Group Law—The Group’s Interest and Its Legitimacy in Contractual and De Facto Groups

German corporate group law faces a fundamental challenge: How can the interests of a corporate group as an economic entity be reconciled with the legal principle that each group company is an independent legal entity with its own interests? The question of the legitimacy of the so-called group interest is one of the central points of debate in the tension between group-wide corporate governance and the protection of dependent companies, as well as their minority shareholders and creditors.

The Concept and Issues Surrounding the Group Interest

The term “group interest” refers to the overarching economic interest of the parent company or the collective corporate interest of all group companies, which extends beyond the individual interests of the affiliated companies. The precise definition of the term is a matter of debate in the literature. The German Stock Corporation Act (AktG) does not explicitly define the term “group interest”. There is no legal definition to be found in either Sections 291 et seq. or Sections 311 et seq. of the AktG.

Nevertheless, group interest serves as a guiding principle throughout the entire body of group law. The legal issue arises from the tension between the dependent company’s self-interest and the group interest. Each group company is an independent legal entity with its own creditors, employees, and, in the case of a public corporation (AG), external shareholders. Its corporate interest encompasses, in particular, the preservation of its existence, profitability, and the fulfillment of its own objectives. If, for example, a subsidiary is burdened by intra-group transfer pricing, the centralization of functions, or cash-pooling agreements, the measure may benefit the group as a whole but be disadvantageous to the individual company. The key practical question is therefore: Can the parent company instruct a subsidiary to enter into a contract that is unfavorable to the subsidiary if this benefits the group as a whole?

There is controversy in case law and legal scholarship as to whether the group’s interest constitutes a distinct legal category. While some older legal scholarship recognized a superior group interest that could override the individual interests of the group companies, the prevailing view today holds that the group’s interest is not a distinct legal category that automatically justifies interference with the rights of the subsidiary (according to the prevailing view; see Lieder in: Melot de Beauregard/Lieder/Liersch, Manager Liability, 2022, § 9, para. 10; Fleischer, NZG 2026, 243, 246). Rather, its enforcement always requires a specific legal basis such as a control agreement or compensation for disadvantages in a de facto corporate group.

The Group Interest in a Contractual Group

In a contractual group pursuant to §§ 291 et seq. AktG, which is established by the conclusion of a control agreement in accordance with § 291(1) AktG, the group interest receives its most far-reaching recognition. Through the control agreement, the controlled company submits to the management authority of the controlling company. The board of directors of the controlled company is obligated to follow the instructions of the controlling company (see Servatius in: Grigoleit, AktG, 3rd ed. 2025, § 308, note 15). Pursuant to § 308(1), second sentence, AktG, the controlling company may also issue instructions that are detrimental to the controlled company, provided that they serve the interests of the controlling company or of companies affiliated with it and the controlled company (see Veil/Walla in: BeckOGK AktG, as of Feb. 1, 2026, § 308, para. 24 et seq.).

This far-reaching authority to issue instructions is balanced by a well-calibrated system of safeguards. Under § 302 of the German Stock Corporation Act (AktG), the parent company is obligated to offset any annual net loss incurred by the subsidiary during the term of the agreement. Non-affiliated shareholders are entitled to an appropriate compensation payment under § 304 AktG and to a buyout offer under § 305 AktG. These mechanisms legally legitimize the group’s interests within the contractual group, as potential disadvantages for the dependent company and its stakeholders are mitigated by corresponding protective provisions.

However, the right to issue instructions within a contractual group is not unlimited. An instruction must not jeopardize the existence of the subsidiary (see Servatius, in: Grigoleit, AktG, 3rd ed. 2025, § 308, note 17). Instructions that are clearly not in the group’s interest but serve exclusively the personal interests of the governing bodies of the controlling company are impermissible (see Servatius, in: Grigoleit, AktG, 3rd ed. 2025, § 308, margin note 15 et seq.; Veil/Walla, in: BeckOGK AktG, as of Feb. 1, 2026, § 308, n. 27 et seq.).

The Group’s Interests in a De Facto Group

The situation is different in a de facto group under §§ 311 et seq. AktG, where a relationship of dependence exists without a control agreement. In such cases, stock corporation law does not recognize a comprehensive right of the parent company to issue instructions. The board of directors of the dependent company remains, in principle, obligated to the welfare and the best interests of its own company (see Fleischer, NZG 2026, 243, 248). The controlling company may nevertheless use its influence to induce the dependent company to enter into disadvantageous legal transactions or take disadvantageous measures. For example, through authority over personnel, control of information, or the exercise of voting rights at the shareholders’ meeting— Under § 311 of the German Stock Corporation Act (AktG), this is not prohibited per se. However, any resulting disadvantage must be compensated by the end of the fiscal year, or a legal claim to corresponding benefits must be granted (see Fleischer, NZG 2026, 243, 244). If the disadvantage is not compensated, the subsidiary is entitled to claims for damages against the controlling company and its legal representatives under Section 317 of the German Stock Corporation Act (AktG). In a de facto group, the group’s interests do not automatically justify detrimental influence; rather, they are subject to a strict requirement of compensation (see Fleischer, NZG 2026, 243, 244 et seq.).

Section 312 of the German Stock Corporation Act (AktG) provides for the dependency report as an additional protective measure. In this report, the board of directors of the dependent company must describe its relationships with affiliated companies. In particular, the report must list all legal transactions with affiliated companies as well as all measures taken at the instigation of or in the interest of affiliated companies. The report creates transparency and enables retrospective oversight of group management.

