Partnership limited by shares (Kommanditgesellschaft auf Aktien)
“The partnership limited by shares (Kommanditgesellschaft auf Aktien or KGaA) is a company with its own legal personality, at which at least one partner has unlimited liability for the company’s creditors (general partner) and the others hold an interest in the share capital without any personal liability for the company’s debts (limited liability shareholders)” (section 278 (1) of the German Stock Corporation Act (AktG)). It is therefore a hybrid of an Aktiengesellschaft (German Stock Corporation) and a Kommanditgesellschaft with a focus on stock corporation law. Distinctive differences to the Aktiengesellschaft include the presence of general partners, who essentially also manage the company’s business activities, the absence of a management board and the restriction of rights and obligations of the supervisory board. In particular, the supervisory board is not responsible for appointing general partners or for regulating the terms and conditions of contracts, while at the Aktiengesellschaft it appoints the management board; at the KGaA, it also does not have the legal authority to issue rules of procedure for the executive board or a catalog of business transactions requiring approval. The KGaA also has some special features with regard to the Annual General Meeting; for example, many of the resolutions made require the approval of the general partners (section 285 (2) AktG), including the adoption of the annual financial statements (section 286 (1) AktG). A large number of the conduct recommendations contained in the Code, which is geared toward Aktiengesellschaften, can therefore only be applied to a KGaA as appropriate.
Merck KGaA
The general partner E. Merck OHG holds around 70% of the total equity of Merck KGaA (equity interest); the limited liability shareholders hold the remainder, which is divided into shares (share capital). E. Merck OHG is excluded from the management of business activities. The general partners with no equity interest (Executive Board), on the other hand, manage business activities. Nevertheless, due to its substantial capital investment and unlimited personal liability, E. Merck OHG is an influential authority with a strong interest in compliance with procedures and efficiency of business operations at Merck KGaA. Merck KGaA’s participation in the profit/loss of E. Merck OHG in accordance with sections 26 et seq. of the Articles of Association provides for further harmonization of the interests of the limited liability shareholders and E. Merck OHG.
E. Merck OHG appoints and dismisses the Executive Board. In addition, E. Merck OHG has created bodies – complementing the expertise and activities of the Supervisory Board – to ensure that the Executive Board is monitored and advised. This applies primarily to the Board of Partners of E. Merck OHG. Based on the provisions of the German Stock Corporation Act, the Articles of Association of Merck KGaA and the rules of procedure of the various committees, Merck KGaA has a set of regulations for the Executive Board and its supervision that meet the requirements of the Code. The investors, who bear the entrepreneurial risk, are protected as foreseen by the Code.
This is illustrated in the following chart:
Deviations from the Corporate Governance Code:
1. Contrary to section 3.8 (2), the Directors & Officers (“D&O”) liability insurance policy, which Merck KGaA maintains for its committee members, does not include a deductible. The company has dispensed with a deductible because D&O insurance policies with the required deductible are not actively offered by the insurance sector and the individual agreement on a deductible is not countered by a substantial reduction in the premium.
2. Contrary to section 4.2.4, the remuneration paid to the members of the Executive Board is not reported individually. As it is E. Merck OHG, not Merck KGaA and especially not its Supervisory Board, which has personal sovereignty over the members of the Executive Board and also largely pays for the compensation of the Executive Board members, the Company has chosen not to disclose such information.
3. Contrary to section 5.4.7 (1), sentence 3, membership of committees is not remunerated separately. In view of the limited number of tasks as compared with the duties of the Supervisory Board of a stock corporation, separate compensation for membership of committees would not be appropriate.
4. Contrary to section 5.4.7 (3), the remuneration paid to the members of the Supervisory Board is not reported individually. The amount of compensation received by the members of the Supervisory Board can be calculated in accordance with the Articles of Association of Merck KGaA, making a separate disclosure unnecessary.
