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 (limited partnership) 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. There are also 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 towards Aktiengesellschaften, can therefore only be applied to a KGaA as appropriate.
Merck KGaA
The general partner E. Merck KG (until and including December 31, 2008 E. Merck OHG) holds around 70% of the total capital of Merck KGaA (equity interest); the limited liability shareholders hold the remainder, which is divided into shares (share capital). E. Merck KG 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 KG 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 or loss of E. Merck KG in accordance with Articles 26 et seq. of the Articles of Association provides for further harmonization of the interests of the limited liability shareholders and E. Merck KG.
E. Merck KG appoints and dismisses the Executive Board. In addition, E. Merck KG 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 KG. 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 by the following chart:
Deviations from the German Corporate Governance Code:
1. In accordance with 2.3.2, the company shall send notification of the convening of the General Meeting together with the convention documents to all domestic and foreign financial services providers, shareholders and shareholders’ associations by electronic means if the approval requirements are fulfilled. Since Merck KGaA has issued bearer shares, it relies on the cooperation of the depositary banks for electronic transmissions. Past experience has shown that we reach far more shareholders via post than electronically, which is why we have previously refrained from establishing the approval requirements. In order to comply with the Code in the future, the approval requirements will be established at the next Annual General Meeting.
2. 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.
3. Contrary to section 5.4.1 sentence 2, no age limit is taken into account when proposing the election of Supervisory Board members. The age of Supervisory Board members is not a criterion for their qualifications and competence. Moreover, the many years of experience of Supervisory Board members should not be dispensed with.
4. Contrary to section 5.4.6 (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.
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