Overview Shareholders meeting Shareholder s right to vote Right

Overview Shareholders’ meeting Shareholder’s right to vote Right to obtain information at the annual meeting Dividend rights Preemptive rights Protection of minority shareholders

SHAREHOLDERS’ MEETING

Management bodies of joint-stock companies Ø the general shareholders` meeting Ø the management board Ø the supervisory board Through the shareholders` meeting shareholders exercise their rights

The competence of the shareholders’ meeting Ø Ø Ø Appointment of members of the supervisory board and auditors Distribution of the balance sheet profit Dismissal of members of the management board and supervisory board Changes in the company's articles Activities to attract or reduce capital Liquidation of a company The competence of the general meeting of shareholders does not include questions relating to the management of the society (except when the management board requires the participation of the general shareholders` meeting)

Convening of shareholders Ø The shareholders` meeting is convened at least once a year Ø Convening of shareholders is performed by the management board Ø Information regarding the convening of society should be published at least one month before the meeting Ø The notice of the shareholders’ meeting is published in the company’s journals and electronic Federal Information Gazette (www. bundesanzeiger. de)

Notice of the shareholders’ meeting Ø The company’s business name Ø Domicile (legal address) Ø Time and place of the shareholders’ meeting Notice of the agenda should include questions about which decisions must be made , indicating the order in which they discus.

Holding of the shareholders’ meeting and its decisions For the meeting it is necessary to present a list of shareholders, indicating their place of residence number may participate in the by them. shareholdersand type of shares held meeting through its Ø representatives Ø General shareholders` meeting is held by the chairman of the meeting , which is elected by the shareholders, if his nomination is not approved by the company's articles. board members can not be elected to the post of chairman of the meeting

Chairman of the meeting Ø Announces the commencement of voting on the raised issues Ø Supervises the voting Ø Approves the voting decision. Ø Every decision of the general meeting must be evidenced by the signature of a notary.

THE SHAREHOLDER'S RIGHT TO VOTE

What is the right to vote Ø The right to vote is an “inherent part of membership” Ø The right of a shareholder to vote on matters of corporate policy and who will make up the board of directors. Ø Voting often involves decisions on issuing securities, initiating corporate actions and making substantial changes in the corporation's operations.

Distinctive features Ø Each share shall confer voting rights. Ø The voting rights are proportionate to the par value of the shares (§ 134 (1) Aktiengesetz). Ø Preferred shares that confer no voting rights may be issued in accordance with the provisions of Akt. G. Ø Multiple voting rights shall be prohibited. Ø Decisions of the General meeting are taken by a majority of the votes. Ø The right to vote cannot be withdrawn. Ø Shareholder can transfer his power to vote to his custodian or a third party.

Exercise of Voting Rights Through Agents A shareholder has a right: Ø To give to another person a power of attorney (Vollinacht) to vote his shares at the meeting. Ø To give the bank authorization (Ermichtigung) to vote the shares.

On what do shareholders vote? Ø Basic decisions: amendments of the articles of association (§ 179 Aktiengesetz); measures to increase and to decrease the stated capital (§§ 182, 237 Aktiengesetz); consent to group contracts (§§ 291 et seq. Aktiengesetz); change of the corporate form (§ 13 Umwandlungsgesetz) or dissolution of the association (§ 262 Aktiengesetz). Ø The decisions that must be taken regularly. The appointment of the members of the supervisory board (§ 101 Aktiengesetz); the appropriation of retained earnings (§ 119 Aktiengesetz); the discharge from responsibility of the members of the board of management and the supervisory board (§ 120 Aktiengesetz) or the appointment of auditors (§ 163 Aktiengesetz). Ø Decisions in special cases. The appointment of special auditors (§ 142 Aktiengesetz), the removal of members of the supervisory board (§ 103 Aktiengesetz), taking decisions on managerial matters if the management board requests (§ 119 (2) Aktiengesetz).

Prohibition on the exercise of voting right. No one can exercise the right to vote for themselves or for another person: Ø in case of the decision on the approval of his work; Ø in case of the decision of the release this person from obligations; Ø in case of the decision whether the company should make claim to this person.

THE RIGHT TO OBTAIN INFORMATION AT THE ANNUAL MEETING

Shareholder’s right to obtain information at the annual meeting Ø The duty of the Board to provide information about the affairs of the joint stock company Ø The right of the Board to refuse to provide information Ø Judgment on the right to obtain information

DIVIDEND RIGHT OF SHAREHOLDERS

Dividend right A shareholder's rights to receive per-share dividends identical to those other shareholders receive.

Classification of Shares Ø Common (St or St. A) – right to vote, dividends depend on board of managements’ decision Ø Preferred (V, VA or Vz) – no right to vote, fixed dividends

The Process of Dividend Policy Formulation. Ø The board of managers has to prepare annually a balance sheet and a profit and loss statement Only “net profits” are available to dividends “net profit” = annual profit – legal reserves Ø the report is submitted to the auditors Ø the financial report with auditors’ report and board of managers’ recommendations are submitted to the board of supervisors Ø final determination and adoption at shareholders meeting

PREEMPTIVE RIGHT OF SHAREHOLDERS

Preemptive right Privilege granted in articles of association or bylaws of a firm under which the current stockholders (shareholders) are given the first option to buy a new issue of common stock (ordinary shares). Ø Ø Ø Enables to maintain shareholders their percentage of the total ownership of the firm Usually exercised on the basis of current stockholding. Also called subscription privilege or subscription right.

PROTECTION OF MINORITY SHAREHOLDERS

Minority shareholders are individuals, or legal entities, who have minority stakes in a company that is controlled by majority shareholders.

Protection of minority shareholders Legal Concepts and Relevant Statutory Rules in Germany: Ø Ø Ø The Right to Information, Independent Auditing and Special Right to Control by Minority Shareholders; Influence on Decision-Making Process by Minority Shareholders; Voting Rights of Minority Shareholders.

The Right to Information, Independent Auditing and Special Right to Control by Minority Shareholders Right to request and receive information from the management: Ø Ø Ø At the general meeting; information should be essential for a shareholder; Concerning to the item of agenda.

Influence on Decision-Making Process by Minority Shareholders Ø Participation in general meeting of shareholders Ø Right to call the external shareholder meeting Ø Right to publish additional items on agenda

Voting Rights of Minority Shareholders Ø Blocking power Ø “Lowering information and transaction costs for shareholders to cast their votes. ” Ø One-share, one-vote rule.

Squeeze-Out Rule in Germany Request of a principal shareholder (holding 95% of the share capital) to transfer shares of minority shareholders against the adequate compensation. Ø Ø This request is resolved by shareholders meeting If the compensation is not adequate (or it is not offered), the court shall set adequate cash compensation