Es­pe­ci­al­ly sin­ce the “Brex­it” an­noun­ce­ment, our law of­fice has wit­nessed an in­crea­sed num­ber of re­quests by for­eign in­ves­tors who want to es­ta­blish a pri­va­te li­mi­ted com­pa­ny (Ge­sell­schaft mit be­schränk­ter Haf­tung; GmbH) in Ger­ma­ny. This ar­ti­cle deals with an as­pect that is of­ten over­loo­ked:

The ge­ne­ral ma­na­ger of a Ger­man GmbH (si­mi­lar to Bri­tish Ltd. and US LLC) has to con­si­der two risks: the re­spon­si­bi­li­ty for the com­pa­ny and the risk of per­so­nal lia­bi­li­ty. Most of the ge­ne­ral ma­na­gers are not awa­re of the­se risks.

One of the ma­jor ad­van­ta­ges of the Ger­man GmbH is that Ger­man com­pa­ny law pro­tects the re­spon­si­ble staff of a GmbH from da­ma­ge claims. “In ca­se of emer­gen­cy, the com­pa­ny sim­ply col­lap­ses” is usual­ly the first thought when third-party claims threa­ten the GmbH bey­ond its fi­nan­ci­al li­mi­ta­ti­ons, and “We’ll just set up a new cor­po­ra­ti­on” of­ten ap­pears as the “ma­gic bul­let” for de­aling with such ca­ses. Howe­ver, ma­ny ac­ting ma­na­gers are not awa­re that the GmbH is not an imp­ene­tra­ble pro­tec­tive shield. The ge­ne­ral ma­na­ger can be tar­ge­ted per­so­nal­ly by the credi­tor, by an in­ju­red third par­ty or – in ma­ny ca­ses – by the fi­nan­ce aut­ho­ri­ty.

This is a risk for­eign in­ves­tors laun­ching a new GmbH are not awa­re of. The­re­fo­re, it is im­pe­ra­ti­ve to have an eye on the most com­mon ca­ses of lia­bi­li­ty – at least with re­spect to the ge­ne­ral ma­na­ger.

The ge­ne­ral ma­na­ger (“Ge­schäfts­füh­rer”) is not on­ly one of the chief exe­cu­ti­ves: As the GmbH’s for­mal and le­gal re­p­re­sen­ta­ti­ve, he re­p­res­ents the com­pa­ny as a Ger­man cor­po­ra­ti­on ac­cord­ing to Ger­man law le­gal­ly, ju­di­cal­ly and ex­tra­ju­di­ci­al­ly. Fre­quent­ly, the ge­ne­ral ma­na­ger is con­cur­r­ent­ly the ow­ner of the GmbH (“Ein-Mann-GmbH”). If he is not si­mul­ta­neous­ly the ow­ner, then he is cal­led hi­red ma­na­ger (“Fremd­ge­schäfts­füh­rer”).

Usual­ly, the ge­ne­ral ma­na­ger exe­cu­tes all ari­sing com­mer­ci­al and le­gal ope­ra­ti­ons in or­der to achie­ve the busi­ness ob­jec­tives, i. e. tho­se which are ne­cessa­ry for the com­pa­ny to ope­ra­te suc­cess­ful­ly. He si­gns con­tracts with sup­pliers and nego­tia­tes with con­trac­tu­al part­ners. He is ap­poin­ted or as­si­gned by the share­hol­ders.

If the GmbH is a one-man cor­po­ra­ti­on, the share­hol­der ap­points him­s­elf as ge­ne­ral ma­na­ger. A hi­red ge­ne­ral ma­na­ger can be re­lie­ved from of­fice at any gi­ven time. In such a ca­se, the ge­ne­ral ma­na­gers con­tract con­ti­nues to exist as long as the con­tract is ter­mi­na­ted in due time. Thus, ap­point­ment and em­ploy­ment have to be con­s­i­de­red dif­fer­ent­ly. The ap­point­ment of a ge­ne­ral ma­na­ger has to be re­gis­te­red in an of­fi­ci­al re­gis­ter (“Han­dels­re­gis­ter”). This ap­point­ment on­ly ta­kes ef­fect to the busi­ness with third par­ties af­ter the re­gis­tra­ti­on.

