Advisory board GmbH – What is the function of an advisory board in a GmbH? What are its tasks and what regulations apply to it? What about its remuneration? In this guide on the topic of the advisory board of a GmbH, the law firm Herfurtner answers all your legal questions.

Advisory board GmbH – definition

Family businesses can benefit from an advisory board to guide them through good and difficult times. The advisory board has crucial tasks, especially when it comes to succession planning.

There is no legal obligation for GmbHs to have an advisory board, but many choose to do so. We tell you when an advisory board makes sense for you. We provide suggestions on how to find potential members for an advisory board and what you should bear in mind when setting up an advisory board in your company. We also go into the duties and rights of an advisory board member.

Functions – Advisory board GmbH

Companies are required by law to have certain boards of directors. If the company is subject to co-determination, a supervisory board, a shareholders’ meeting and at least one managing director are required.

The composition of the advisory board can be adapted to the specific requirements of the company.

Advisory boards are available to companies on a purely voluntary basis. It has advisory, monitoring and balancing functions that can be individually designed. The tasks of the advisory board can therefore be tailored to the specific requirements of the company.

There is no definition of what an advisory board actually is. A board of directors or a shareholders’ committee is another name for this type of organization.

Advisory board as advisor to the company management

As an entrepreneur, you have the task of making important decisions that have a lasting impact on your company.

The Advisory Board is a good place to hold a debate about your projects.It is a place where entrepreneurially motivated, far-sighted and experienced people can meet and exchange ideas.

The advisory board can avoid operational blindness, point out new approaches and reduce the likelihood of mistakes with the help of external expertise. An additional benefit is that you are forced to defend your own views to others.Use the expertise of an advisory board

Large companies may have labor-intensive departments and divisions, but medium-sized companies do not. This is why the advice of a business advisory board can be so important. Thanks to this support, they can make better decisions with greater certainty and efficiency.

Advisory board GmbH – influence on the management

In medium-sized companies, there are a large number of shareholders, such as the founder’s successors in a multi-generational company. In order to increase the equity base, it is possible to take on new shareholders from outside the company.

If the shareholders’ meeting is divided or lacks entrepreneurs, it cannot properly perform its control function vis-à-vis the company management.

An advisory board can help here by ensuring that the management is monitored by a lean, competent and decisive body.

Neutral mediator in shareholder disputesIt has been shown that in a disjointed shareholders’ meeting, shareholder disputes increase over time.Additional work must be done to keep disputes to a minimum.At the same time, it becomes more difficult for shareholders to assert their will and it becomes more difficult to reach a majority decision.An advisory board that enjoys the trust of all shareholders can mediate and arbitrate due to its authority.

In some cases, it can even act as an arbitrator to avoid lengthy legal proceedings.

Tasks of an advisory board

The tasks, rights and duties of the advisory board must be defined according to the objectives pursued by the establishment of an advisory board. There is a difference between

  • the advisory board, which has an exclusively advisory function, or
  • the advisory board, which has the authority to issue instructions

If the shareholders of the GmbH lack economic expertise and are unable to accurately analyze the effects of economic decisions, it is usually sufficient to appoint an advisory board with an advisory function.

In this case, the advisory board should include experts who can provide the shareholders with sound and accurate advice. A genuine advisory board with real supervisory functions and sanctioning powers can be set up if the shareholders lack the confidence to make economic decisions and procedures themselves and to issue instructions to the managing directors and monitor them.

If permitted by the articles of association, the advisory board can exercise control over the management or issue instructions to it. If the advisory board has concerns about a certain measure, e.g. a list of approvals for transactions that are outside the ordinary course of business, these concerns can be communicated to it.

Delegation of tasks to the Advisory Board GmbH

Loans in excess of EUR 100,000 € must be approved by the shareholders before they can be taken out by the managing directors. The advisory board could be responsible for this task. However, if the shareholders wish to withdraw even more from the GmbH – for example, because they are getting older – they can assign further tasks to the advisory board, such as appointing an auditor, convening shareholders’ meetings or appointing and dismissing managing directors.In order to give these responsibilities a corporate character, they were transferred to the advisory board in the articles of association.

