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Corporate law in Germany
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The German German limited liability company (GmbH)
Corporations are legal entities with their own legal personality. The shareholders are not personally liable; only the company’s assets are liable. The capital shares can in principle be freely sold. The GmbH is by far the most common form of corporation in Germany. The public limited company (AG ) also plays an important role.
General provisions on limited liability companies in Germany
The German GmbH can be established for any legally permissible purpose by one or more persons. The registered office of the GmbH must be in Germany. The company is entered in the commercial register. The articles of association, the managing directors and their powers, the shareholders and the business address are published. Only a natural person with unlimited legal capacity can be the managing director of the GmbH. Foreigners can be managing directors of a German GmbH. They do not have to have a domicile or habitual residence in Germany.
The company’s share capital must amount to no less than EUR 25,000.00. The company assets alone shall serve to discharge the company’s obligations vis-à-vis its creditors. The organs of the GmbH are the shareholders‘ meeting and the management. In addition, a supervisory board or an advisory board may be established.
The management in the German GmbH
The company shall be represented in and out of court by the directors. The power of representation can be restricted by the articles of association or by resolutions passed by the shareholders. The directors are obliged vis-à-vis the company to observe those restrictions, a restriction of the directors‘ power to represent the company has no legal effect in respect of third persons. The directors conduct the company’s affairs. They are obligated to ensure proper book-keeping for the company. The directors of the German GmbH are liable to the company for any damage arising from their activities.
The shareholders' meeting in the German GmbH
The shareholders‘ meeting is the decision-making body of the shareholders of the German GmbH.
The shareholders of the German GmbH regulate their rights in the GmbH articles of association. According to the GmbH law, they are responsible, among other things, for
1. the approval of the annual financial statements and the appropriation of earnings;
2. the appointment and dismissal of the directors, as well as their discharge;
3. the regulation of audits and oversight of the management;
4. the appointment of those vested with the general commercial power of representation and those vested with the commercial power of attorney for the entire business establishment;
5. the assertion of claims for compensation to which the company is entitled from the formation or the management is entitled vis-à-vis directors or shareholders, as well as the representation of the company in proceedings being conducted against the directors.
All shareholders have rights to information enabling them to request information on the company’s affairs and to inspect the books and company documents.2
The shareholders' meeting in the German GmbH
Unlike the German public limited company, the establishment of a supervisory board is voluntary for the GmbH. The supervisory board shall consist of at least three members. The supervisory board members are elected by the shareholders‘ meeting. They may be dismissed by the shareholders‘ meeting before the end of their term of office. A member of the supervisory board may not at the same time be a managing director. The supervisory board may demand at any point a report concerning matters of the company, its legal and business relations with affiliated enterprises.
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