Ex­tern­al­ly, i. e. in dai­ly busi­ness with third par­ties, the ge­ne­ral manager’s full power of at­tor­ney can­not be restric­ted. Howe­ver the agree­ment bet­ween the share­hol­ders and the ge­ne­ral ma­na­ger can be set up in a way that the ge­ne­ral ma­na­ger needs to get share­hol­der ap­pro­val for cer­tain busi­ness ope­ra­ti­ons.

In any ca­se of busi­ness ope­ra­ti­ons the ge­ne­ral ma­na­ger must fol­low the ca­re of a de­cent busi­ness­man. If he vio­la­tes said ca­re, he can be held per­so­nal­ly re­spon­si­ble for da­mages. In the­se ca­ses, the GmbH does not pro­tect the ge­ne­ral ma­na­ger – he per­so­nal­ly is lia­ble for da­mages of third par­ties and/or the share­hol­ders.

With re­spect to ac­coun­ta­bi­li­ty, the Ger­man com­pa­ny law dif­fers bet­ween re­la­ti­ons­hip to third par­ties (the manager’s lia­bi­li­ty to third par­ties, for examp­le sup­pliers, aut­ho­ri­ties, cli­ents) and in­ter­nal re­la­ti­ons­hip (the manager’s lia­bi­li­ty to the Ltd. and/or the share­hol­ders). If the ge­ne­ral ma­na­ger ex­ceeds his powers, he must com­pen­sa­te the share­hol­ders even though the af­fec­ted deals re­main in full ef­fect towards third par­ties. With re­spect to da­mages claims of third par­ties, the GmbH is re­spon­si­ble, and the ge­ne­ral ma­na­ger can­not be held lia­ble on princip­le (i. e., the­re are ex­cep­ti­ons to the ru­le)

If the chief exe­cu­ti­ve howe­ver doesn’t work ac­cord­ing to the ru­les of good busi­ness in­te­gri­ty, he him­s­elf is held lia­ble. So­me examp­les:

  • In the field of ta­xes and book­kee­ping (tax du­ties are not ful­fil­led), the fi­nan­ce aut­ho­ri­ties can get him per­so­nal­ly;
  • towards so­ci­al insuran­ce aut­ho­ri­ties in so­ci­al insuran­ce law (em­ployee sha­res of so­ci­al se­cu­ri­ty con­tri­bu­ti­ons are not dischar­ged);
  • in ca­se of in­frin­ge­ment of pro­per­ty rights, for examp­le if he sells goods which are still un­der re­ser­va­ti­on of ow­nership of the sup­plier and have not yet be­en paid by the Ltd.;
  • in ca­se of com­pe­ti­ti­on, co­py­right, pa­tent, uti­li­ty mo­del and trade­mark law;
  • In the con­text of in­sol­vency, if the chief exe­cu­ti­ve does not file for bankrupt­cy in due time;
  • If at the con­clu­si­on of the con­tract, he does not make it clear that he acts in the na­me of the Ltd., and the third par­ty as­su­mes that he acts for him­s­elf.

 

In the above-mentioned ca­ses, the ge­ne­ral ma­na­ger can not claim that he has de­le­ga­ted the­se tasks to a third par­ty (ac­coun­tant, pro­xy, etc.) be­cau­se he him­s­elf is ob­li­ged to mo­ni­tor the­se peop­le. This is par­ti­cu­lar­ly cri­ti­cal for non-German speaking for­eign in­ves­tors, and dif­fi­cul­ties with Ger­man of­fi­cia­le­se con­tri­bu­te to a heigh­te­ned risk.

To avo­id per­so­nal claims, one should con­si­der if a di­rec­tors and of­fi­cers lia­bi­li­ty insuran­ce should be ef­fec­ted – pos­si­b­ly du­ring nego­tia­ti­ons for the ge­ne­ral manager’s con­tract. This howe­ver is just a fill-in for si­tua­ti­on when it is al­re­ady too la­te, so we ad­vi­se ta­king pre­cau­tio­na­ry steps be­fo­re star­ting to set up the GmbH as de­aling with the sub­ject of per­so­nal lia­bi­li­ty is of vi­tal si­gni­fi­can­ce.

The law of­fice Bo­ris Zim­mer­mann ad­vi­ses cor­po­ra­ti­ons and for­eign in­ves­tors on en­t­e­ring the Ger­man mar­ket. If you have any ques­ti­ons, plea­se con­tact us.