Appointment of the advisory board

The search for an Advisory Board member is initiated with a requirements profile. In addition to the required specialist expertise, it also includes knowledge of management and interpersonal skills.

Use of contacts from the Chamber of Commerce

With the information and contacts of the advisory board members, you are in a position to approach known people in a targeted manner. Trusted entrepreneurs can help you find the right people if you don’t know any. The network of your Chamber of Industry and Commerce can also be used.

It offers free access to highly qualified executives from a wide range of industries. Finally, management consultants are also an option.

Membership of the advisory board: not possible for everyone

The person in question should be in a position to make legally binding decisions at all times. The advisory board member may not take on any tasks for the company that he or she already performs for another organization, such as auditing the company’s annual financial statements.

The advisory board may not include any members who are also involved in the dispute if it is to act as an arbitrator. However, outsiders may join the advisory board. The influence of third parties can be restricted in this situation by the fact that the majority of the advisory board members must be shareholders.

Setting up an advisory board GmbH

The legal effort required to set up an advisory board depends on the tasks assigned to it. Consultation is sufficient if it is a simple contract under the law of obligations. The advisory board must be anchored in the articles of association if it is to influence the future of the company.

Establishment of an advisory board with an advisory function

The company can set up an advisory board with a purely advisory function by concluding a contract with each member of the advisory board. This defines the duties and rights of the individual parties. The company is responsible for providing the advisory board with the necessary information and the members of the advisory board are responsible for providing the company with certain advisory services.

In addition to these commercial contracts, service contract law and the general law of obligations of the German Civil Code may also apply. As a result, the end product is often simple and straightforward.

Involvement of the supervisory board in a company

The question arises as to how far the powers of the advisory board should extend in relation to other companies if it is to have an effect beyond making recommendations. The members of the advisory board and the management can no longer enter into a contractual agreement.

Rather, the advisory board should be part of the corporate structure. Its tasks and responsibilities must therefore be clearly defined and separated from those of the other company units. You must also decide to what extent you want to interfere with the responsibilities and restrictions of other company organizations.

Advisory board GmbH – transferability of responsibilities

In principle, you must comply with the legally binding powers of other corporations and legal entities. You must. The powers that the shareholders’ meeting, individual shareholders or the management must have according to the law are referred to as mandatory powers.

The advisory board can be contacted, but has no decision-making authority for certain competencies.

The skills of the supervisory board must be taken into account if your company is subject to co-determination. It is possible to exclude the advisory board from having a final say on necessary tasks, for example by asking the shareholders to approve the resolutions of the advisory board anyway.

However, this method can lead to resolutions being passed later than expected. Therefore, it is usually better to give the advisory board real decision-making powers in areas where the law leaves you alone. To achieve this, you must first recognize which tasks an advisory board may not perform under the law, especially those that are the exclusive responsibility of another body.

A shareholders’ meeting must be able to force further contributions ( § 26 GmbHG), amend the articles of association ( § 53 Para. 1 GmbHG) and dissolve the company ( § 60 Para. 1 GmbHG) as well as make other important decisions.

According to case law, the shareholders’ meeting must also keep an eye on “important management measures”. For example, parts of the company may be relocated.

An advisory board cannot assume the rights and obligations that have been transferred to the management alone. For example, there are duties in connection with the commercial register application ( § 78 GmbHG), bookkeeping ( § 41 GmbHG), the preparation of the annual financial statements and the management report ( § 42a GmbHG) and the filing of an insolvency petition ( § 64 Para. 1 GmbHG). The right of each individual shareholder to information and inspection ( § 51a GmbHG) is also taboo.

