What corporate governance requirements apply to each type of corporate vehicle used to invest in real estate?
The articles of association of a GmbH can allow for considerable flexibility. Voting and profit rights can generally be allocated freely. Shareholders can appoint and remove directors and provide instructions at any time which must be followed by the directors. Furthermore, shareholders may have approval rights concerning management decisions, but the management will oversee day-to-day business. The company can be managed by a sole director or more than one director.
A GmbH is characterized by a one-tier corporate governance system and, therefore, compared to an Aktiengesellschaft less complex in its day-to-day management.
An external auditor is required only if certain thresholds, relating to the balance sheet total, turnover and the number of employees, are exceeded. Currently, the thresholds are:
If at least two thresholds are exceeded, an audit is required.
AGs must comply with a number of acts, most importantly the Stock Corporation Act (Aktiengesetz - AktG). The acts that need to be observed depend on whether the company is listed or not. It is possible to create different classes of shares with different rights. Voting rights and profit participation rights may be allocated differently for each class of share.
An AG is characterized by a two-tier corporate governance system (a board of directors and a supervisory board). Features of this system are:
An external auditor is required only if certain thresholds, relating to the balance sheet total, turnover and the number of employees, are exceeded. Currently, the thresholds are:
If at least two thresholds are exceeded, an audit is required. However, every listed AG is subject to a statutory audit. In addition, listed stock corporations are subject to the German Corporate Governance Code which is a set of non-binding but recommended rules drafted by a committee of experts.
The corporate governance rules in the code are quite elaborate and deal with issues such as:
The executive board and the supervisory board of listed stock corporations must issue a declaration of conformity under the Stock Corporation Act stating that the company has complied with the corporate governance code.
A REIT is a listed stock corporation and therefore subject to the German Stock Corporation Act unless the German law governing REITs (REITG) provides otherwise. Other statutes specifically apply to listed stock corporations.
REITs as AGs are managed as follows:
Since a REIT is a listed stock corporation, an audit is mandatory.
It is not possible for a REIT to create different classes of shares with different rights ie all shares must be issued as the same class of shares including voting rights.
All decisions relating to the investment policy of the fund must be taken by the Alternative Investment Fund asset management company (AIF-Kapitalverwaltungsgesellschaft). Some day-to-day business decisions can be delegated to a third-party asset manager. Investment decisions cannot be subject to approval by unit holders. Unit holders can revoke the appointment of the asset management company and replace it only in certain restricted circumstances.
German funds (Sondervermögen) are generally open-ended.
Special rules apply to funds that are restricted to institutional investors (Spezial-Sondervermögen or Spezialfonds). In these cases no prospectus is required.
Considerable flexibility on corporate governance can be agreed in the partnership agreement. Voting and profit-participation rights can be allocated freely. The general partner (Komplementär) is, by law, the managing partner and represents the KG vis-à-vis third parties. Limited partners (Kommanditist) may have certain limited approval rights over management decisions but can be appointed as managing limited partners. A statutory audit is required in certain circumstances, such as if the general partner is not an individual and if certain thresholds, relating to the balance sheet total, turnover and the number of employees, are exceeded.
Currently, the thresholds are:
If at least two thresholds are exceeded, an audit is required.
