End of the transition period for the adaptation of the articles of association and the organisational regulations – beware of virtual shareholders’ meetings!

What?

On 1 January 2023, the new company law came into force and companies were granted a transitional period of two years to adapt their articles of association and organisational regulations. The deadline expires at the end of the year, but relatively few SMEs have taken the necessary steps to make the changes.

So what?

What happens if they miss the deadline?

At first glance, the consequences appear to be relatively straightforward: the provisions of the articles of association that violate the new law are no longer applicable and are replaced by the statutory provisions. Of course, this can lead to uncertainty as to which provisions of the articles of association now apply, but this is manageable.

However, an essential aspect is generally overlooked: the holding of ‘virtual’ or ‘hybrid’ general meetings (via video conferencing) has become common practice. This is permitted under the new company law, but requires an explicit basis in the articles of association. Without such a basis, the shareholders’ meetings held are contestable or even void. This would be disastrous for the company, because the election of the board of directors (or the managing directors in the GmbH) would also be void, as would all the resolutions they passed! This nullity can be asserted even after a very long time, as there are no contestation deadlines and no statute of limitations. Even if there is peace among the shareholders and on the board of directors today, dissidents can still find ‘ammunition’ in such legal errors in later conflicts. In the case of start-ups, it should be noted that ‘due diligence’ exercises regularly take place in the context of financing rounds or takeover negotiations. Serious formal errors of this kind in the conduct of shareholders‘ meetings are, of course, grist to the mill of the lawyers charged with the legal due diligence review. The investors or buyers of the company will demand very costly cleanup measures.

Do what?

All companies should review their legal foundations (articles of association, organisational regulations, and any shareholders’ agreements) to determine whether they comply with the new company law and these documents still form a coherent whole.