The requirements for the articles of association of B Corporations from the perspective of legal expert Dr. Karl von Rumohr

The inclusion of specific sustainability goals in the regulation on the purpose of the company in the articles of association is one of the central requirements for the B Corp certification of companies. As part of the certification process, the companies include a specific wording in their articles of association that is the same for all B Corporations. The exact wording of the amendment to the articles of association for e.g. the GmbH or the AG can be viewed here. In this way, companies anchor “stakeholder-oriented management”, i.e. the balanced consideration of the interests of all relevant interest groups (“stakeholders”) in the company’s decision-making processes. At this point, the question is often asked as to what the amendment to the Articles of Association means in concrete terms and what implications it has for the companies to be certified. Dr. Karl von Rumohr answered the most important questions in a webinar.

One of the formulations specified by B Lab and equally applicable to all B Corporations concerns the description of the company’s purpose in the articles of association. The description of the object of the company in the articles of association has the following two regulatory purposes in particular: On the one hand, it makes it clear to the market in which areas the company is active, in particular by providing an insight into the commercial register. Secondly, the legal effect is to set a legal framework for the management within which it must operate. Actions by the management outside the limits of the company’s purpose generally constitute a breach of the managing director’s duties. In this respect, the description of the object of the company simultaneously offers a certain degree of protection for the shareholders with regard to the area within which the management is operationally active and against an excessive expansion of the management’s activities. It is also important for the purpose of recognizing the activity in the market externally that the corporate purpose is entered one-to-one in the commercial register. In order to understand the legal significance of the object of the company in the articles of association, it is helpful to distinguish between two pairs of terms. One pair of terms is “management authority” vs. “power of representation”. The other pair of terms relates to the “internal relationship” and the “external relationship”. The “management authority” describes the framework within which the management may carry out its activities for the company. The description of the object of the company in the articles of association can limit the management authority or set guidelines for the management. The “management authority” is particularly relevant for the “internal relationship” of the management to the company and the shareholders, while the “power of representation” also has a particular impact on the “external relationship” of the company to outside third parties, i.e. whether the management can effectively represent the company vis-à-vis third parties in a particular operational activity. If the management does not comply with this, it is in breach of its duties in the internal relationship, which may be punished by the shareholders. This is to be distinguished from the term “power of representation”, which describes the extent to which the management can legally bind the company through its activities (i.e. it can also effectively conclude contracts). This is to be separated from the term “management authority” in that a managing director can generally also effectively conclude contracts for the company beyond the description of the company’s purpose. The inclusion of the formulation of the sustainability goals in the corporate purpose, which is required for a B Corp certification, concerns the “management authority”, but does not restrict the “power of representation” of managing directors and board members in this respect.

This concerns two areas of the object of the company: on the one hand, the description of the “corporate purpose” and, on the other, the question of how this purpose is to be pursued. As a rule, every articles of association contain a description of the object of the company at the beginning. At this point, B Lab requires an addition which aims to ensure that“the business activities have a significant positive impact on the common good and the environment“. The second addition concerns the question of how specifically companies and their activities are to achieve this positive impact. In all business activities of the management of B Corporation,“the effects of the company’s respective actions on certain groups of people (the “stakeholders”) and the environment shallbe taken into account“. The stakeholders to be named here in the Articles of Association include the shareholders of B Corporation, its employees, its customers, the communities in which B Corporation is based and others. B Corporations are expected to include this in their corporate purpose so that the management always considers the impact of its actions on these interest groups in its business activities. These stakeholder groups all rank at the same level. In this regard, a further passage must be added to the purpose of the company, which states that it cannot be demanded that the interests of individual stakeholders be given priority over other stakeholders. This is the aim of B Corp: all stakeholders should be included and considered equally (and not just the shareholders of a company, for example).

On the one hand, the amendment to the articles of association results in a commitment to the sustainability goals of B Corporations that is clearly visible to the market (e.g. via the commercial register). The market can then differentiate whether a company is oriented towards these goals or not. On the other hand, this has consequences for the company or the Management Board and management, who are given an additional framework for their management authority through the addition to the corporate purpose: the interest groups mentioned must be taken into account and the objectives must be pursued. If the management violates this in individual measures, the shareholders can draw possible consequences. If necessary, certification may be withdrawn. The inclusion of sustainability efforts in the articles of association in particular gives them more than a programmatic character and makes them legally binding requirements for the management. More on the topic of amending the articles of association or “legal requirement” here.