Related Party Transactions Under the AktG

Related party transactions under the AktG: the rules in short

Related party transactions of German listed companies are subject to a specific approval and disclosure regime in §§ 111a to 111c of the Stock Corporation Act (AktG). The rules implement the revised Shareholder Rights Directive (Directive (EU) 2017/828) and were introduced by the Act implementing that directive (ARUG II), applying since 2020.

In short: a transaction of a listed company with a related party requires the prior approval of the supervisory board, or of a committee, if its economic value, alone or aggregated with other transactions with the same party in the current financial year, exceeds 1.5% of the company's fixed and current assets. Approved transactions must be published without undue delay. Transactions in the ordinary course of business on market terms, transactions with wholly owned subsidiaries and several other categories are exempt.

The regime adds to, rather than replaces, existing protections such as the rules on de facto groups, conflicts of interest and capital maintenance.

This briefing explains who counts as a related party, how the threshold works, the exemptions, the approval procedure and publication, and what listed companies should have in place.

Who is a related party?

The AktG does not define related parties itself. It refers to the definition in the international accounting standards adopted in the EU, namely IAS 24 (§ 111a(1) AktG). Related parties therefore include, broadly, persons or entities that control or jointly control the company or have significant influence over it, members of key management personnel and their close family members, and entities controlled by such persons, as well as subsidiaries, associates and joint ventures of the group. For most listed companies with a controlling shareholder, the most important related parties are the controlling shareholder and its other group companies.

A "transaction" is any legal transaction or measure by which an asset is transferred or made available for use, for consideration or free of charge, with a related party. A mere omission is not a transaction. Typical cases include supply and service agreements with a major shareholder's group companies, intra-group financing, licence agreements, real estate leases and purchases or sales of businesses.

The 1.5% threshold and aggregation

Approval is required where the economic value of the transaction, alone or together with the transactions entered into with the same person in the current financial year before the transaction, exceeds 1.5% of the sum of the company's fixed and current assets according to the last adopted annual financial statements (§ 111b(1) AktG). If the company is a parent obliged to prepare consolidated accounts, the group's fixed and current assets according to the last approved consolidated financial statements are used instead (§ 111b(3) AktG).

Determining the "economic value" can be difficult for long-term agreements, framework contracts and transactions without a fixed price. Companies should adopt a documented methodology, for example the present value of expected payments over the contract term, and apply it consistently. Aggregation requires a system that captures all transactions with each related party during the year, including those that individually fall below the threshold, because the transaction that crosses the threshold triggers approval and publication, including disclosure of the aggregated transactions.

Exemptions

Several categories are excluded from the regime (§ 111a(2), (3) AktG):

• Ordinary course on market terms. Transactions in the ordinary course of business and on arm's-length terms are not treated as related party transactions. The listed company must establish an internal procedure, from which the related parties involved are excluded, to assess regularly whether these conditions are met. The articles may exclude this exemption.
• Subsidiaries. Transactions with subsidiaries that are wholly owned directly or indirectly, or in which no other related party of the company holds an interest, or that are listed on an EU regulated market.
• General meeting matters. Transactions requiring the approval or authorisation of the general meeting and measures implementing such resolutions, including capital measures, enterprise agreements, transformations and squeeze-outs.
• Remuneration. Transactions concerning board remuneration granted or owed in accordance with the remuneration rules.
• Other categories listed in the statute, such as certain transactions offered to all shareholders on equal terms.

The ordinary course exemption is the most important in practice, and its procedure is the most frequently overlooked requirement. Without a functioning internal procedure, companies cannot rely on the exemption with confidence.

Approval procedure and consequences

The supervisory board must approve the transaction in advance. Many companies delegate the decision to a committee, which must be composed predominantly of members who are not related parties and where there is no concern about conflicts of interest arising from their relationship with the related party (§ 107(3) AktG). In companies with a controlling shareholder, the independence of committee members from that shareholder is the critical point.