Advisory board – selection and monitoring of managing directors

Nevertheless, don’t be put off by the list. An advisory board can still perform a whole range of activities. First of all, the advisory board can have the task of monitoring the management of the company instead of the shareholders.

This always makes sense if the number of shareholders has grown due to inheritances and gifts and these shareholders are no longer in a position to make important business decisions.

The advisory board’s strategy of selecting the company management also makes sense. This decision can be made more quickly by a competent advisory board than by a potentially contentious and obstructive shareholders’ meeting.

Where necessary, the Advisory Board’s personnel responsibilities also extend to the dismissal of managing directors from their positions. It can also approve the company’s annual financial statements and decide on the distribution of the company’s profits.

Responsibilities of the advisory board: different regulations possible

There is always room for improvement. For example, when it comes to a specific management position, the shareholders’ meeting could reserve the right to accept or reject a decision on the hiring or dismissal (e.g. of the CEO).

In addition, the advisory board can be tasked with implementing management measures, provided these do not fall within the remit of the managing directors.

However, it is important to find a balance in this situation. There will be less willingness to take on the work if the managing director’s competencies are too limited, just as a “toothless” advisory board is no guarantee of an appealing task.

Advisory board GmbH vote – majority of shareholders required

However, the powers of the advisory board are not automatically transferred to it when it takes office, but must be granted to it voluntarily. This may not seem like much at first glance, but it is precisely in this area that disagreements arise time and again. The tasks of the advisory board should be explicitly regulated. The management is still appointed and controlled by the shareholders (§ 46 GmbHG).

It is up to the shareholders to decide whether they want to set up an advisory board or not.

This means that the advisory board must be anchored in the articles of association and the articles of association may have to be amended. Alternatively, the articles of association can also provide for the establishment of an advisory board. On the other hand, it is conceivable that the agreement only grants the shareholders’ meeting the authority to establish an advisory board once.

The same leeway applies to the composition of the group. For example, the articles of association could stipulate the composition and tasks of the advisory board.

Or the articles of association only provide for the establishment of an advisory board and leave everything else to the procedure. This has the advantage that no regular amendments to the articles of association are required due to changes in the advisory board.

Existence of the advisory board dependent on shareholders

The shareholders always have the final say as to whether or not the advisory board is formed. They can abolish the advisory board by amending the articles of association. They also have a say in the composition of the advisory board. The members of the advisory board are usually elected by the shareholders at a general meeting.

Therefore, people who are regularly elected enjoy more credibility, which can be an advantage when settling disputes.

However, a minority, such as the company founders, may not have a say in the matter. Therefore, the articles of association may allow some shareholders or groups of shareholders to nominate a member of the advisory board of their choice. This appointment to the advisory board is followed by a formal employment contract between the company and the person concerned.

It regulates the rights and duties of the individual advisory board members.

When the term of office of an Advisory Board member expires, their membership ends. Prior to this, Advisory Board members may voluntarily resign from office at any time. An advisory board member may be removed from office prematurely if he or she has breached his or her duties by performing advisory board work in disregard of the shareholders’ meeting or the shareholders entitled to make proposals.

Shareholders’ meetings, even if they have not delegated the offending member to the Advisory Board, are authorized to take action in the event of particularly serious violations. The employment relationship can be terminated prematurely for various reasons, e.g. resignation or dismissal. Make sure that the parallel employment contract is also terminated in addition to the appointment.

List advisory board members on the letterhead?

Changes in the composition of the advisory board do not have to be reported if the advisory board is dissolved and entered in the commercial register. Be careful when listing the names of the advisory board members on the letterhead.

The members of an advisory board that is not subject to supervision should not be listed on the company’s letterhead, as this is anti-competitive and misleading.

Advisory board GmbH – these are the duties and rights

The articles of association restrict what an advisory board member may and may not do. If the articles of association permit the establishment of an advisory board, the shareholders draw up rules of procedure in which the rights and duties of the advisory board members are set out, unless otherwise specified in the articles of association.

