The GmbH, or limited liability company, is one of the most common forms of business in Germany. It offers many advantages, such as limited liability of the shareholders and simple formation. However, it also carries some legal risks, especially for directors and shareholders. In this article, we will look at all aspects of liability in the GmbH, from basic liability principles to recent court rulings and frequently asked questions (FAQs).
Table of contents
- Basic principles of liability in the GmbH
- Liability of the managing director
- Liability of the shareholders
- Possibilities of exclusion of liability
- Limitations and extensions of liability
- Current court decisions on liability in the GmbH
- FAQs on liability in the GmbH
- Conclusion: Liability in the GmbH
Fundamentals of liability in the GmbH
Liability in the GmbH is primarily regulated in the Act on Limited Liability Companies (GmbHG). The basic idea of the GmbH is the limited liability of the shareholders, i.e. their liability is limited to their capital contributions. However, this is not always the case, especially when it comes to the liability of the managing director. Here are some basic liability principles in the GmbH:
- The GmbH has unlimited liability for its obligations.
- The shareholders are generally only liable up to the amount of their capital contributions.
- The managing director has special duties and may be personally and unlimitedly liable.
The liability of the managing director and the shareholders differs in many aspects, so we will deal with these two topics separately below.
Liability of the managing director
The managing director of a GmbH has a special responsibility and therefore also faces a higher liability risk. The liability of the managing director can arise from various legal bases:
- Liability under the employment contract
- Liability towards the company (internal liability)
- Liability towards third parties (external liability)
We will discuss these different types of liability in more detail below.
Liability arising from the employment contract
The managing director has certain contractual duties towards the GmbH resulting from the employment contract. If he breaches these duties, this can lead to claims for damages by the GmbH against the managing director. Examples of such breaches of duty are:
- Non-compliance with instructions of the shareholders’ meeting
- Violation of company guidelines or compliance requirements
- Neglect of supervisory and control duties
Liability towards the company (internal liability)
The managing director’s internal liability refers to his liability towards the GmbH itself. Here are some examples of cases in which the managing director may be liable towards the company:
- Breach of duties of care (§ 43 (1) GmbHG)
- Breach of the non-competition clause (§ 60 (1) GmbHG)
- Failure to comply with capital maintenance regulations (§§ 30, 31 GmbHG)
- Failure to pay taxes and social security contributions (§ 64 GmbHG)
In these cases, the GmbH can assert claims for damages against the managing director. It is important to note, however, that the general meeting of shareholders can exempt the managing director from liability (§ 46 no. 8 GmbHG). However, this exemption is not always effective, especially if it is contrary to law or morality.
Liability towards third parties (external liability)
The managing director’s external liability concerns his liability to third parties, i.e. persons who are not shareholders or members of the GmbH. Here are some examples of cases in which the managing director may be liable to third parties:
- Breach of contracts concluded by the managing director on behalf of the GmbH
- Liability for tort (§ 823 BGB), for example in the case of violation of protective laws
- Liability for delaying insolvency (§ 15a InsO)
- Liability for withholding employee contributions to social security (§ 266a StGB)
In these cases, the injured parties are entitled to claim damages against the managing director personally. However, it is important to note that the liability of the managing director may be limited in individual cases if he can prove that he exercised due diligence.
Liability of the shareholders
The liability of the shareholders of a GmbH is generally limited to their capital contributions (§ 13 Paragraph 1 GmbHG), i.e. they are not personally liable for the GmbH’s obligations. Nevertheless, there are some exceptions to this principle of liability:
- Liability for the payment of the capital contributions (§ 16 GmbHG)
- Liability for repayment of capital contributions (§ 30 GmbHG)
- Liability for destruction of existence (§ 826 BGB)
- Liability for immoral damage (§ 826 BGB)
We will discuss these different types of liability in more detail below.
