Board composition review in Germany for cross-border groups

Board composition review in Germany asks something more specific than the generic exercise: whether the board actually satisfies German company law, not merely the law of the parent's home jurisdiction. The answer turns on which board model applies – the single-tier management board of a GmbH, or the two-tier Vorstand and Aufsichtsrat structure a stock corporation must maintain. It also turns on whether the current composition would survive scrutiny from the commercial register, a court or an insolvency administrator. This page sets out what changes when the jurisdiction is Germany, where the exposure sits, and where the advisory work stops.

A group with a German subsidiary appoints two directors who also sit on boards elsewhere, assuming the arrangement mirrors what worked in the parent's home jurisdiction. Nobody checks whether German law treats the entity as requiring a second governance layer, or whether the appointments filed with the corporate register still match who is actually deciding. The mismatch surfaces later, usually when a lender, an auditor or a court asks who was authorised to act.

What follows sets out the test that decides which board model applies, the filing consequence of getting it wrong, and the boundary of what this firm can do about it in Germany.

What changes in Germany for a board composition review

The generic board composition review asks whether the people named as directors match the people actually deciding, and whether their appointment terms hold up. In Germany the same review has to start one step earlier. A private limited company (Gesellschaft mit beschränkter Haftung, GmbH) is governed by a single-tier management board and carries no mandatory supervisory board unless a statutory employee threshold is crossed. 01

A stock corporation sits on the other side of that line. A German stock corporation (Aktiengesellschaft, AG) must maintain a two-tier structure, with a management board (Vorstand) conducting the business and a supervisory board (Aufsichtsrat) appointing and removing its members. 02 A board built for a UK or Delaware entity and then transplanted onto a German AG without adjustment fails the first test, not the last one. For comparison, the same review applied to board composition review in Guernsey starts from an entirely different threshold.

The practical consequence for a cross-border group is that corporate governance in Germany is checked at two levels rather than one. The first level is the board doing the deciding; the second, if it exists, is the body supervising it. A holding company sold on the idea that "the board is the board" everywhere will find that the German entity has a second organ the parent's structure never had to account for.

The local requirement or test that drives the work

Two tests decide whether a board composition review in Germany produces a different answer from the generic one. The first is the employee-threshold test. Once a company's workforce passes the threshold set under German codetermination law, the supervisory board must include worker representatives. 03 The composition the group assumed was fixed by the shareholders alone is no longer entirely theirs to set. A group that grows past that threshold through an acquisition, rather than organic hiring, often does not notice until the review is done for another reason. See the broader director liability scope in Germany for the underlying exposure map.

The second test is personal. Members of the management board owe their duty of care directly to the company under German company law. 04 Personal liability for a breach of that duty attaches to the individual, independently of any advice the company received or any indemnity the group's parent believes it has arranged. Once the decision is made, the personal liability it creates cannot be reversed by a later board resolution correcting course.

Shareholder rights are affected in a related way. A supervisory board seat held under codetermination is not a seat the shareholders can remove at will. That narrows what a shareholders' agreement drafted outside Germany assumed it could still control.

A management board member carrying personal exposure under German law rarely finds out from the board itself; it surfaces when a lender or a liquidator asks who authorised a transaction. Reviewing the appointment terms now settles who currently carries that exposure and what the terms say about it.

Review your appointment terms Write to info@hreithlaw.com with the jurisdiction and the structure.

The filing, register or forum consequence

Germany's consequence for getting board composition wrong is public and administrative before it is ever contentious. The appointment and removal of a management board member must be filed with the commercial register, and the filing has effect against third parties entitled to rely on it. 05 This is a regulatory filing with public effect, not an internal formality, and the German corporate register is available for any counterparty to check before relying on an appointment.

A registered office in Germany is not a formality for this purpose. It is the address the register uses to establish which entity a filing belongs to. A mismatch between the registered office on file and the group's actual correspondence address is one of the first things a review has to reconcile. Before treating a filed appointment as settled, compare current verification status across jurisdictions.

The forum consequence follows the filing. Once the appointment becomes visible on the register, a counterparty is entitled to treat the person named as authorised to act. For the individual named, that reliance becomes personal exposure the moment a transaction is concluded on the strength of the filing, and it stays fixed even after the entry is corrected. Correcting the record afterwards fixes the register; it does not undo what a third party validly relied on before the correction was filed.

What this service does not include in Germany

A board composition review does not include acting as, supplying, sourcing or arranging a director, a company secretary, a nominee shareholder or a trustee for the German entity. It also does not include any activity for which a trust or corporate service provider licence is required.

That boundary is not a matter of preference. Several of the activities a group might expect a governance adviser to simply arrange sit inside a licensing regime this firm does not hold, in Germany as elsewhere in this practice.

What the review produces instead:

• a mapped statement of which board model applies to the entity and why
• a check of whether the codetermination threshold has been crossed
• a review of the appointment terms currently on file against the corporate register
• an assessment of where personal exposure currently sits, and for whom

Each of these outputs is paired against the board resolutions a board composition review typically requires. The group still has to appoint, or replace, whoever sits on the board. This work tells it what the appointment has to satisfy before that step is taken, not who should take the seat.

A board that satisfies the two-tier requirement on paper can still leave the appointment terms silent on indemnity, removal notice or the scope of authority the register records. Reviewing those terms before the next filing is made is the point at which the gap is still cheap to close.

Review your appointment terms Write to info@hreithlaw.com with the jurisdiction and the structure.

Frequently asked questions

What happens if board composition review in Germany is not addressed?

The board that was appointed abroad keeps acting under German law without anyone having confirmed it satisfies the two-tier requirement or the codetermination threshold. The gap usually surfaces at a bank, an auditor or a court, not before.

How often should board composition review in Germany be reviewed?

Whenever the workforce changes materially, whenever a new entity is added to the German structure, and after any restructuring that changes who reports to whom. A fixed annual cycle misses the events that actually move the threshold.

Does board composition review in Germany change for a foreign-owned company?

The board model does not change because the parent is foreign; a GmbH owned entirely from abroad still follows the same single-tier rule, and an AG still follows the two-tier rule. What changes is that the parent's own governance assumptions are less likely to match the German entity's actual structure.

What does board composition review in Germany require in practice?

A comparison between what the corporate register shows, what the codetermination threshold requires, and what the group's internal documents assume. The three do not always agree, and the review exists to find where they diverge.

Who inside the company is responsible for board composition review in Germany?

Responsibility for the underlying compliance sits with the management board itself, since the duty of care runs to the individual member and not to a compliance function. A general counsel or finance director typically commissions the review, but cannot discharge the board member's own exposure by doing so.

Karsten Vogel, expert author, board structure and governance across continental European jurisdictions. Karsten advises cross-border groups on the composition, appointment and liability exposure of management and supervisory boards, with particular attention to two-tier structures and codetermination thresholds. He does not act as a director or company secretary for any client entity.