Shareholders of a GmbH have various rights and obligations, as do its managing directors. In the case of a managing director, these are combined in one person. The role of the shareholder is defined on the one hand by the GmbH Act and on the other hand by the respective articles of association of the limited liability company, i.e. the partnership agreement.
In this article, the lawyers at our law firm provide an overview of the tasks of the shareholders’ meeting and the rights and obligations of GmbH shareholders. They are also available to advise companies and entrepreneurs on all matters relating to commercial law and company law and the associated legislation.
Table of contents
- How do you become a shareholder in a limited liability company?
- The German Limited Liability Company Act (GmbHG)
- What rights and obligations do shareholders have?
- The rights of the shareholder
- The duties of the shareholder
- GmbH shareholder liability
- Tasks of the shareholders’ meeting
- Legal advice
How do you become a shareholder of a limited liability company?
You become a GmbH shareholder when you acquire shares in a company, i.e. when you become a shareholder. You can either participate directly as a shareholder when the company is founded or later by acquiring shares.
When acquiring shares, it is generally possible to take over existing shares from another owner or to subscribe to newly issued shares as part of a capital increase.
If a GmbH is founded, the shareholders require share capital of at least € 25,000 in accordance with Section 5 GmbHG. For other corporations, the share capital is lower (UG or “mini” or “one-euro” GmbH = € 1) or higher (AG = € 50,000).
A shareholder’s share of the share capital is referred to as the share capital contribution. The law does not specify the amount of a share. Furthermore, it is not necessary for all shareholders to pay in the same amount. However, according to § 47 GmbHG, the rights and obligations of GmbH shareholders, including the right to vote at the shareholders’ meeting, depend on the amount of the contribution made.
Who can be a GmbH shareholder?
In principle, natural and legal persons are eligible as shareholders of a GmbH, which are set out in the articles of association. The powers that the individual shareholders have after joining the company depend on the amount of the respective capital contribution.
The GmbH Act (GmbHG)
In addition to the articles of association of the GmbH, the GmbHG is decisive when it comes to the powers and obligations of a GmbH shareholder. Section 46 GmbHG contains the regulations on the specific rights and obligations that the shareholders have in the company’s affairs:
1. the adoption of the annual financial statements and the appropriation of the result;
1a. the decision on the disclosure of individual financial statements in accordance with international accounting standards (§ 325 Para. 2a of the German Commercial Code) and on the approval of the financial statements prepared by the managing directors;
1b. the approval of consolidated financial statements prepared by the managing directors;
2. the calling in of contributions;
3. the repayment of additional contributions;
4. the division, merger and redemption of shares;
5. the appointment and dismissal of managing directors and the approval of their actions;
6. the measures for auditing and monitoring the management;
7. the appointment of authorized signatories and authorized agents for all business operations;
8. the assertion of claims for compensation to which the company is entitled from the formation or management against managing directors or shareholders, as well as the representation of the company in lawsuits which it has to conduct against the managing directors.
Shareholder GmbH: What rights and obligations do shareholders have?
When we talk about the rights and obligations of a shareholder, we are generally talking about control rights, property rights, management rights and the duty of loyalty.
Individual and collective rights
The rights and obligations of a GmbH shareholder can be both individual and collective. Individual rights or obligations relate to the individual shareholder; collective rights or obligations, on the other hand, apply to all shareholders of the GmbH.
The rights and obligations of shareholders are inextricably linked to their share in the company. They are transferred to the new owner if the share is sold.
The rights of the shareholder
Shareholder rights are divided into control rights, property rights and management rights.
GmbH shareholders – control rights
An important control right of GmbH shareholders is the right to information, which may not be restricted. In principle, all matters relating to the company must be included, both internally and externally. As a shareholder, you have the right to request relevant information from the management, whereby the information must be provided truthfully, completely and conscientiously.
The right to inspect correspondence and the company’s books also falls under the right to information. For example, shareholders of a GmbH can request to see contracts, invoices or the company’s accounts in order to check the costs.
However, managing directors can refuse to grant access and information. However, this is only possible if it must be assumed that the company is at risk because the information is being used for non-company purposes.
Furthermore, shareholders of a GmbH enjoy the right to monitor and control the management. This includes information rights on the one hand and the shareholders’ meeting on the other.
GmbH shareholders – property rights
The individual property rights of a GmbH shareholder include the subscription right, the right to profit distribution and the right to liquidation proceeds.
The subscription right comes into play when the company increases its capital. It means that the shareholder has the right to subscribe to newly issued shares in the company.
