Medium-sized stock corporations – Advantages of hybrid annual general meetings
Most public companies decide to conduct a virtual annual general meeting (“AGM”) in order to save costs and immissions. Despite all enthusiasm regarding the newly created option, in particular medium-sized corporations should consider the advantages of hybrid AGMs.
Art. 118a AktG (German Stock Corporation Act): The permanent option to conduct purely virtual AGM
While the Covid-19 legislation initially provided for a conduct of virtual AGMs on a temporary basis, Art. 118 AktG came into effect on July 27, 2022. According to such provision, corporations will, subject to a corresponding regulation in their by-laws, be entitled to conduct purely virtual AGMs also in future.
Due to the transitional regulation pursuant to Art. 26n (1) EGAktG (Introduction Act to the German Stock Corporation Act), corporations can conduct virtual AGMs even without such regulation in their by-laws until August 31, 2023, thus creating the possibility of holding a virtual meeting in subsequent years as well.
Corresponding resolutions are currently being passed in many upcoming AGMs. In particular small corporations, however, might be well advised to not directly switch to purely virtual AGMs. For these corporations, the already existing option of hybrid AGMs might be a preferable alternative.
More effort and costs: Virtual AGM requires an amendment to the by-laws every five years
Pursuant to Art. 130 (1) sentence 1 AktG, every resolution passed by the AGM must be recorded in notarized minutes. However, such regulation only applies to listed companies. In connection with non-listed companies, notarized minutes are required only in individual cases, for example, in case of an amendment to the by-laws.
Conducting a virtual AGM or authorizing the board to decide on such AGM requires an express amendment of the by-laws. Such regulation in the by-laws, however, must not apply for an unlimited period of time. Rather, the provision must be limited to a maximum term of five years.
Every confirmation of the by-laws’ provisions or renewed adoption of the resolution to conduct a virtual AGM constitutes (according to currently prevailing opinion in the literature) an amendment to the by-laws. Therefore, every renewing or confirming resolution requires, in case of non-listed companies, a notarized record of the AGM’s resolution (which is otherwise not required) and results in (notary) fees and additional effort.
Hybrid AGMs, i.e., a physical meeting with the additional option to participate online (Art. 118 (1) sentence 2 AktG), on the other hand, may be conducted on the basis of a provision in the by-laws (in favor of a hybrid AGM or an authorization of the board to make a corresponding decision) which may apply for an unlimited period of time. A hybrid AGM does not require a renewal of the corresponding provision in the by-laws. Especially medium-sized corporations know their shareholders’ structure very well and can thus align their AGM planning with the shareholders’ actual needs. In contrast to listed stock corporations, it is therefore often not necessary to provide for all contingencies in an equally comprehensive manner.
Instead, the focus may be on the desire to enable participation both on site and virtually. It may also be possible to anticipate how many participants are to be expected on site and how many shareholders would prefer to join the AGM online. For such arrangements, however, a virtual AGM is neither necessary nor in the interests of the shareholders.
Flexibility in structuring the rights of shareholders joining by audiovisual means
Art. 130a AktG has aligned the shareholders’ rights attending a virtual AGM with the rights of the shareholders physically attending an AGM on site. In contrast to a virtual AGM, however, a hybrid AGM always enables every shareholder to also participate on site thus being entitled to comprehensive participation rights. The virtual dial-in option merely provides for an additional option to participate. The virtually joining shareholders’ participation rights can thus be structured far more flexibly.
Thus, the hybrid participation model also allows for a more flexible structuring which can be adjusted to the participants’ individual interests. A hybrid AGM enables both an equal treatment of virtually joining and physically attending shareholders and a restriction of their rights. The virtually joining shareholders’ specific rights can already be defined in the by-laws. Likewise, the board can generally be authorized to make specific arrangements.
Therefore, in particular with regard to medium-sized stock corporations, provisions in the by-laws on the conduct of the AGM can be adapted to these corporations’ specific needs.