Apr 8, 2025
Corporate Bodies in Limited Companies – Roles, Responsibilities, and Authority
The organization of a company involves allocating decision-making powers among different company bodies and ensuring effective management, while also safeguarding the interests of the owners, creditors, and employees. This article provides a thorough introduction to the legal regulation of company organization, with particular emphasis on private and public limited companies. We review the roles, responsibilities, and authority of the different company bodies, as well as the rules for external representation and governance of the company.
Basics of Company Organization
Hierarchy and Function of Company Bodies
A company's organization is structured with a hierarchy of bodies that act on behalf of the company and thus also bind the owners to decisions in both internal and external matters. The company bodies are staffed with individuals who perform their functions within the framework of extensive regulations.
Company legislation considers several interest groups:
Owner Interests: Safeguarded through participation in the company's highest body
Employee Interests: Secured through representation in the company bodies
Creditor Interests: Protected through duty and responsibility rules for company bodies
Mandatory Company Bodies
For private and public limited companies, the following bodies are mandatory:
General Meeting: The company's highest body, where shareholders exercise the highest authority
The Board of Directors: Manages the general administration of the company and is the core of the company's management
Chief Executive Officer (CEO): Mandatory in public limited companies, optional in private limited companies
Corporate Assembly: Mandatory in companies with more than 200 employees (with certain exceptions)
In partnerships, only the company meeting is mandatory, while the board and CEO are voluntary bodies.
Right to Representation and Authority
For the company bodies to be able to bind the company in relation to third parties, they must have the right to representation. This follows directly from legislation:
The board represents the company externally and signs its name (asl/asal § 6-30)
The CEO has the right of representation within his or her area of authority (asl/asal § 6-32)
Even if a representative acts contrary to his or her competence, the action may bind the company based on authority, if the other party was in good faith (asl/asal § 6-33).
The General Meeting as the Company's Highest Body
Authority of the General Meeting
Through the general meeting, the shareholders exercise the highest authority in the company (asl/asal § 5-1). This entails:
A general right to instruct and change over the board
Authority to adopt the annual financial statements and report
Decision-making power to distribute dividends
Election authority for the board (unless the company has a corporate assembly)
In practice, the general meeting is the only arena where the shareholder can influence the governance of the company. The shareholder cannot instruct the general meeting directly or act on behalf of the company's bodies.
Ordinary and Extraordinary General Meetings
The ordinary general meeting must be held within six months after the end of each fiscal year. Here, approval of the annual financial statements and report, dividend distribution, and other matters specified by law or the articles of association are addressed.
An extraordinary general meeting is held when:
The board finds it necessary
An auditor or shareholders representing at least one-tenth of the share capital demands it
All shareholders consent to it
Notice and Procedure
The general meeting is convened by the board with at least one week's notice for private companies and two weeks' notice for public companies. The notice must state the time and place of the meeting, as well as an agenda specifying the matters to be discussed.
The Companies Act allows for a simplified general meeting without a meeting (asl § 5-7) if no shareholders oppose it. This is practical in companies with few owners. For larger companies, there are options for electronic participation and advance voting.
Voting Rights and Majority Requirements
The main rule is that each share grants one vote at the general meeting. This reflects the principle of equality in company law (asl/asal § 4-1). However, the articles of association may contain voting restrictions:
Linked to the person, for example, that no shareholder can vote for more than 10% of the shares
Linked to share classes, for example, that A-shares have voting rights while B-shares do not
Various majority requirements apply to decisions at the general meeting:
Simple Majority: The main rule for most decisions (more than 50% of votes cast)
Relative Majority: Applies to elections (most votes win)
Qualified Majority (2/3): Required for changes to the articles of association and other important decisions
Unanimity: Required for particularly significant decisions, such as increasing shareholders' obligations
The Board of Directors as the Company's Leading Body
Composition and Election of the Board
The board of a private company must have one or more members, while a public company must have at least three members. Board members are normally elected by the general meeting, except for employee representatives and cases where the company has a corporate assembly.
In companies with more than 30 employees, employees have the right to representation on the board. In public companies, there is also a requirement for representation of both genders on the board.
Board members are normally elected for two years, but the articles of association may specify shorter or longer terms. A board member can resign before the end of the term and can also be removed by the general meeting at any time without justification.
Board's Management and Oversight Responsibilities
The board's authority and responsibilities are extensive and include:
Management Responsibility (asl/asal § 6-12):
Manage the general administration of the company
Ensure proper organization of the business
Set plans, budgets, and guidelines
Keep informed about the company's financial situation
Ensure that business, accounting, and asset management are subject to adequate control
Initiate necessary investigations to fulfill their tasks
Supervisory Responsibility (asl/asal § 6-13):
Supervise daily management
Supervise the company's business in general
Set instructions for daily management
The board's authority must be delineated from the authority of other company bodies. In practice, the board has "remaining competence" - the competence not assigned to other bodies. This gives the board considerable freedom to enter agreements, take loans, make investments, etc., without consulting the general meeting.
Board's Procedure
The main rule is that the board should discuss matters in meetings, but the chairperson can decide that matters are handled in writing or another appropriate way, like a telephone meeting. In public companies, annual financial accounts and remuneration for managerial positions must always be discussed in a meeting.
Decision-making requires more than half of the board members to participate in the deliberation. Decisions are made by simple majority, and in the event of a tie, the chairperson has a casting vote.
Board members and the CEO must not participate in the discussion of matters in which they have a significant personal or economic interest (conflict of interest rules).
The CEO and Daily Management
Role and Appointment of the CEO
The CEO is mandatory in public companies but optional in private companies. The CEO is appointed by the board unless the articles of association provide otherwise. Legally, the CEO is a company body, but in terms of employment law, the CEO is an employee protected under labor law.
CEO's Authority and Tasks
The CEO is responsible for daily management of the company's business and must adhere to the guidelines and orders given by the board (asl/asal § 6-14). Daily management does not include matters that are unusual or of great significance to the company.
The CEO's main tasks include:
Ensure that the company's accounts comply with laws and regulations
Ensure that asset management is conducted in a secure manner
Regularly report to the board on business, status, and result development
Prepare matters for the board in consultation with the chairperson
The CEO is subordinate to the board, which has the right to instruct and change CEO decisions.
The Corporate Assembly
Composition and Election of the Corporate Assembly
The corporate assembly is mandatory in companies with more than 200 employees but can be waived by agreement with employees. It must have at least 12 members, with two-thirds elected by the general meeting and one-third by and among the employees.
Authority of the Corporate Assembly
The corporate assembly's main tasks are:
Elect board members
Supervise the management of the board and CEO
Give an opinion to the general meeting on the board's proposal for the annual financial statements
Make decisions on significant investments
Decide on rationalization or restructuring of operations that lead to major changes in the workforce
Although the corporate assembly gives employees more influence, it is owner-controlled through the owners' two-thirds representation.
The Auditor as a Supervisory Body
The auditor is a trustee and supervisory body for the company and is elected by the general meeting. All public companies must have an auditor, while "small" private companies may opt-out under certain conditions.
The auditor's task is to oversee the company's and management's actions, and the auditor is therefore not part of the company's management. The fundamental qualification for an auditor is independence from the company's management and owners.
Summary
The organization of a company is based on a complex interaction between different company bodies with defined roles, areas of authority, and responsibilities. The rules are designed to ensure effective management of the company while safeguarding the interests of the owners, employees, and creditors.
For business players, understanding these basic structures is crucial for safely navigating within the framework of company law and ensuring that decisions are made by the correct body, with the right majority, and in a manner that is both legal and promotes the company's interests.
