The Duties of the Managing Director of a German Limited Liability Company (GmbH)
1. General duties and liability
The managing director of a German limited liability company has an obligation to the company to ensure an effective, smooth and profit-oriented operation (Section 37 (1) Law on limited liability companies (GmbHG)). The scope of this obligation may be limited by the Articles of Association or by resolutions passed by various committees; it is not, however, possible to broaden this obligation in this way. Moreover, the managing director is responsible for representing the company in external relations. Additional duties may arise from the contract of employment between the company and the managing director, if such a contract has been concluded.
The managing director should not put the company at risk through extraordinarily high-risk business. He must act selflessly and may not enter directly into competition with the company.
Should a managing director be in breach of his duties, he shall have an obligation to pay damages to the company (Section 43 (2) GmbHG).
2. Obligations of the employer
The obligations of an employer under German law also apply to the managing director of the limited liability company. He must submit the relevant tax returns and pay income tax to the tax office. The managing director must ensure compliance with Generally Accepted Accounting Principles. In the event of a breach of duty, the managing director may be directly and personally liable with respect to the tax authorities. The managing director must not have blind faith in information provided by a tax advisor.
The managing director shall also be liable for the limited liability company meeting its obligations with respect to the social security institutions. This applies in particular to sickness insurance institutions, pension insurance and unemployment insurance.
The managing director of a limited liability company must ensure that the workplaces of the individual employees do not pose extraordinary risks of accidents. Otherwise, a financial penalty may be imposed.
3. Obligations in relation to the insolvency of the company
If the company is threatened with insolvency, the obligation to file a motion for the opening of insolvency proceedings shall be incumbent upon the managing director (Section 43 (2) GmbH in conjunction with Section 15 a (1) German Insolvency Act (InsO)). Otherwise, the managing director may even be liable to prosecution. If the managing director continues to effect payment for the company after the insolvency comes into effect, he may be personally liable for these payments (Section 64 p. 1 GmbHG). Furthermore, the managing director may not enter into any new business in the name of the company, which does not meet the requirements of due care and diligence of a prudent managing director, if the company has become insolvent.
The managing director may not effect any payments to shareholders if the share capital of the company is adversely affected as a result (Sections 43 (3) in conjunction with Section 30 GmbHG). An exception is made where there is a corresponding obligation arising from a control and profit transfer agreement with a shareholder. A payment is also permissible if there is a fully fledged claim for restitution against the shareholder. The company may only acquire its own shares in exceptional cases. The managing director shall also be liable if he breaches these provisions.
4. Obligation to convene the shareholder meeting
If half of the company’s share capital has been used up, the managing director must immediately convene the shareholder meeting. The managing director may not publicly misrepresent the financial position of the limited liability company (Section 82 (2) 2 GmbHG).
5. Obligation to inform the commercial register
The managing director shall undertake to inform the commercial register of each change to the personal details of the shareholders and their interest. Should he breach this provision, he may be liable to the company’s creditors for any damages arising therefrom (Section 40 para. 3 GmbHG).
In the final analysis, the managing director of a limited liability company is subject to many obligations that extend well beyond the daily operations of a limited liability company. The managing director may also be personally liable for the breach of these obligations even if he is potentially unaware of an infringement of his duties or he is only unwittingly in breach of his obligations. Therefore, every managing director of a limited liability company should seek comprehensive advice about the extent of his legal obligations and his liability risks before taking on this role.
For further information, please contact Spieker & Jaeger:
Steffen Dr. Lorscheider, Partner - email@example.com