Compared to a contractual group, the limits of authority are drawn much more narrowly: There is no general right to manage the subsidiary on a permanent basis in the group’s interest. Each individual detrimental measure requires separate compensation. The board of directors is not bound by instructions and must independently assess whether compensation for any disadvantage is secured before acting on a directive (see Fleischer, NZG 2026, 243, 248 et seq.). Measures that lead to a permanent impairment of the subsidiary’s profitability or even threaten its very existence are impermissible even if the parent company is willing to provide compensation (see Fleischer, NZG 2026, 243, 248).

Special Features of GmbH Group Law

Unlike the AktG, the GmbH Act does not contain codified group law. Special principles therefore apply to GmbH groups. The majority shareholder of a GmbH may, in principle, exercise controlling influence over management by virtue of the authority to issue instructions under § 37(1) GmbHG (see Maschmann/Fritz, Matrix Organizations, 2nd ed. 2024, para. 123). However, the limit is set by the liability for destruction of the company’s existence, which the Federal Court of Justice has developed in its landmark case law (see Gummert, in: MHdB GesR V, 6th ed. 2026, § 123, para. 7).

In the Bremer Vulkan case (BGH, Sept. 17, 2001 – II ZR 178/99), the Federal Court of Justice clarified for the first time that the improper use of corporate assets leading to the insolvency of the controlled GmbH can give rise to piercing-the-corporate-veil liability on the part of the controlling shareholder. In the landmark Trihotel decision (BGH, July 16, 2007 – II ZR 3/04), liability for destroying the company’s existence was defined as an internal liability of the shareholder toward the company under § 826 BGB. The decisive factor is the interference, without compensation, with company assets subject to a specific purpose, which leads to or exacerbates insolvency.

Practical Significance and Structuring Considerations

This nuanced legal situation has important practical implications. Companies seeking close group-wide integration, including the ability to issue potentially disadvantageous directives to subsidiaries, should consider entering into a control agreement. This provides legal certainty and comprehensively legitimizes the group’s management.

In a de facto group, however, careful documentation of the measures, their rationale, and the respective compensation for disadvantages, as well as the proper preparation of the dependency report pursuant to Section 312 of the German Stock Corporation Act (AktG), is essential.

Even in a GmbH group, intra-group transactions should be documented and structured in accordance with arm’s-length principles. Failure to comply with these obligations and limitations may give rise to significant liability risks for the governing bodies involved.

Current Developments and Outlook

At the European level, there has long been a discussion regarding the recognition of a “group interest” (fundamentally based on the Rozenblum decision of the French Court of Cassation from 1985; for details, see Fleischer, NZG 2026, 243, 244 et seq.). As part of its Company Law Package, the European Commission has considered recognizing the group interest as a distinct category and enabling the governing bodies of subsidiaries to take the group’s interests into account in their decisions. Various model regulations and draft proposals provide that managing directors of subsidiaries should, under certain conditions, be entitled to deviate from their company’s self-interest if this serves the group’s interest and appropriate safeguards for creditors and minority shareholders are in place (see § 15.16 EMCA; for an overview, see Fleischer, NZG 2026, 243, 246). These approaches could influence German group law in the medium term and lead to greater recognition of the group’s interests.

Even aside from European developments, a trend toward greater consideration of group interests can be observed in German case law and practice. Courts are increasingly recognizing that intra-group cooperation and business relationships must not be evaluated in isolation but rather in the context of the group as a whole. The business judgment rule (Section 93(1), second sentence, of the German Stock Corporation Act (AktG)) provides a framework within which members of corporate bodies can also incorporate group-related considerations into their decision-making (see, regarding the consideration of group affiliation when determining a subsidiary’s interest, Fleischer, NZG 2026, 243, 248 et seq.).

This gives rise to significant requirements for compliance and corporate governance. A group-wide compliance organization should ensure that instructions and exertion of influence are documented and reviewed for their legal admissibility. In particular, clear processes are required to identify disadvantageous measures and ensure compensation for such disadvantages within the de facto group, to document instructions within the contractual group, to comply with third-party comparison principles in intra-group transactions, and to train members of governing bodies regarding their duties and liability risks.

Conclusion

German group law takes a nuanced approach to recognizing the group’s interests. While in a contractual group the group’s interests are comprehensively legitimized by the control agreement as well as the mandatory compensation and settlement mechanisms of Sections 302, 304, 305 of the German Stock Corporation Act (AktG), in a de facto group they are relevant only if disadvantages are compensated individually and in a timely manner. There is no permanent right of management. This distinction reflects the fundamental principle that far-reaching group management is permissible only if the affected interests are adequately safeguarded. In a GmbH group, in particular, the liability for destruction of the company’s existence, as developed in case law, sets clear limits on the enforcement of group interests. At the same time, European developments point toward greater recognition of group interests in the future. Until then, the differentiated German system will remain in place, prioritizing the protection of the dependent company, its creditors, and minority shareholders.

Companies operating within corporate group structures should regularly review their internal group governance to ensure compliance with applicable group law. Careful documentation and proactive management of disadvantage compensation are indispensable, particularly in the absence of contractual safeguards within a de facto corporate group. In a GmbH group, intra-group transactions should also stand up to an arm’s-length test. Seeking legal advice at an early stage can help minimize liability risks for members of the executive body and ensure that group transactions are based on a sound legal foundation.
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