It is also possible to review the employment contract, although the articles of association or the rules of procedure usually take precedence. It is possible that the members of the advisory board are unclear about their rights and duties because the advisory board is not regulated by law.

The most important issues should therefore be regulated in the articles of association or the rules of procedure of the advisory board.

Duty to inform advisory board members

All essential information must be made available to advisory board members who receive remuneration.

First of all, it must be clarified how high their remuneration is. As a rule, advisory board members are compensated for their time and commitment. Just because you do not say anything about the remuneration of the advisory board members does not mean that they receive nothing. On the contrary, they are entitled to their regular salary in accordance with Section 612 (2) BGB.

Research has shown that the meeting costs for an individual advisory board member are between 1,000 and 2,500 euros.

The amount is decided by the shareholders’ meeting. It can differentiate between internal and external members (i.e. shareholders) (i.e. mostly professional advisors). However, case law states that internal members cannot be remunerated at the same level as external members.

As part of their advisory, monitoring and remuneration duties, advisory board members must also receive the information they need to fulfill their duties. They are protected in this respect by the duty of confidentiality, but for the sake of clarity you should expressly state this in the articles of association or rules of procedure.

Advisory board GmbH – liability and responsibility of the members

Every member of the advisory board is expected to perform their duties with due care. The member can be held liable for damages if the company is harmed. Each member of the advisory board should therefore take out directors’ and officers’ liability insurance (D&O insurance) in their own interest.

Insurance policies for supervisory boards of public limited companies are generally more restrictive, so it is important to make sure that the activities of an advisory board member in a limited liability company or partnership are also insured.

Advisory board of a limited liability company

The supervisory board monitors the business activities of the management board on behalf of the shareholders of a public limited company. There is no corresponding supervisory body in a limited liability company. However, a supervisory board consisting of one-third employees is only mandatory in companies with more than 500 employees (One-Third Participation Act).

In addition, the state municipal code prescribes supervisory boards for municipal companies in order to guarantee the authority of the municipality.

An advisory board can also be established by the articles of association if a supervisory body is not required. It can, for example, have a similar control function to the supervisory board or even go beyond it, but can also only serve as an advisory body.

Statutory regulations can be found in 52 GmbHG, but also in case law and in ordinances.

Reasons for the formation of an advisory board

An advisory board or supervisory board can be set up in accordance with the GmbH Act, for example, and entrusted with special tasks, according to § 52 GmbHG. Below are 6 reasons for setting up an advisory board:

  1. Some of the shareholders are newcomers to the corporate world.
  2. There are several interest groups that each want to be represented on an advisory board or other supervisory body.
  3. There are shareholders who have invested a lot of money and want a body to “keep an eye on” the managing directors and monitor them.
  4. In the GmbH, there are a large number of shareholders, including those from abroad, who find it difficult to find common ground.
  5. There are a large number of shareholders who all have different economic and personal motives.
  6. The GmbH should have a positive public image so that loans can be taken out more easily and new employees can be approached more easily.

5 Advantages of an advisory board

There are many advantages to setting up an advisory board for the GmbH.

  1. In the event of a succession plan, the continuity of business operations is ensured.
  2. The GmbH can draw on the expertise of experienced and capable managers to provide advice and support.
  3. The advisory board brings external expertise into the company (bankers, auditors).
  4. Investors outside the company have additional benefits and control options (advantages in financing, capital procurement).
  5. A positive public perception of the GmbH is achieved, which benefits the company’s other objectives (e.g. appointment of an IT professor for the targeted recruitment of IT employees).

Advisory board GmbH lawyer advises

Do you have legal questions about the advisory board of a limited liability company? Do you need support in contract law?

Contact the Herfurtner law firm. Our lawyers will advise you throughout the German-speaking world. Also on the topics of company formation, stock corporation AG, limited liability companies, managing directors GmbH, liability of managing directors and shareholders as well as shareholders GmbH.