Liability for the payment of capital contributions
The shareholders of a GmbH are obliged to pay in their capital contributions in full (§ 7 Paragraph 2 GmbHG). If they do not fulfil this obligation, they are liable to the GmbH for the missing amount. This liability also exists if the company becomes insolvent and the insolvency administrator wishes to draw the missing contributions from the assets (§ 16 (2) GmbHG).
Liability for repayment of contributions
In principle, the shareholders of a GmbH may not withdraw any contributions from the GmbH’s assets unless this is covered by a profit or a capital reduction (§ 30, subsection 1, GmbHG). If contributions are nevertheless withdrawn, the shareholders involved are liable for repayment of the amount withdrawn to the GmbH (§ 31 section 1 GmbHG). This liability exists regardless of whether the withdrawal was unlawful or not.
Liability for destruction of existence
The shareholders of a GmbH may be liable if their conduct intentionally or through gross negligence destroys the economic existence of the company. This liability arises from § 826 BGB and concerns in particular cases in which the shareholders deprive the GmbH of assets or drive it into insolvency by giving impermissible instructions to the managing director. In case law, liability for destruction of existence is subject to strict conditions and is only affirmed in exceptional cases.
Liability for immoral damage
In certain cases, the shareholders of a GmbH may also be liable for immoral damage under § 826 BGB. This applies in particular to cases in which the shareholders intentionally and immorally harm third parties through their conduct. Examples of this are the withholding of employee contributions to social security or the deliberate delaying of insolvency. Here, too, liability is subject to strict conditions and is only accepted in exceptional cases.
Possibilities of exclusion of liability
There are possibilities for both directors and shareholders to exclude or limit liability. Here are some examples:
- Exemption from liability by the shareholders’ meeting (§ 46 no. 8 GmbHG): The shareholders’ meeting can exempt the managing director from his liability towards the company. However, this is only permissible under certain conditions, in particular if the exemption does not violate the law or morality.
- Limitation of liability by contract: Both managing directors and shareholders can limit their liability towards third parties by contractual agreements. However, this is only permissible if the limitation of liability is not contrary to law or morality.
- Limitation of liability through insurance: Managing directors can protect their liability by taking out a D&O insurance policy (Directors and Officers Liability Insurance). This insurance usually covers claims for damages against the managing director resulting from breaches of duty in the course of his or her activities for the GmbH.
Limitations and extensions of liability
Liability in a GmbH is generally limited to the capital contributions of the shareholders and the personal liability of the managing director. However, there are some legal provisions that can remove or extend these limitations of liability. Here are some examples:
- Extension of liability through group law: In certain cases, liability in the GmbH can be extended through group law, for example if the GmbH is integrated into a group and the parent company controls its subsidiary (§ 302 AktG analogously).
- Extension of liability through conversion law: In the context of a conversion, for example a merger or a demerger, the liability limitations in the GmbH can be cancelled or extended (§ 133 UmwG).
- Extension of liability through insolvency law: In insolvency proceedings, the limitations of liability in the GmbH can be cancelled or extended, for example through the avoidance in insolvency (sections 129 et seq. InsO) or liability due to delay in insolvency (section 15a InsO).
Current court decisions on liability in the GmbH
Liability in the GmbH is a complex and dynamic area of law that is constantly shaped by new court rulings. Here are some recent rulings that should be of particular interest to managing directors and shareholders:
- Federal Supreme Court, judgment of 13 July 2021 – II ZR 389/19: The Federal Supreme Court has ruled that a GmbH managing director may also be liable for destruction of existence under section 826 of the German Civil Code (BGB) if he intentionally drives a limited liability company (GmbH) into insolvency in order to rid himself of an unwelcome minority shareholder.
- Düsseldorf Higher Regional Court, judgment of 27.01.2020 – I-6 U 108/18: The Düsseldorf Higher Regional Court affirmed the liability of a GmbH managing director for delaying insolvency under section 15a InsO, even though he had filed for insolvency. The reason for this was that the managing director had filed the application too late and thus there was a delay in insolvency.