If the shareholders of a GmbH decide that the company’s profit is to be distributed, either in full or in part, each shareholder is entitled to the portion that results from the amount of their shares in the company. However, this entitlement depends on a resolution on the appropriation of profits, which must first be passed at the shareholders’ meeting.
In addition, shareholders receive their share of the proceeds that remain when the company is dissolved or liquidated.
Collective property law describes the right of shareholders’ meetings to decide on the appropriation of profits and the formation of reserves. How the annual profit is distributed depends on how many shares the individual shareholder has in the share capital.
GmbH shareholders – management rights
The administrative rights of a GmbH shareholder include the right to vote at shareholders’ meetings. This enables the shareholder to cast their vote at votes.
In addition, a shareholder has the right to attend shareholder meetings and to speak at them. Special rights are also possible for shareholders, but these must first be defined in the articles of association.
The duties of the shareholder
The main obligation of a shareholder, from which he cannot be released, relates to the capital contribution that he has to make. In this context, this is also referred to as the “capital contribution obligation”. When a company is founded, a shareholder must contribute at least 25 % of their capital contribution.
If this is not done, it is possible, according to the regulations in the GmbHG, to declare a company share invalid. In such cases, the remaining shareholders must pay the contribution jointly, depending on the amount of their shares.
In addition to the obligation to make a contribution, there is also the duty of loyalty, which relates to the relationship between the shareholder and the company, but also to the other shareholders. The duty of loyalty is understood to mean both safeguarding the interests of the company and refraining from actions that would damage the company.
In addition, the personal interests of a shareholder must be reconciled with those of the other shareholders. This also falls under the duty of loyalty.
Furthermore, there may also be non-competition clauses for shareholders. This can be in the interests of the company if you want to prevent a shareholder from competing with the company. This would be the case, for example, if a company were to set up its own business or acquire a stake in a competitor.
GmbH shareholder liability – limited, but also personal?
Contrary to what is often assumed by legal laypersons, a GmbH is not a company that excludes personal liability in principle, but a company with limited liability. According to § 14 GmbHG, the shareholders’ obligations towards the GmbH are generally limited to the payment of the contribution stipulated in the articles of association.
However, there are some exceptions to the idea that only the company’s assets are liable to creditors. In Anglo-American law, this is symbolically referred to as “piercing the corporate veil”. Furthermore, the limitation of liability does not apply to internal claims of the GmbH against its shareholders. This is usually of great importance in practice.
In addition to the liability of the managing directors of a GmbH, the liability of the shareholders must also be considered. There are two questions in particular: Is a shareholder liable with his private assets? And how can he protect his private assets?
Subject to additional provisions in the articles of association, the obligations of the GmbH shareholder are largely limited to making the capital contribution and leaving it to the company. The idea of raising and maintaining capital applies.
According to the law, the GmbH is only liable for liabilities to third parties with the company’s assets, see § 13 Para. 2 GmbHG. The private assets of the shareholders must be kept separate from the business assets and theoretically cannot be classified as liable assets. However, there are exceptions.
Insolvency administrator check
In particular, the examination of claims of the insolvent GmbH against its shareholders is part of the normal repertoire of insolvency administrators. In addition, the creditors of the GmbH can seize claims of the company against its shareholders by way of compulsory enforcement in accordance with the provisions of Sections 829, 835 et seq. ZPO. Accordingly, there is a risk of third parties gaining access to the shareholders’ private assets.
In its ruling of January 24, 2012 (case no. II ZR 109/11, NZG 2012, 259), the Federal Court of Justice stated that the resolution on the redemption of GmbH shares takes effect immediately upon delivery of the resolution to the affected shareholder of a GmbH.
In order to protect the financial interests of the withdrawing GmbH shareholder, the BGH assumes that the shareholders who passed the redemption resolution are proportionally liable for the withdrawing shareholder’s compensation claim. This applies if they do not ensure that the compensation can be paid from the company’s free funds or if they do not dissolve the company.
Access to private assets
The Federal Court of Justice has thus created a further group of cases in which GmbH shareholders are personally liable. The ruling provides an opportunity to present the most important cases in which recourse to the GmbH shareholder’s private assets is possible. Firstly, we will look at the (rarer) cases of direct external liability of shareholders.
This is followed by the practically relevant constellations of internal liability towards the company, in which an obligation of the GmbH shareholders towards third parties can arise through an attachment and assignment of the GmbH’s claims against the shareholders.
GmbH shareholder liability – externally
The most prominent groups of cases in which the liability of GmbH shareholders towards third parties – i.e. in the external relationship – is in dispute are the following:
Undercapitalization and “Cinderella” constellations
In the past, there have been repeated discussions about recourse liability in cases in which the company’s capital resources are not commensurate with the business operations carried out. However, this case constellation is likely to have been overtaken by recent legal developments.
