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Corporate law in Germany
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Legal Information
The managing director of a German limited liability company (GmbH)
Only a natural person with unlimited legal capacity can be the managing director of a German limited liability company (GmbH). Managing directors of a German GmbH do not necessarily have to be shareholders in the company. If at the same time they are shareholders of the German GmbH, they exercise their duties and rights in the GmbH’s management and in the shareholders‘ meeting as so-called shareholder-directors.
Legal restrictions
A person who has been convicted of property offences or insolvency offences cannot be appointed as managing director of a German GmbH. Individuals convicted of insolvency offences or insolvency offences may not be appointed for a period of five years. The same applies, for example, to convictions for credit fraud or breach of trust.
No special qualification required
In principle, the German GmbH Act does not require that the person appointed as managing director has special qualifications. Exceptions apply, for example, to craft enterprises and transport companies. Also, the shareholders can demand in the articles of association that the managing director has specific qualifications or knowledge.
Foreingers as managing directors of a German GmbH
Foreigners can also be managing directors of German GmbHs. Special language skills are not required. According to the German GmbH Act, it is not required that foreigners who are managing directors of a German GmbH have a domicile or regular place of residence in Germany.
The managing director as an employee of the company
The managing director is an employee of the company. The employment contract of the managing director typically regulates the remuneration and its continued payment in case of illness, the holiday entitlement, the use of a company car, insurance claims and pensions and non-competition clauses. The the employment contract of the managing director is subject to contractual freedom. However, restrictions apply in the case of a managing director who is also a shareholder of the German GmbH. In this case, the salary must be measured according to what is usual in the market. Otherwise, parts of the salary would be qualified as so-called hidden profit distributions, which regularly entails disadvantageous tax consequences.
Contract of employment
The company and the managing director are free to agree on the terms of the managing director employment contract. However, restrictions apply in the case of a managing director who is also a shareholder. In this case, the salary must be measured according to what is usual in the market. Otherwise, parts of the salary would be qualified as so-called hidden profit distributions, which regularly entails disadvantageous tax consequences. If the managing director, as a shareholder of the GmbH, can significantly influence the decisions of the GmbH because of his shareholder rights, he is not considered a dependent employee of the company under social security law. In this case there is no obligation to pay social security.
Appointment and resignation
The appointment of the managing director is made by the general meeting of shareholders. It can be revoked at any time. The managing director may also resign from office at any time. Resignation from office does not affect the managing director’s contract of employment. The contract must be terminated separately and the contractual termination regulations apply.
Representation of the German GmbH
The German GmbH is represented by its managing director. In practice, the managing director’s power of representation is regularly restricted by provisions in the articles of association or the employment contract. However, these restrictions only apply in the relationship between the managing director and the company. Externally, the managing director’s power of representation cannot be restricted. As a result, a contract concluded by the managing director on behalf of the company with third parties binds the company even if the managing director exceeds his power of representation. In this case, the managing director is liable to pay compensation to the company for the breach of duty.
Duties of the managing director of a German GmbH
The managing director is responsible for managing the company. This includes all tasks related to the operation of the company that are not assigned to the general meeting of shareholders by the German GmbH Act. In practice, the duties and powers of the managing director are defined in more detail in the articles of association, the rules of procedure for the management or the employment contract. Tasks which the GmbH law mandatorily assigns to the general meeting of shareholders cannot be transferred to the managing director. These include, for example, the adoption of the annual accounts, the appointment and dismissal of the managing directors as well as their dismissal and the supervision of the management.
Furthermore, the managing director must prepare the annual accounts and present them to the shareholders. The annual accounts are adopted at a shareholders‘ meeting.
The managing director is obliged to provide the shareholders with information on all matters concerning the company. If he refuses to provide the information, the shareholders‘ meeting may, as a rule, terminate his employment contract for good cause.
You want to know more about the liability, rights and obligations of the managing director of a German limited liability company? Get in touch with us! Our specialist lawyers for commercial and corporate law will advise you on all questions concerning the German limited liability company (GmbH) and its management.
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