- Munich Higher Regional Court, judgement of 16.01.2020 – 23 U 1869/19: The Munich Higher Regional Court ruled that a GmbH shareholder who has not paid his or her capital contribution in full is obliged to make an additional payment even if the company is already insolvent and the insolvency administrator wishes to deduct the contribution from the insolvency estate.
FAQs on liability in the GmbH
In the following we answer some frequently asked questions on liability in a GmbH:
Are shareholders of a GmbH personally liable for the GmbH’s liabilities?
In principle, shareholders of a GmbH are not personally liable for the company’s debts. Their liability is limited to their capital contributions (§ 13 (1) GmbHG). However, there are some exceptions to this principle of liability, for example, liability for the payment of the capital contributions (§ 16 GmbHG) or liability for destruction of existence (§ 826 BGB).
Can a managing director of a GmbH be liable for the GmbH’s obligations?
Under certain circumstances, a managing director of a GmbH can be personally and unlimitedly liable for the GmbH’s obligations. This concerns in particular the liability towards the company (internal liability) and the liability towards third parties (external liability). The liability of the managing director can arise from various legal bases, such as the employment contract, the GmbHG, the BGB or insolvency law.
How can a managing director of a GmbH reduce or exclude his liability?
A managing director of a GmbH can reduce or exclude his liability in various ways, for example, by a release from liability by the shareholders’ meeting (§ 46 no. 8 GmbHG), a contractual limitation of liability or by taking out a D&O insurance policy (Directors and Officers Liability Insurance).
How can a shareholder of a GmbH reduce or exclude his liability?
As a rule, a shareholder of a GmbH cannot reduce or exclude his liability beyond the statutory limitations of liability. The liability of shareholders is generally limited to their capital contributions (§ 13 (1) GmbHG). However, under certain circumstances shareholders may limit their liability towards third parties by contractual agreements, provided that these limitations of liability do not violate the law or morality.
Are there differences in liability between a controlling and a minority shareholder of a GmbH?
In principle, the same liability rules apply to controlling and minority shareholders of a GmbH. However, controlling shareholders may be additionally liable in certain cases due to their position within the company, for example due to destruction of existence (§ 826 BGB) or within the framework of group law (§ 302 AktG analogously). However, minority shareholders may also be liable if they actively participated in a damaging act or violated their duties as shareholders.
What role does group law play in liability in the GmbH?
Group law can extend liability in the GmbH, especially if the GmbH is part of a group and the parent company controls its subsidiary (§ 302 AktG analogously). In these cases, the parent company may be obliged to compensate its subsidiary for damages incurred. This may also affect the liability of the shareholders or managing directors of the parent company.
Can the liability in the GmbH be cancelled or extended by a conversion, for example a merger or a demerger?
Yes, in the course of a conversion, for example a merger or a demerger, the limitations of liability in the GmbH can be cancelled or extended (§ 133 UmwG). This concerns in particular the liability of the shareholders for the liabilities of the transferring or acquiring company. However, the liability rules in transformation law are complex and depend on the specific circumstances of the individual case.
Conclusion: Liability in the GmbH
Liability in the GmbH is a multi-layered and complex area of law that affects both managing directors and shareholders. In principle, the liability of shareholders is limited to their capital contributions, while managing directors may be personally and unlimitedly liable under certain circumstances. However, there are numerous exceptions and special features that can both extend and limit liability.
In order to minimise liability risks, it is crucial for managing directors and shareholders of a GmbH to know and fulfil their legal obligations precisely. In addition, they can reduce or exclude their liability through contractual agreements, indemnities or the conclusion of a D&O insurance policy.
Since liability in the GmbH is constantly influenced by new court rulings and changes in the law, it is advisable to regularly inform oneself about current developments and to seek legal advice if necessary. This is the only way to ensure that you are legally protected as a managing director or shareholder of a GmbH and to avoid unpleasant surprises.