The Federal Court of Justice ruled that access to company assets is only possible in the event of “destruction of existence”. However, this obligation to destroy the company’s existence is technically not a direct external liability, but an internal liability towards the company. However, so-called “Cinderella” constellations nevertheless represent an area of application of the shareholders’ external liability.
Under the aspect of intentional immoral damage to creditors, liability under Section 826 BGB may be considered if the legal relationship between the shareholder and the GmbH is such that the disadvantages arising from the commercial activity must inevitably affect the company’s creditors.
This may be the case, for example, if business opportunities are withheld from the GmbH. However, case law assumes absolute extreme cases here (damage to lenders as a business strategy).
The mere fact that the shareholders “hide” behind their company is not problematic per se given the existence of the GmbH as a legal entity with limited liability. The BGH formulates this in such a way that the legal form of the legal entity may not be disregarded without hesitation.
Liability for compensation in the event of redemption
According to the BGH ruling, the compensation to which the shareholder affected by the redemption is entitled cannot be paid from the company’s free assets in the context of the redemption of shares in accordance with Section 34 (1) GmbHG.
If the compensation was nevertheless paid out retrospectively, this would constitute a breach of the capital maintenance principle pursuant to Section 34 para. 3 in conjunction with Section 30 para. 1 GmbHG. In the past, it was disputed whether the withdrawal of the shareholder affected by the redemption from the company only becomes effective upon payment of the compensation.
However, case law currently assumes that the withdrawal takes effect shortly after the announcement of the redemption resolution, even if the compensation cannot be paid from the company’s free assets as described above.
In order to protect the withdrawing shareholder, the BGH has ruled that in such cases the shareholders adopting the resolution are liable for the payment of the redemption amount with their private assets in proportion to their shares in the company. The BGH left unclear whether this responsibility also applies to shareholders who did not vote in favor of the redemption when the resolution was passed.
However, there are also strong dissenting voices in the legal literature. This question is therefore currently open. In any case, it is still argued that, in order to avoid liability, the shareholders should obtain comprehensive information as to whether the GmbH’s free assets are sufficient to pay the compensation before agreeing to a redemption resolution.
If this is not the case, alternatives to redemption should be examined. Many articles of association provide, for example, that the assignment of the shares of the departing shareholder to a third party can be agreed instead of redemption. Ideally, this element should already be taken into account when drafting the articles of association.
Other types of abuse of legal form and breaches of good faith
Liability of GmbH shareholders for intentional immoral damage can also be considered in other constellations. This is the case if a shareholder collects receivables of the GmbH for himself and the GmbH becomes insolvent as a result, or if he instigates the managing director to delay insolvency or supports him in doing so. In regular business operations, however, the various forms of liability only play a role in rare cases.
GmbH shareholder liability: Mixed assets
According to case law, personal liability towards investors of the GmbH can be considered if it is not possible to clearly allocate the assets to the assets of the GmbH or to private assets.
The shareholder can therefore only claim limited shareholder liability if he can prove that the company’s assets are independent by means of proper bookkeeping and accounting and separates the company’s assets from private assets in terms of quantity. However, a mixture of assets does not already exist in the case of isolated unlawful withdrawals made by a shareholder.
Internal liability of the shareholder
Internal liability of GmbH shareholders towards the company arises in particular in the following constellations:
Default liability in the event of a breach of the principles of capital maintenance
§ Section 30 (1) sentence 1 GmbHG stipulates that the assets of a GmbH required to maintain the share capital may not be distributed to the shareholders. Violations frequently occur in the area of capital maintenance, as the shareholders are not sufficiently informed about the problems that arise.
The legal consequences of § 31 Para. 1 GmbHG include a claim by the GmbH to repayment of the amounts paid. According to § 31 Para. 3 GmbHG, the shareholders are liable for liabilities to creditors up to a certain amount if the money is not repaid by the shareholder who received it.
The shareholders are liable in proportion to their shares in the GmbH. If further shareholders withdraw, the remaining co-shareholders are liable for their payment obligations in proportion to their remaining shares.
Default liability for raising the share capital
If the amount of a capital contribution cannot be collected by the responsible shareholder or compensated by the sale of the relevant share, the other shareholders of the GmbH are liable for the shortfall in accordance with § 24 S. 1 GmbHG for the shortfall in proportion to their shares.
If the deficit among the shareholders responsible pursuant to § 24 S. 1 GmbHG in accordance with § 24 S. 2 GmbHG, this is done in proportion to their shares. This aspect of a GmbH’s obligation often escapes attention.
