Einhaus Selter Lawyers advise and represent their clients in corporate law matters focused on Corporate Governance.
Companies as Carrier of Commercial Entities
Company law is commonly referred to as the right of corporate contractual relationships as well as the right of private law associations. National and international partnerships (for example partnerships under civil and commercial law and limited partnerships) as well as corporations (for example private limited companies, joint-stock companies and European companies), joint-ownerships and legal persons are included. In addition to the very large differences between the various forms of companies according to their legal conception (for example according to the German civil code, the German commercial code, the limited liability companies Act and the stock corporation act) the companies of one and the same form distinguish by their specific design, for example personality-based on one and publicly owned on the other side. Regardless of the specific structure of the company it mostly serves as a vehicle of one or more entities within the meaning of an assembly of assets, rights and relationships.
Design options in regard of company bodies
In addition to the large differences between the legal forms of companies in many of them are also extensive design possibilities with regard to the board functions. There are directors of German private limited companies who may be able to operate almost independently without instructions of the shareholders and represent their companies without restrictions towards third parties. In other companies directors may be obliged to ask for the shareholders’ consent concerning all essential measures. Instead of providing them with exclusive power of representation, they are only allowed to act on behalf of the company together with another director. Beside the wide range of design opportunities in company law there are many cases of doubt which may substantially complicate the management of the company and bear liability risks for the board members. There is often more than one way to interpret the law. Furthermore there are different opinions how far a statutory rule has a mandatory or default character.
The analysis of the legal situation in groups of dominant and controlled companies (the group) is a special challenge. In addition to the interest of the company the interest of the group occurs. It will be defined and enforced by the management of the parent company. Members of the boards of the controlled companies have to be very careful in order to prevent making themselves liable to their own company. For example, they are not permitted to grant loans to the parent company (so-called upstream loans) without a closer investigation of its financial soundness and credit worthiness. All these circumstances require prudent management by the board members and a partner who knows the current legal situation including all uncertainties and is able to estimate the potential risks as well as issue recommendations for action.