The Framework for Business Objectives

The choice of the appropriate corporate structure is individual and depends on specific needs. Tax considerations play just as much of a role as personal liability, the company’s purpose, and the number of shareholders. Depending on the company’s size, business areas, and shareholder structure, it may also make sense to establish a corporate structure comprising multiple companies.

Standard articles of association are generally sufficient for day-to-day business operations. The difference between these and articles of association tailored to the client’s needs usually only becomes apparent in special situations. In such cases, there are key questions that the articles of association must address, such as:

– Are the powers of the shareholders and management clearly defined?
– Is there a clear procedure for convening and conducting shareholder meetings?
– How are voting rights distributed?
– How and when can a shareholder withdraw?
– Under what conditions can a shareholder be expelled?
– Is succession in the articles of association aligned with dispositions of property upon death?
– Who exercises the rights of minor shareholders?
– How is the severance payment calculated and paid out when a shareholder withdraws?

Family-owned companies present a unique complexity that is also reflected in the legal framework. Articles of association and accompanying agreements should address or, where appropriate, anticipate a shareholder structure spanning multiple generations and/or family branches. In the case of a branched shareholder structure, pooling votes within the respective family branches may also be advisable. Responsibilities should be clearly assigned, particularly regarding management. Special rights and safeguards for the transferring generation are further key components. The involvement of minors adds an additional layer of complexity, as do desired provisions regarding matrimonial and inheritance law for the shareholders, as well as succession arrangements. Special provisions can also be established for conflict resolution with a view to protecting family ties. Last but not least, buyout provisions require a careful balancing act between protecting the family business and the individual shareholder’s interest in receiving a buyout. Overall, drafting the governing documents for a family business requires particular sensitivity and an understanding of the delicate balance between the long-term preservation of the business and the emotional bonds and connections among the family shareholders.

A company, its shareholder structure, and the operating environment are dynamic. Articles of association should therefore be reviewed from time to time to ensure they still align with the current structures and individual needs and comply with applicable law.

Due to the public nature of certain corporate forms’ registry entries, particularly for the GmbH, there are often concerns about including particularly sensitive provisions in the articles of association, as they can be publicly accessed by anyone. Where such public registry entries exist, sensitive provisions should therefore be set forth in separate documents, particularly shareholder agreements or family bylaws. Depending on the subject matter, such agreements must also be notarized to be valid.
Even outside the scope of public registry disclosure, it may make sense to set out sensitive provisions outside the articles of association.

In principle, participation and property rights are determined by each shareholder’s ownership stake, and shareholders are treated (relatively) equally to that extent. However, internal company circumstances may require certain special rights, such as management rights, multiple voting rights, or a non-proportional distribution of profits. This often plays a role in corporate succession.