The advisory board in the GmbH - everything you need to know about it

Corporate 03.04.2023

The advisory board - a body that is hardly missing in any startup. Whoever sits on it should not only represent the interests of the shareholders, but also bring experience and expertise to the company and offer support in difficult times. On average, an advisory board of a GmbH consists of four to six members.

But what exactly is an advisory board and how does it fit into the organizational structure of a GmbH? What are its tasks and duties? These questions will be clarified in this article. In addition, the liability risk of the advisory board members will be discussed.

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In diesem Beitrag erfahrt ihr

  • what an advisory board is
  • why we recommend an advisory board
  • which tasks the advisory board is responsible for
  • which duties are assigned to the members of the advisory board
  • whether there is a liability risk for advisory board members

The organs of a limited liability company

A GmbH that employs less than 500 employees generally has two statutory corporate bodies: the shareholders' meeting and the management board. If a GmbH employs more than 500 employees, an advisory board must be established in addition to these two bodies. In all other cases, it is possible to set up such a body voluntarily.

The advisory board in the organizational structure of a GmbH

Within a GmbH, there is a clear demarcation of areas of responsibility.

While the shareholders' meeting is the supreme decision-making body of a GmbH, the management board conducts the company's business and represents the company externally. In doing so, it is bound by the instructions of the shareholders' meeting.

In most venture capital financed companies - not least at the request of the investors - an advisory board is set up as an additional body that stands between the management and the shareholders' meeting and classically assists the management in an advisory capacity. In addition, the advisory board is often given certain approval duties that are otherwise assigned to the shareholders' meeting.

Why do we recommend an advisory board?

First and foremost, founders and entrepreneurs have many advantages when they decide to establish a board. The advisory board offers you the option of obtaining external know-how from different industries and having experienced strategic advisors at your side: this way you benefit from additional management experience, expert knowledge on new trends or helpful solutions in crisis situations.

As a managing director, you can coordinate in depth and non-bureaucratically with the most important shareholders of your startup/company - e.g. also on upcoming expansion plans. In addition, investors often insist on an advisory board in order to be quickly and well informed about new company developments and thus to advance decision-making processes - without having to convene a shareholders' meeting right away.

Sensitive topics in particular, e.g. further financing or exit plans, can usually be better discussed in a small group of people.

Which tasks can be transferred to the advisory board?

Unlike the supervisory board of a stock corporation (AG), the advisory board is not explicitly regulated by law. This also means that the tasks of an advisory board can be designed in an extremely flexible manner.

In most start-ups, the main task of the advisory board is to advise the company and the management on strategic and business issues - even at a fairly early stage of development. To fulfill this task in the best possible way, the advisory board usually consists of experienced representatives of venture capital investors as well as other people with entrepreneurial experience.

Furthermore, the advisory board is regularly appointed to monitor the management. For example, the advisory board is to approve fundamental management decisions. These include, for example:

  • the conclusion of contracts above a certain volume
  • contracts with shareholders, members of the advisory board or managing directors
  • the establishment or liquidation of subsidiaries
  • the sale of significant assets.

In addition, the advisory board may also be assigned its own decision-making authority in the articles of association. This applies in particular to decisions which are transferred from the shareholders' meeting to the advisory board in order to simplify the decision-making process. In terms of content, for example, this is conceivable:

  • the appointment of the managing directors
  • conclusion, amendment and termination of the service contracts of the managing directors
  • the adoption of the annual financial statements

Finally, the GmbH law also offers sufficient scope for transferring further competences of the management or the shareholders' meeting to the advisory board, provided that these are not the few areas of competence which must necessarily remain with the shareholders' meeting.

These include: Amendments to the articles of association, decisions on mergers or conversions.

What are the duties of the individual members of the advisory board?

The duties that advisory board members must observe in the performance of their duties can be roughly divided into three categories:

  1. Legality duty
  2. Duty of care
  3. Duty of confidentiality

The duty to comply with the law

That means that the members of the advisory board must observe the statutory provisions when performing their duties. If the members of the advisory board lack the necessary legal expertise, they must seek competent (legal) advice to perform their duties, if necessary.

The duty of care

By this is understood that each member of the advisory board acts properly and conscientiously - irrespective of the tasks actually assigned to the advisory board in a company. This requires that each member makes his or her decisions on the basis of sufficient and appropriate information. Each advisory board member should therefore have basic business knowledge and experience.

On the one hand, it is true that advisory board members cannot invoke the fact that another member must exercise priority over them in a particular matter on account of his or her position or expertise. On the other hand, advisory board members who have special expertise are subject to a stricter standard of care insofar as the subject matter of the decision relates to their area of expertise.

Each member of the advisory board is entitled to exercise business judgment in the performance of his duties (so-called business judgment rule). Accordingly, there is no breach of the duty of care if

  • the decision is a business decision
  • the advisory board acts in the best interests of the company
  • the decision is based on a reasonable basis and is free of conflicts of interest
  • the advisory board is at least in good faith

Duty of confidentiality

In addition, it should be noted that advisory board members regularly come into contact with confidential information and business secrets in the course of their activities. In view of possible conflicts of interest and in the interests of the company, the members of the advisory board should therefore be obliged to maintain confidentiality.

Is there a liability risk for advisory board members?

The question of the liability risk must be assessed on a case-by-case basis on the basis of the specific structure of the advisory board's responsibilities. The liability risk in the case of an advisory board that acts solely in an advisory capacity can be classified as rather low - although the final decision is incumbent on the management.

The situation is different if the advisory board itself makes its own entrepreneurial decisions, which are then implemented by the management. In this case, the advisory board can be held legally liable if damage occurs despite sufficient information and expertise. This is not affected by the possibility of the management overruling the decision in its external relationship.

Can the liability risk be limited in another way?

As a rule, the liability of the advisory board is limited to intent and gross negligence. In addition, it may make sense to include the advisory board members in the D&O insurance (which in many cases covers gross negligence, but not intent).