Shareholder and Board of Directors

As part of our short series on forming a US corporation, it’s important to understand the management structure, since there are significant differences between those structures in Germany (and many other countries) and the US. First, we’ll start with the shareholders and board of directors.

Shareholders
The Shareholders are the owners of the company (Aktionäre) and, in a C Corporation, hold shares much like they might in a German Aktiengesellschaft. There can be as many shareholders as there are shares, or shares can all be held by a single person or entity. The shareholders exercise power over the corporation by appointing the Board of Directors, which in turn appoint officers to handle the daily activities of the corporation. Thus, the exercise of power by the shareholders over the corporation is indirect, and unless the shareholder is also an officer the shareholder cannot sign contracts or direct the daily operations of the company. Of course, by threatening to remove the board of directors the shareholders can influence the actions of the board and the officer they appoint, but that influence is exerted indirectly rather than directly.

A word of caution – a lot of startups in the US are quick to give equity, and some Germans, in an effort to accommodate US partners, may decide to do the same. While this is certainly permissible, giving up even minority ownership in your US subsidiary should be done cautiously, if at all, and should be linked to mutual goals which ensure that the partnership is a lasting one.

Board of Directors
The board of directors (Aufsichtsrat also does not directly manage the company – rather, they appoint officers and provide the officers with an overall strategic direction for the company. German clients in particular often get confused about this, because the “director” or “managing director” in a German GmbH is usually authorized to act directly on behalf of the company, whereas the director in a US stock corporation is not. If one of the board members is also expected to act on behalf of the company then he or she should also be appointed to an appropriate officer position.

Although most states allow as few as one board member, a board of at least three members will ensure that the corporation can act if one of the board members becomes unavailable or incapacitated. It is always better to have an odd number of board members to prevent ties, even within closely held corporations.

Many companies have a chairman of the board, who presides over board meetings. Generally the board is required to have at least one meeting annually, although additional meetings may be called to address specific issues between annual meetings.

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