The question
How far may shareholders direct the management, how do they learn what is happening, and how is room left for management to act on its own responsibility?
In brief
In a German private limited company (GmbH) the shareholders can give the managing directors instructions, and the directors must follow them. The management board of a stock corporation (AG), by contrast, runs the company on its own responsibility; the supervisory board oversees it and can make certain transactions subject to its consent. In a registered association (Verein) the general meeting can instruct the board. How much trust and how much control a company needs is not a question of character but of design.
The law
The right to give instructions in a GmbH
Managing directors must observe the limits set by the articles or, unless the articles provide otherwise, by shareholders’ resolutions (Section 37(1) Limited Liability Companies Act (GmbHG)). This gives the shareholders’ meeting a comprehensive right to issue instructions. It also decides on measures to examine and supervise the management (Section 46 no. 6 GmbHG) and can remove directors at any time (Section 38(1) GmbHG).
The right has limits. Unlawful instructions are not binding. Payments in breach of the rules on capital maintenance do not relieve a director of liability even if a shareholders’ resolution ordered them, insofar as compensation is needed to satisfy creditors (Section 43(3) GmbHG). And no internal restriction has effect externally: the directors’ power of representation cannot be limited as against third parties (Section 37(2) GmbHG).
For comparison: AG, Verein, GbR
The management board of an AG must run the company on its own responsibility (Section 76(1) Stock Corporation Act (AktG)). Neither the general meeting nor the supervisory board can instruct it. The supervisory board oversees it, receives regular reports (Section 90 AktG) and must make certain types of transaction subject to its consent (Section 111(4) sentence 2 AktG).
In a Verein, the board’s management is governed by the rules on mandates (Section 27(3) German Civil Code (BGB)). The general meeting can therefore give it instructions (Section 665 BGB) and demand information and an account (Section 666 BGB).
In a civil-law partnership (GbR) the partners are themselves the managers. Transactions beyond the ordinary course of business require a resolution of all partners (Section 715(2) BGB). For good cause a partner’s management authority can be withdrawn (Section 715(5) BGB).
Consent requirements
Between a free hand and individual instructions lies the list of transactions requiring consent: buying land, loans above a certain amount, hiring above a salary threshold, new lines of business. It sits in the articles, the rules of procedure or the service contract.
A good list is short. It covers the decisions the shareholders really want to take themselves and leaves the rest to management. A long list shifts management to the shareholders without their wanting to take responsibility for it. Consent requirements, too, work only internally.
Reporting lines
The statute gives a GmbH shareholder a right to information and inspection on request (Section 51a GmbHG) and requires a shareholders’ meeting when half the share capital has been lost (Section 49(3) GmbHG). Where management identifies developments that endanger the company’s survival, it must inform the supervisory bodies without delay (Section 1(1) Corporate Stabilisation and Restructuring Act (StaRUG)).
That is a minimum. Cooperation needs regular reports that do not first have to be requested: a monthly overview of figures and projects, an annual plan, a duty to report certain events at once. Agreeing such lines relieves both sides. Shareholders need not ask, management need not justify itself.
The advisory board as a place of coordination
The GmbH Act does not provide for an advisory board (Beirat); the articles can create one. It can advise, supervise, give consents, appoint directors or decide when shareholders are deadlocked. If it has the functions of a supervisory board, certain provisions of the AktG apply accordingly unless the articles provide otherwise (Section 52(1) GmbHG). A voluntary advisory board must be distinguished from the co-determined supervisory board that larger companies are required to form.
Its value often lies less in its powers than in its position in between. It is a place where shareholders and management meet without either summoning the other. Staffed by people both sides trust, it can absorb conflicts before they turn into litigation over resolutions.
External and shareholder-directors
Directors may be shareholders or other persons (Section 6(3) sentence 1 GmbHG). An external director brings distance and expertise but depends on the shareholders’ confidence and can be removed at any time. A shareholder-director holds two roles. On resolutions about their own discharge or transactions with them, they may not vote (Section 47(4) GmbHG). Their power as a shareholder also determines whether they count as employed for social security purposes.
The corporate appointment, created and ended by resolution, must always be distinguished from the service contract, which follows its own rules.
Trust and control
The law knows both. The right to instruct, consent requirements and removal are instruments of control. Management authority, the power of representation and the protection of business decisions are forms of trust. Control is not experienced as mistrust when it happens regularly and applies to everyone alike, rather than only once someone has a suspicion.
Online
Reports lend themselves to the asynchronous form. A shared data room with current figures, minutes and drafts meets information duties before anyone has to ask, and gives every meeting a common basis.
Advisory board meetings and shareholders’ meetings live online are legally possible. For a GmbH shareholders’ meeting by video, all shareholders must agree in text form (Section 48(1) sentence 2 GmbHG). For the advisory board, the articles or its rules of procedure decide; they should expressly allow meetings live online and resolutions by circulation.
In a meeting live online it soon shows when management merely reads out what is already in the papers. Circulating papers in advance and using the meeting for questions and decisions turns the duty to report into a conversation.
Relevant phases
- Designing the cooperation: who decides what, and who reports to whom?
- Agreeing the cooperation: articles, rules of procedure, advisory board rules.
- Supporting the cooperation: reports and advisory board in everyday operation.
- Dealing with conflict: when instructions and independent responsibility collide.
Read on: Shareholders among themselves · Management as cooperation · Decisions and meetings
Limits of this overview
This page outlines German law. Co-determination, group structures, service contracts and social security questions are only touched on and depend on the individual case.
As at 30 September 2026