Corporate law distinguishes between the executive director’s role as an officer and his employment relationship. This must also be considered when parting with the executive director.
Corporate law stipulates that the shareholders’ meeting appoints the executive director. However, this only concerns his role as an officer. A service contract or executive director employment contract is also required to regulate the employment relationship. If the company wishes to part with its executive director, he must be removed by the shareholders’ meeting and the employment contract must be effectively terminated, according to lawyer Michael Rainer, the contact person for corporate law at MTR Legal Rechtsanwälte.
If no coupling clause has been agreed upon, the removal and termination of the executive director must be carried out separately. An attorney experienced in corporate law knows the requirements to effectively end the collaboration with the executive director on all levels.
The removal only ends the executive director’s role as an officer. He is no longer allowed to represent the company externally but still has claims arising from his employment contract, including his remuneration. This can become a financial burden for the company. To prevent this, it is advisable to consult an attorney versed in corporate law. It must also be noted that while the removal of an executive director is generally possible at any time, there are usually deadlines to observe for termination. This means that the executive director’s claims continue until the end of the notice period. However, other regulations can be agreed upon in the employment contract. Therefore, it is advisable to consult an attorney versed in corporate law when drafting contracts.
The removal of the executive director is usually decided by a majority resolution of the shareholders’ meeting. This can become problematic if the executive director is also the majority shareholder. Then, removal against his will is hardly possible unless there is a compelling reason. Compelling reasons can include gross breaches of duty, incapability, business-damaging behavior, etc. In case of removal for a compelling reason, an attorney experienced in corporate law should definitely be consulted. Furthermore, the employment contract must be terminated even in the case of removal for a compelling reason.
MTR Legal Rechtsanwälte advises on Executive directors, boards, supervisory boards and other topics of corporate law.
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