Board Meeting

What is a board meeting?

Board meeting (German Beiratssitzung, Aufsichtsratssitzung) refers to the session of the body that advises and oversees a company alongside its management. In the meeting, the management reports on the situation, figures and plans, and the body discusses them and passes the resolutions that the articles of association and the rules of procedure assign to it.

In a German GmbH (limited liability company), this body is usually a voluntary advisory board (Beirat), which the articles of association establish after a funding round. Less often it is a supervisory board (Aufsichtsrat), either established voluntarily by the articles of association (optional) or required by law above a certain number of employees (co-determined). Participants are the board members (board seat), the management and, where applicable, observers without voting rights. The rules for convening, passing resolutions and minutes are set out in the articles of association and in the rules of procedure, the written procedural rules of the body. For a voluntary advisory board, the German Limited Liability Companies Act (GmbH-Gesetz, GmbHG) contains no requirements.

Board meeting and shareholders' meeting

The board meeting does not replace the shareholders' meeting. The shareholders' meeting is the statutory body of the shareholders. It resolves on amendments to the articles of association, capital measures and the annual financial statements and, unless the articles of association provide otherwise, on the appointment and removal of the management. The advisory board decides only on what has been expressly assigned to it, typically on consents from a catalogue and on recommendations to the shareholders.

In practice, the same people often sit on both bodies, because investors are at the same time shareholders and send board members. The formal separation is all the more important. The advisory board can endorse a capital increase for a bridge financing, but the shareholders' meeting must resolve it, with notarisation. The minutes should show in which capacity a resolution was passed.

Cadence, invitation and meeting materials

How often the advisory board meets is determined by the articles of association and the rules of procedure. In growth companies, four to six ordinary meetings a year are common; in early phases or in a tense situation, monthly dates also occur. Extraordinary meetings are added, for example before signing a term sheet or in the event of a liquidity shortfall. For a co-determined supervisory board, German stock corporation law (Aktienrecht) prescribes a minimum number of meetings per calendar half-year.

The meeting is usually convened by the chair, with a notice period set by the rules of procedure, often one to two weeks. The invitation (notice) states the time, the place or dial-in details and the agenda. The meeting materials should reach the members a few days beforehand, so that the meeting time is used for discussion and not for presentation. If materials are distributed only at the meeting, the discussion shifts to follow-up questions.

Content of the meeting materials

• Liquidity and reach: cash balance, monthly cash outflow (net burn) and the runway derived from it,
• budget-versus-actual comparison of the key figures, that is, a comparison of planned and actual values, with the causes of deviations,
• status of the items from the last meeting and open points,
• draft resolutions with the facts, reasoning and the proposed resolution in its exact wording,
• a strategic topic on which the management needs the body's assessment.

The figures come from the company's ongoing internal reporting (management reporting). The meeting materials condense it for the body and add the draft resolutions. The key figures should remain the same from meeting to meeting and be defined in the same way. Only then can a development be followed over several quarters, and the body recognises deviations before they reach liquidity.

Agenda, resolutions and minutes

A proven agenda for an ordinary meeting has five items:

1. Opening, confirmation of quorum and approval of the last minutes,
2. Management report: liquidity, runway and key figures in a budget-versus-actual comparison,
3. Focus topic with discussion,
4. Draft resolutions,
5. Any other business and a session without the management (executive session), in which the members discuss, for example, remuneration, target achievement or the cooperation with the management.

Quorum, that is, the minimum number of participants for an effective decision, and majority are governed by the rules of procedure. It is common for the advisory board to have a quorum if the majority of its members take part and to decide by a majority of the votes cast (majority vote). Resolutions by telephone, video or in a written circular procedure by email are possible if the rules of procedure allow them, often on condition that no member objects to the procedure. It is usual for a member with a conflict of interest to disclose it before the discussion and not to take part in the vote.

Minutes are kept of every meeting, even where the law does not require this for a voluntary advisory board. They contain:

• place, time and participants, separated into members, management and guests,
• the agenda and the essential content of the discussion,
• each resolution in its exact wording with the voting result,
• disclosed conflicts of interest and abstentions.

The chair signs the minutes and sends them out promptly. Consents are to be worded so that the approved transaction can be clearly identified.

Board meeting in due diligence and the sale process

In due diligence, investors in a follow-on round and acquirers request the minutes of advisory board meetings and shareholders' meetings of past years. They show how the company was run, whether deviations from plan were recognised early and whether transactions requiring consent received the necessary consent. If a consent is missing, the management has breached its duties towards the company (internal relationship). Towards the contractual counterparty, the transaction generally remains effective nonetheless (Section 37(2) GmbHG).