The supervisory board assesses whether the transaction is appropriate from the perspective of the company and of the shareholders who are not related parties. It typically requests information on pricing, alternatives and benchmarks and may rely on an independent fairness opinion for significant transactions. If approval is refused, the management board can ask the general meeting to approve; the related parties involved may not vote (§ 111b(4) AktG).

The lack of approval does not as such make the transaction void towards the counterparty, according to the prevailing view, but it is a breach of duty by the management board, which may lead to damages claims under § 93 AktG. Failure to publish, or incomplete or late publication, is an administrative offence under § 405 AktG. Where the transaction constitutes inside information, the disclosure must be included in the ad hoc announcement under Article 17 MAR (§ 111c(3) AktG); see our briefing on ad hoc disclosure.

Practical difficulties

Experience since 2020 shows recurring practical difficulties with related party transactions. The first is identification: group structures of controlling shareholders, especially private equity funds and family groups, can be complex, and the company may not know every entity that qualifies as a related party. Companies should ask major shareholders for regular confirmations of their group structures and of persons with significant influence.

The second difficulty is valuation. For framework agreements without fixed volumes, the economic value depends on expected call-offs, and for licences on expected royalties. Companies should document their assumptions and update them when actual volumes deviate significantly. The third is timing: approval must be obtained before the transaction is concluded, which requires the approval process to be integrated into contract management, including for contracts signed by subsidiaries, since the publication duty extends to certain transactions of subsidiaries with related parties of the parent (§ 111c(4) AktG).

Finally, the boundary between ordinary course transactions and transactions requiring approval is often unclear. Long-term contracts, unusual pricing mechanisms, transactions outside the company's core business and transactions significantly larger than usual are indicators that the exemption may not apply. Where in doubt, many companies choose approval and publication to avoid later disputes, especially when minority shareholders or activist investors are watching the company's dealings with its controlling shareholder closely.

Interaction with group law and other rules

Related party transactions rules sit alongside other protective mechanisms.

In a de facto group without a domination agreement, a controlling undertaking may not cause the subsidiary to enter into disadvantageous transactions unless the disadvantage is compensated, and the management board must report on relations with affiliated companies (§§ 311, 312 AktG). Under a domination agreement, the instructions regime applies instead; see our briefing on domination and profit transfer agreements. Transactions with members of the management board are concluded by the supervisory board on behalf of the company (§ 112 AktG), and loans to board members require supervisory board approval. Capital maintenance rules prohibit the return of contributions to shareholders outside of proper dividends (§ 57 AktG).

The German Corporate Governance Code also contains recommendations on conflicts of interest of board members, and disclosure of related party transactions is required in the notes to the financial statements under accounting rules. A consistent approach across these regimes avoids gaps. More on governance is in our page on corporate governance.

Checklist for related party transactions

1. Identify related parties under IAS 24 and keep the list up to date.
2. Calculate the 1.5% threshold each year on the basis of the latest adopted or approved accounts.
3. Set up a system to capture and aggregate transactions with each related party during the financial year.
4. Establish and document the internal procedure for the ordinary course exemption.
5. Designate the competent committee and ensure its members are free from conflicts.
6. Prepare templates for approval requests and publications.
7. Coordinate with ad hoc disclosure and financial reporting.
8. Train the legal, finance and procurement teams and the managing directors of subsidiaries so that potential cases are escalated in time.

Illustration: a hypothetical listed AG with a 60% shareholder plans to extend a long-term supply agreement with that shareholder's sister company. The present value of payments over the five-year term exceeds 1.5% of the group's fixed and current assets. The internal procedure concludes that the agreement is not in the ordinary course because of its unusual length and pricing formula, so the related party committee obtains a benchmarking report, approves the extension and the company publishes the required information the same day.

How TRW & Co helps

We advise listed companies and their supervisory boards on related party transactions: related party policies, internal procedures for the ordinary course exemption, valuation and aggregation methods, committee set-up, approval processes, publications and the interaction with ad hoc disclosure and group law. We also advise controlling shareholders on structuring transactions with listed subsidiaries. Contact us to review your framework.