Abstract

In German law, corporations are governed by the Stock Corporation Act (Aktiengesetz). There are three types of corporations, namely contractual corporations (Vertragskonzern), integrated corporations (Eingliederungskonzern) and factual corporations (faktischer Konzern). An important question is the issuing of instructions by the controlling company. According to the overwhelming majority of views in the doctrine, the controlling company should not be obliged to issue instructions, but is entitled to do so with respect to the management of the company under the Stock Corporation Act. It is also permissible to issue unfavourable instructions if it serves the interests of the controlling company or entities participating in the group. If an instruction is permissible, the Management Board of the controlled company is obliged to execute the instruction, even if it is unfavourable. The right to issue instructions is subject to restrictions resulting from the articles, statutory regulations, the need to ensure future continued existence of the company, as well as permissibility of the instruction. Within the corporation, responsible the controlled company are representatives of the controlling company, as well as members of the Management Board and Supervisory Board of the controlled company, unless they have acted in accordance with a binding instruction. As regards the possibility of influencing a controlled company, the German legislator has introduced regulations aimed at protecting the controlled company, its minority shareholders and creditors. In accordance with those provisions, the controlling company must not use its power to induce the controlled company to perform a legal action that is unfavourable to it and to take or refrain from actions unfavourable to it, unless the resulting negative effects are remedied.