Significance of shareholder resolutions and defects in resolutions
Shareholder resolutions are the central management instrument within a Limited Liability Company (LLC), form the basis for key decisions and determine a company’s decision-making. Errors in the adoption of resolutions can have serious consequences – especially if resolutions initially appear to be effective despite legal violations, and can only be removed by contesting them. In practice, disputes are often about the validity of shareholder resolutions, especially when majority and minority shareholders come into conflict. An understanding of the defects in resolutions (i.e., the sources of defects in resolutions) and the associated grounds for rescission and nullity is therefore of great importance. The legal basis and the most common grounds for rescission and nullity of LLC resolutions are explained below.
Legal framework: Stock corporation law as a guideline
The German Limited Liability Companies Act (GmbHG) contains hardly any explicit provisions on the contestability or nullity of resolutions. For this reason, the provisions of the German Stock Corporation Act (§§ 241 et seq. AktG) are used in established case law. The following applies:
- Contestable resolutions are initially effective, but can be revoked by legal action within one month [§ 246 (1) AktG analogously].
- Resolutions that are not valid are invalid from the outset; they do not have to be contested, but can be established in court.
- In principle, shareholders are entitled to bring an action – regardless of whether they took part in the meeting or declared an objection.
Reasons for contestation at a glance
Convening deficiencies
Typical errors in the invitation to the shareholders’ meeting are
- Late or improper invitation
- Invitation by a person who is not responsible (e.g., shareholder instead of managing director)
- Missing information on the place, time or agenda
- Non-invitation of individual shareholders
Not every defect leads to nullity. The decisive factor is the severity of the defect. If, for example, a shareholder is completely excluded, this is a case of nullity. In the case of less serious errors, contestation is generally required.
Breach of fiduciary duty
Shareholders are obliged to show mutual consideration. If a majority resolution is used exclusively to curtail minority rights or to secure self-serving advantages, this regularly constitutes a resolution in breach of trust. Example: A resolution systematically deprives a disfavored shareholder of their rights of influence. Such cases are usually contestable – and only void in the case of particularly blatant violations.
Information and participation rights
§ 51a GmbHG guarantees every shareholder access and information. If this information is denied or a question is left unanswered at a meeting, this can lead to contestability – especially if the information was essential for a decision. An inadmissible exclusion from participation in the meeting can also make a resolution contestable or void.
Formal errors in the resolution
- Correct execution of the reconciliation is crucial. Typical errors:
- Incorrect determination of the voting result
- Counting of votes despite voting prohibition (§ 47 (4) GmbHG)
- Missing or ineffective authorization of a representative
- Vote on unannounced agenda items
Special statutory forms (e.g., qualified majority, notarization) must also be observed. Disregarding these regularly leads to contestability – only in exceptional cases to nullity.
Grounds for nullity: If a resolution is invalid from the outset
Violation of mandatory law
A resolution that violates statutory provisions, such as capital raising or capital maintenance provisions (§§ 9, 30 GmbHG), is null and void. Examples:
- A shareholder is released from their obligation to make a contribution without a legal basis.
- A distribution is resolved even though there is no distributable profit.
- A resolution overrides the statutory shareholder liability.
Immorality
A resolution can also be null and void if it violates common decency (§ 138 BGB) – e.g., through targeted harassment, exclusion or capital measures that abuse the law. The threshold for immorality is high, but is reached in the case of objectively reprehensible behavior.
Excesses of authority and structural violations
A resolution is null and void if it is passed by an incompetent body or violates central structural principles of the GmbH. Examples:
- The Management Board decides on amendments to the Articles of Association.
- A shareholder is permanently excluded from voting rights.
- Amendments to the Articles of Association are made without notarization.
Examples from case law
Case law draws clear lines:
- No invitation = nullity: If a shareholder is not invited, a resolution will be null and void.
- Inappropriate location = contestability: If a meeting takes place in the private home of a hostile shareholder, the resolution will be contestable, not void.
- Participation despite deficiencies = remedy: Anyone who participates in the meeting despite formal deficiencies and does not raise an objection can no longer invoke contestability later.
- No notarization = nullity: Amendments to the articles of association without a notary are invalid, even if the resolution is unanimous.
Recommendations for action in practice
- Proper invitation: Invitation in due form and time, to all shareholders, with a clear agenda. Note responsibility (only managing directors, if necessary, with shareholder resolution in case of doubt).
- Careful management of the meeting: The chair should act neutrally, allow questions, not make any inadmissible exclusions and correctly determine and document the decisions.
- Legal examination in advance: In the case of critical issues (e.g., exclusion, capital measures, amendments to the articles of association), the draft resolution should be legally reviewed. The form, majority and content must comply with the law.
- Transparency creates trust: Inform shareholders in good time of all information relevant to the decision. Open communication reduces the risk of legal action and improves the culture of dispute.
- Observe deadlines: Anyone wishing to contest resolutions must act quickly, within one month. The one-month period begins when the resolution becomes known. If you are unsure, you should seek legal advice at an early stage.
- Remedy by consent: If a defect in the invitation is established, the express consent of the shareholder concerned can lead to a remedy – analogous to § 242 AktG.
- Examine dispute resolution: Contestation proceedings often take years. A settlement or a new resolution without formal errors is often more helpful and can create legal certainty more quickly.
Conclusion
Resolutions in an LLC can be divided into grounds for rescission and nullity. Resolutions that can be challenged are those that have violated the law or articles of association, but are not so serious that the legal system would automatically reject them. In this case, an entitled shareholder must file an action within a short period of time in order to have the resolution annulled – typically in the event of errors at the meeting, breaches of fiduciary duty, information or formal violations. Resolutions are null and void in the event of fundamental defects – such as failure to invite all shareholders, breaches of mandatory law (capital regulations, statutory formal requirements) or immoral content. These resolutions are invalid from the outset, but it often makes sense to have the nullity declared by a court in order to maintain peace within the company.
Errors in shareholder resolutions can be largely avoided through careful preparation, legal review and transparent communication. Knowledge of typical grounds for rescission and nullity helps to identify risks at an early stage and avoid conflicts. In the event of a dispute, the rules on avoidance and nullity offer a tried and tested set of tools for correcting unlawful resolutions. Those who work strategically and formally cleanly here will not only secure the resolution, but also social peace.
