Meaning of Stock Corporation


A stock corporation is one of five types of corporation possible in Germany. The payment of the share capital of a stock corporation is offset by the associated issue of shares – share certificates, which the subscribers of the share capital receive in return. The legal framework for a stock corporation is regulated in the Stock Corporation Act.

  • Joint stock companies have 3 control bodies: the management board, the supervisory board and the general meeting of shareholders.
  • Shareholders are entitled to the payment of a dividend, a share of the liquidation proceeds and subscription rights in the event of a capital increase and have administrative rights.
  • Shares can either be bought or sold over the counter or on the stock exchange.

The controlling bodies of a stock corporation

According to digopaul, a stock corporation is managed and controlled by three bodies.

The board of directors

The management of the corporation lies with the board of directors. If the board consists of several people, there is usually a board chairman or board spokesman. While the chairman is appointed by the supervisory board, the members of the board of directors elect the spokesman. The board members of a stock corporation are employees with a service contract. The board of directors runs the company without any activity being monitored. Nevertheless, the individual board members are liable to the company with their entire assets.

The board of directors

The supervisory board appoints the members of the board of directors and the chairman of the board of directors. The supervisory board controls the activities of the executive board, but only meets in certain cycles. The committee is composed of both employer and employee representatives. Appointments to the Supervisory Board are for a maximum of four years. It is the task of the supervisory board to convene the ordinary and extraordinary annual general meetings and also to appoint the auditor for the annual report.

The general meeting

The annual general meeting of shareholders is the decision-making body of a stock corporation. Holders of traditional ordinary shares already have full voting rights and speaking rights when they own one share. The general meeting resolves changes to the articles of association, such as capital increases, relieves the management board and appoints the members of the supervisory board.

The custodian banks, who hold the shares of the shareholders in the custody account, offer to safeguard the interests of a shareholder at the general meeting. It is difficult to imagine a general meeting of a large stock corporation, a blue chip company, at which all investors are actually present.

The shareholders

As financiers of an AG, shareholders have rights vis-à-vis the management. The economic legal claim extends

  • on payment of a dividend, if there is a distribution,
  • on a share of the liquidation proceeds if the company is dissolved
  • and subscription rights if the existing capital is to be increased.

In addition to these property rights, shareholders also have administrative rights. The administrative rights include the right to have a general meeting called, participation in the general meeting and the right to vote. However, there is an exception with regard to voting rights. Preference shares offer the shareholder a higher dividend than the ordinary share, but exclude voting rights.

Public companies as an indicator of the economy

A stock corporation does not necessarily have to be listed on the stock exchange. It is also possible to buy and sell stocks over the counter. If the securities are not in free float, but in the hands of selected shareholders, there will be no trading.

The share prices of the companies traded on the stock exchange, however, reflect the traders’ expectations of the individual AGs and thus provide information about the expectations of the market. Rising prices are an indication that future profits are expected, i.e. that companies are operating successfully. Falling prices are based on the assumption that there will be no growth and the economy will decline.

The history of the stock corporation

The first German stock corporation was founded in 1682 by Edict Friedrich Wilhelms, Elector of Brandenburg. It was about the Brandenburg-African Company. Funds were needed to trade in pepper, raw materials and slaves in Guinea. In 1843 the first German stock corporation law was put into effect by a resolution of the Prussian king.