Supervisory board

What it means

A supervisory board is the control body of a company. In a joint-stock company it is mandatory and has at least three members; in a limited liability company it exists only where the articles provide for one.

It does not run the company and gives the board of directors no instructions on business management. It supervises, inspects records, reviews the financial statements and reports its findings to the general meeting. A member therefore cannot sit on the board of directors at the same time.

A supervisory board does not replace the auditor. The auditor examines the financial statements professionally and independently under auditing standards; the supervisory board checks how the board of directors runs the company and gives the general meeting its view on the statements. In a cooperative the control commission plays a similar role.

How it works in practice

Members are entered in the commercial register, and every change is evidenced by minutes of the body that elected them. Where the company has more than fifty employees in a main employment relationship at the time of the election, the employees elect one third of the members.

The relationship is governed by a service contract for the office approved by the general meeting; without one, the mandate contract rules apply. A member is liable for damage as strictly as a director, under the same duty of professional care.

In an s. r. o. a supervisory board is set up mainly by shareholders who do not run the company themselves - when an investor comes in, for instance, or in a family firm with a managing director from outside the family. For such a board we prepare regular reporting from the books, so it has material for oversight without going through individual documents itself.

What to watch out for

Supervisory board fees are sometimes invoiced through the members’ own companies. An audit reclassifies them as employment income, and the company pays the payroll tax advances and the levies after the fact, usually for several years back and with a penalty.

A member’s resignation or the end of a term often never reaches the commercial register. The former member then still appears on the company’s body to the outside world and, in a dispute or insolvency, has to fend off claims of still holding office. The change should be filed as carefully as a change of managing director.