22.3.2 The role of the shareholder

The role of the shareholder in funding the company is the main issue in this dissertation. The responsibility and the possible liability of directors only become an issue if the legislature allocates a specific task regarding the funding of the company to the board of directors. For further analyses of the board’s role, please refer to the extensive literature on D&O liability that has been published in the past few years.1

The study focuses on the shareholder for a number of reasons. If a company encounters financial problems or is declared bankrupt, the aggrieved parties often look to the directors. That is understandable and often appropriate, given that the board is primarily responsible for the company’s financial policies. However, this responsibility does not detract from the responsibility and possible liability of shareholders on account of their own involvement in the company’s funding. For example, shareholders rather than the directors primarily decide on the amount of equity that is used to fund the company. In addition, it is the shareholders (as recipients of the withdrawn means) rather than the directors who are enriched by any capital withdrawals prior to the bankruptcy. Even if the company’s bankruptcy was caused by the unreasonable funding of a company by loan capital, casting a critical glance at the shareholders involved is justified. After all, the shareholder is the primary beneficiary of this high-risk financing structure. Thus, in companies in a private limited context, it is frequently the shareholder who insists on a high-risk capital structure at the time the company is incorporated, in the event of a financial restructuring or in the scope of a takeover. Placing liability consequences exclusively on directors because of inadequate funding not only ignores the formal and actual influence of many shareholders on the establishment of the financial structure, it also ignores the fact that high-risk funding primarily serves shareholder interest.