are transferred directly, participants submit applications and can participate in the discussion and the voting results cannot be falsified.
- In fact, these questions can only be answered concretely and conclusively once the Board of Directors has also looked at suitable technical means and includes their specifications in the enactment of its regulations.
- In order to hold a hybrid general meeting, the Board of Directors must pass a formal resolution on the occasion of a meeting of the Board of Directors.
- If the Board of Directors wishes to hold purely virtual general meetings in the future, it must propose and apply for a related amendment to the articles of association to the general meeting. At the same time, this may also provide a basis for waiving the independent voting rights representative. Both changes must be publicly notarized by a notary and entered in the commercial register.
How Konsento helps you
Konsento is a comprehensive platform for digitizing the tasks of boards of directors and entrepreneurs as well as their appointed trustees, lawyers, notaries and auditors. Among other things, it includes a module for board meetings and general meetings, which enables the preparation, implementation and follow-up of physical, hybrid and virtual meetings. This module contains draft agenda documents for board meetings and general meetings, the wording of which is also the basis for any necessary public notarizations and registrations with the commercial register. In particular, users of Konsento are entitled to templates for the Board of Directors resolution to hold a general meeting by electronic means as well as for the AGM resolutions on the amendment of the statutes in connection with virtual general meetings and the waiver of the independent voting rights representative.
And finally, Konsento provides registered users with a template for regulations for the use of electronic means, which in particular governs the form of identification, the directness, the authenticity of voting results and how to proceed in the event of any technical faults.
Since 2020 - then still under the Covid-19 regime - Konsento has been holding hybrid and virtual general meetings and, in the event of changes to the articles of association, provides notaries who can determine the decisions online and then notarize them.
Book a non-binding demo today and learn more about hybrid and virtual general meetings.
Image attribution: Image by mangoprostrar on freepik