Under German law, every stockcorporation ( Aktiengesellschaft) and every limited partnership with shares ( Kommanditgesellschaft auf Aktien) with between 500 and 2000 employees and every closely held corporation ( Gesellschaft mit beschränkter Haftung, most commonly referred to as a "GmbH") with more than 500 employees is required to have a supervisory board, of which one -third of the supervisory boardmembers a re employee representatives (the remaining two-thirds are manag ement representatives). Typically, such supervisor y boards will be composed of three, or possibly six, individuals. The requirement to have a "one-third supervisory board" is set forth in the Labor Management Relations Act of 1952 ( Betriebsverfassungsgesetz 1952), often literally translated as the "Works Constitution Act of 1952".

The Labor Management Relations Act of 1952 was superceded nearly in its entirety in 1972 by the Labor Management Relations Act ( Betriebsverfassungsgeset z), or the "Works Constitution Act". Only seven sections of the original Labor Management Relations Act of 1952 survived until now. These sections govern primarily the formation of a one-third supervisory board and the rules for the election of the supervisory board members. Contrary to what its name would indicate, the Works Constitution Act of 1952 does not govern matters concerning a works ( Betrieb), but instead governs exclusively matters concerning the company (Unternehmen).

Effective as of July 1, 2004, the One-Third Participation Act will supercede the Labor Management Relations Act of 1952 in its entirety. Taking advantage of this change, the German legislature also introduced relatively minor substantive amendments. For example, the right to information of a supervisory board of a GmbH has been expanded and the procedure for the election of the members has been made clearer. Other changes (or clarifications) were also introduced, the most significant of which are the following: the procedure and eligibility for election of supervisory board members, the ability to elect delegate members to the supervisory board, protection against retribution of employee-representative supervisory board members as a result of their position as supervisory board members or as a result of exercising their rights. The One-Third Participation Act will be phased in so that the Labor-Management Relations Act of 1952 will continue to apply to elections or removals to and from the supervisory board initiated prior to July 1, 2004.

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