In such companies, the supervisory board has to consist of an equal number of shareholders’ representatives and employees’ representatives.146 Corporations (as the GmbH) lacking a supervisory board are obliged to establish such a board for the purpose of implementing co-determination.

The Co-DeterminationAct stipulates a complicated procedure for appointing the employee representatives.Aspecial delegates’assembly has to be installed, the size of which depends on the total number of employees. As the delegates’ assembly shall reflect the proportion of top-level executive personnel and lower-level employees in the company, each group sends a certain number of its own delegates. The delegates’ assembly elects the employees’ representatives. However, only a part of these representatives may be employees of the company; a certain number of the employees’seats has to be staffed with union representatives.147

Although, at first glance, this regime provides for a full parity of shareholders and employees, the shareholders are slightly superior. This is owed to fact that, in the (rare) situation of an equality of votes (Stimmengleichheit), the chairman of the board—to be elected by a two-thirds majority or by the shareholders’ board members alone—has a casting vote. Therefore, this co-determination regime often is described as ‘quasi-parity co-determination’(as opposed to the ‘full-parity’regime of the Coal and Steel Co-DeterminationAct).

Finally, the Co-Determination Act also provides for a so-called ‘labor director’ (Arbeitsdirektor) either as an additional member of the management board or—in the case of the GmbH—as an additional managing director. In either case, the labor director is a full manager, enjoying equal rights, and is responsible for social and personal matters. Although, like any other member of the management board she/ he is appointed or removed by the supervisory board, the labor director typically belongs to the ‘side’of the employees and enjoys the confidence of the employees’ representatives.

2.6  Capital Markets Law

Entrepreneurs with a mind to fully utilize the advantages of the legal form of anAG will consider listing the corporation on a stock exchange and/or issuing other kinds of securities in order to obtain new financial resources for further expansion of the business. In such cases, however, theAG is not only subject to the rules of theAktG

146  By derogation from the general rules of Sec. 95AktG, the size of the supervisory board depends on the number of employees: in companies with up to 10,000 employees, 12 representatives (six from each side) have to be elected; in companies with between 10,000 and 20,000 employees, 16 representatives (eight from each side) have to be elected and in companies with more than 20,000 employees, 20 representatives (ten from each side) must be elected.

147  For instance in an AG with 11,000 employees, six members of the supervisory board will be elected by the shareholders’ meeting, four by the employees and two members will be appointed by the labor union.