This is particularly controversial when one considers that some legal literature argues that liability should apply not only to contributions by defaulted shareholders, but also to contributions of encumbered real estate or over-indebted companies through contributions in kind, and even to the difference between the (negative) value of the contribution object and the nominal value of the share.
The liability of shareholders should be avoided as early as possible by taking appropriate measures, such as timely contributions and an accurate valuation of contributions in kind.
Liability for destruction of existence – GmbH shareholder liability
Shareholder liability also includes the so-called liability for the destruction of a company’s existence, which is an important group of cases. This is intended to cover situations in which shareholders of a GmbH unintentionally damage the assets of the company that are intended to benefit the creditors.
Since the “Trihotel” ruling of the Federal Court of Justice, this amount has been classified as internal liability of the injured shareholders towards the GmbH in accordance with Section 826 BGB, i.e. as tortious liability – immoral damage with intent.
In addition to the required intent to cause damage and the absence of grounds for justification, the prerequisite for liability is
- interference by the shareholder in the business assets without compensation, which leads to insolvency or exacerbates it,
- a breach of a duty of conduct by the shareholder. This is particularly the case if the withdrawals from the company’s assets are made for purposes unrelated to the company, and
- immorality, which is only given if the interference is particularly serious, e.g. if it is a planned action that harms the GmbH and thus the creditors.
However, it is important to know that the shareholders of a GmbH are not obliged to provide the company with sufficient equity capital in order to avoid liability. The fact that a GmbH is not in a position to meet its obligations does not mean that it is therefore liable.
Under-balance sheet liability and liability to cover losses
The GmbH does not come into existence when it is founded, but only when it is constitutively entered in the commercial register. In the period between formation and registration, it exists as a so-called “pre-GmbH”. According to case law, in the event of registration, the shareholders are liable for old debts that reduce the company’s assets below the amount of the share capital at the time of registration (so-called under-balance sheet liability).
In the event of non-registration, the liability is referred to as “loss coverage liability”. The obligation arises in connection with the gap between the statutory share capital and the value of the company’s assets, which can also be negative. In the case of multi-person companies, the liability to cover losses is structured as a proportionate internal liability towards the company.
However, even in the case of a one-man GmbH, internal liability towards the GmbH is predominantly assumed. This then concerns the sole shareholder of the GmbH. In order to prevent such liability, it is advisable for the shareholders to commence their business activities immediately after registration.
Tasks of the shareholders’ meeting
The shareholders’ meeting plays a key role in the organization of the company, as this is where the rights and interests of the shareholders are bundled. It is the supreme decision-making body in which the shareholders organize themselves and where they have the final decision-making authority in all matters.
The partnership agreement, i.e. the articles of association, is adopted by the shareholders’ meeting, which has a lot of power because the legislator gives it a great deal of leeway. The managing director must comply with the provisions of the shareholders’ agreement and the instructions of the shareholders’ meeting.
The shareholders’ meeting also has the authority to determine all details of the managing director’s activities and to monitor his work performance. Individual shareholders, on the other hand, have only limited powers outside the shareholders’ meeting.
Influence on the management
The shareholders’ meeting’s ability to influence the management is of crucial importance. This is because it appoints the managing director(s), dismisses them, negotiates employment contracts with them, monitors them and issues instructions to them.
The right to issue instructions is the lever for the shareholders of the GmbH that allows them to steer the course of business. Even if they do not agree with the content of the instruction resolutions, managing directors must carry them out.
Financing the company
The financing of the company is one of the responsibilities of the shareholders. This means that they decide how the company is to be provided with the necessary capital or equity. This also includes scheduling the payment of contributions.
In the event that the share capital is not sufficient for the operation of the company, the shareholders decide on a capital increase, which may require the admission of new shareholders. Alternatively, the shareholders’ meeting can decide to make a contribution through further contributions or to inject outside capital into the company through shareholder loans.
While in the external relationship the managing directors are responsible for taking out loans from third parties, in the internal relationship the shareholders often decide whether the planned loan procurement is acceptable or not.
Structural decisions
The shareholders’ meeting determines the purpose and object of a company in the articles of association. It is also responsible for making changes to the articles of association, which is why it has a significant influence on the direction of a company.
The partners’ meeting also meets when the partners have to discuss structural matters, such as a spin-off, change of legal form or investments in or mergers with other companies.
Legal advice
This article is brought to you by the law firm Herfurtner. Our law firm is an advisor for entrepreneurs and advises on all questions of commercial law, profit participation law, stock corporation law, in particular pre-IPO shares, GmbH managing director liability and company law.
It does not matter where in Germany the client has its registered office or whether the company is a partnership or a corporation. You can also contact us as a founder or in the event of imminent insolvency. Click here to contact us directly.