In the sale process, the advisory board is often the body in which management and investors agree the process steps. These include the selection of the buyers to be approached, the assessment of incoming offers and the approval of a letter of intent (LOI). If board members are connected with a bidder, they do not take part in these discussions.

Practical example: board meeting with a bridge financing

A company with a three-member advisory board holds the ordinary meeting for the third quarter. The materials go to the members a week beforehand. They show liquid funds of EUR 2.4 million and a monthly net burn (cash outflow after deducting receipts) of EUR 200,000.

• Runway: EUR 2,400,000 / EUR 200,000 = 12 months
• Revenue in the quarter: EUR 1.1 million versus EUR 1.25 million in the plan, that is, EUR 150,000 or 12% below plan
• Draft resolution 1: consent to hiring two sales employees beyond the budget. Under the consent catalogue, the advisory board decides on this.
• Draft resolution 2: recommendation to the shareholders' meeting to resolve a bridge financing of EUR 1.5 million as a capital increase. The resolution itself is passed by the shareholders' meeting in notarised form.
• Conflict of interest: The representative of the lead investor discloses that his fund wants to subscribe to the bridge financing and abstains on draft resolution 2.

The minutes record both resolutions in their exact wording: draft 1 with three votes in favour, draft 2 with two votes in favour and one abstention. Because a funding round often takes six to eight months, with twelve months of runway only a buffer of four to six months remains. With the bridge financing, the runway would rise at an unchanged net burn to EUR 3,900,000 / EUR 200,000 = 19.5 months. The advisory board therefore asks the management to begin preparing the next round by the following meeting. The meeting thus fulfils its purpose: it has made or prepared two decisions and put the financing question on the agenda in good time.

Distinction: board meeting, observer seat and investor update

• Board seat: membership of the body with voting rights. The board meeting is the session in which this membership is exercised.
• Observer seat: entitles the holder to attend the meeting without voting rights. Observers count neither towards the quorum nor towards the majority.
• Investor update: a written report to all investors that does not prepare resolutions. The meeting materials, by contrast, are addressed to the body and lead to decisions.

Common mistakes

• Resolution without competence. If the advisory board resolves on a matter reserved for the shareholders' meeting, such as a capital increase, the resolution has no effect. The measure must be made up for in the competent body.
• Materials only at the meeting. Members who see the figures for the first time can only ask questions, not advise.
• Resolutions without exact wording. If the minutes leave open which transaction exactly was approved, the consent can hardly be proven later. In due diligence it is then treated as unresolved.
• Conflicts of interest not documented. Without a note in the minutes, it cannot be shown that a conflicted member did not take part in the vote.
• Attendees without a rule. Guests and observers without a defined role enlarge the circle, make open discussion harder and raise questions of confidentiality.
• Meeting as a reporting event. If the time is spent presenting known figures, there is no room left for discussing open questions.

Frequently asked questions

Is an advisory board meeting the same as a shareholders' meeting?

No. The shareholders' meeting is the statutory body of the shareholders; the advisory board is a voluntary body with the responsibilities that the articles of association assign to it. Resolutions of one level do not replace resolutions of the other.

How often does an advisory board meet?

As often as the articles of association and the rules of procedure provide. In growth companies, a quarterly cadence is common, with extraordinary meetings added for special occasions.

What notice period applies to an advisory board meeting?

The period set by the articles of association or the rules of procedure, often one to two weeks. For a voluntary advisory board, the GmbHG prescribes no period. Short-notice special meetings are possible if the rules of procedure provide a shortened period for urgent cases.

Can advisory board resolutions be passed by email?

Yes, if the rules of procedure allow the written circular procedure. The result is minuted like a resolution passed at a meeting and communicated to all members.

Does the management attend the advisory board meeting?

As a rule, yes, except for the session without the management. It reports, answers questions and explains the draft resolutions, but does not vote.

Do the minutes of an advisory board meeting have to be notarised?

No. Only certain resolutions of the shareholders' meeting, such as amendments to the articles of association, require notarisation. The advisory board minutes are usually signed by the chair; the details are governed by the rules of procedure.

The Roemer Capital view

When we act as fractional CFO, the meeting materials for the advisory board are among our tasks. Our standard: the runway is on the first page, the set of key figures does not change between meetings, and every draft resolution is complete enough for the body to decide without supplementary submissions. Then the meeting time is left for the topic on which the management really needs the members' experience.

Before a funding round or a company sale, we read the minutes of past years with the eye of a reviewer in due diligence. Missing consents or unclearly worded resolutions can be put right together with the law firm before the process begins, but in a running process only under time pressure.