Shareholder GmbH – rights and duties

Shareholder GmbH – Shareholders of a GmbH have various rights and duties, as do its managing directors. In the case of a shareholder-director, these merge into one person. The role of the shareholder is defined on the one hand by the GmbH law and on the other hand by the respective articles of association of the limited liability company, i.e. the articles of association.

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The lawyers at our law firm provide an overview of the tasks of the company meeting and the rights and obligations of GmbH shareholders in this article. They are also available to companies and entrepreneurs as advisors on all questions of business law and company law and the related laws.

Table of contents

1. How to become a shareholder in a limited liability company?
2. The GmbH Act (GmbHG)
3. What are the rights and duties of shareholders?
4. GmbH shareholder liability
5. Tasks of the shareholders’ meeting
6. Legal advice

How do you become a shareholder in a limited liability company?

A GmbH shareholder is one who acquires shares in a company, i.e. becomes a shareholder. You can either participate directly as a shareholder at the time of formation or later by acquiring shares in the company.

When acquiring shares, it is generally possible to take over existing shares from another owner or to subscribe to newly issued shares within the framework of a capital increase.

If a GmbH is founded, the shareholders require a share capital of at least €25,000 for this purpose in accordance with § 5 GmbHG. For other corporations the share capital is lower (UG or also “Mini-” or “One-Euro-GmbH” = 1 €) or higher (AG = 50,000 €).

A shareholder’s share in the share capital is called the capital contribution. The law does not specify the amount of a share. Moreover, it is not necessary for all shareholders to pay in the same amount. However, according to § 47 GmbHG, the rights and obligations of the GmbH shareholders, including the right to vote in the shareholders’ meeting, depend on the amount of the contribution made.

Who can be a GmbH shareholder?

In principle, natural persons and legal entities are eligible to be shareholders of a GmbH, which are recorded in the articles of association. What powers the individual shareholders have after joining the company depends 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. Thus, § 46 GmbHG contains the regulations on the specific rights and duties which the shareholders have in the affairs of the company:

1. the adoption of the annual financial statements and the appropriation of the results;

1a. the decision on the disclosure of individual financial statements in accordance with international accounting standards (section 325 (2a) of the 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 directors;

2. the calling in of contributions;

3. the repayment of additional contributions;

4. the division, consolidation and redemption of shares;

5. the appointment and dismissal of managing directors and the discharge of the same;

6. the measures for the examination and supervision of the management;

7. the appointment of authorised signatories (Prokuristen) and of authorised agents (Handlungsbevollmächtigte) for the entire business operations;

8. the assertion of claims for compensation to which the company is entitled against managing directors or shareholders arising from the formation or management of the company, as well as the representation of the company in legal proceedings which it has to conduct against the managing directors.

Shareholder GmbH: What rights and duties do shareholders have?

When talking about the rights and duties of a shareholder, we are usually talking about the topics of control rights, property rights and management rights as well as the duty of loyalty.

Individual and collective rights

The rights and duties of a GmbH shareholder can be both individual and collective. Individual rights or duties refer to the individual shareholder; collective, on the other hand, are claims or duties that apply to all shareholders of the GmbH.

The rights and obligations of shareholders are inseparably linked to their share in the company. They pass to the new owner in the event of a sale of the share.

The rights of the shareholder

Shareholder rights are divided into control rights, property rights and administrative rights.

GmbH Shareholders – Rights of Control

An essential control right of GmbH shareholders is the right to information, which may not be restricted. In principle, all matters of the company are to be included, both internal and external. As a shareholder you have the right to demand information from the management in this regard, whereby the information must be provided truthfully, completely and conscientiously.

The right to inspect the company’s correspondence and books also falls under the right to information. For example, shareholders of a GmbH may, upon request, have contracts, invoices or even the company’s accounts presented to them in order to verify costs.

However, managing directors can refuse to inspect and provide information. However, this is only possible if it must be assumed that the company is at risk because the information is being used for purposes outside the company.

Furthermore, shareholders of a GmbH enjoy the right to supervise or control the management. This includes the right to information on the one hand and the shareholders’ meeting on the other.

Shareholder GmbH – 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 in the event of a capital increase of the company. It states that the shareholder has a right to subscribe to newly issued shares of the company.

If the shareholders of a limited liability company decide that the company’s profits are to be distributed, in whole or in part, each shareholder is entitled to the portion that results from the amount of his or her shares in the company. However, the claim depends on a resolution on the appropriation of profits, which must first be passed in the shareholders’ meeting.

In addition, shareholders receive their share of the proceeds that remain when the company is dissolved or liquidated.

The collective property right describes the right of shareholders’ meetings to decide on the use 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 Shareholder – Administrative Rights

The administrative rights of a GmbH shareholder include, on the one hand, the right to vote at shareholders’ meetings. It enables the shareholder to cast his vote at votes.

In addition, a shareholder has the right to attend shareholder meetings and to speak there. Special rights are also possible for shareholders, but these must be stipulated in the articles of association beforehand.

The duties of the shareholder

The essential duty of a shareholder, from which he cannot be released, relates to the capital contribution which he must make. In this context, one also speaks of the so-called “contribution obligation”. When a company is founded, a shareholder must contribute at least 25% of his or her capital contribution.

If this is not done, according to the regulations in the GmbHG it is possible to declare a company share invalid. In such cases, the remaining shareholders must make the contribution jointly, depending on the amount of their shares.

In addition to the duty to contribute, there is the duty of loyalty, which relates to the relationship of the shareholder to the company, but also to the remaining 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 interest of the company if one wants to prevent a shareholder from competing with the company. This would be the case, for example, when founding one’s own company or through a shareholding in a competitor.

Shareholder GmbH liability – limited, but also personal?

Contrary to what is often assumed by legal laypersons, the GmbH is not a company that excludes personal liability in principle, but a company with limited liability. According to § 14 GmbHG, the obligations of the shareholders 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 notion 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 managing directors of a GmbH, the liability of shareholders must be considered. Two questions in particular are at issue here: 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 liable for liabilities to third parties exclusively with the company’s assets, see § 13 Paragraph 2 GmbHG. The private assets of the shareholders are to be kept separate from the business assets and theoretically cannot be classified as liability assets. However, there are exceptional cases.

Insolvency administrator audit

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 attach claims of the company against its shareholders by way of compulsory enforcement according to the provisions of §§ 829, 835 et seq. ZPO. Accordingly, there is a risk of third parties accessing the private assets of the shareholders.

In its ruling of 24 January 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 becomes effective immediately upon delivery of the resolution to the affected shareholder of a GmbH.

In order to protect the asset interests of the withdrawing GmbH shareholder, the BGH assumes a pro rata liability of the shareholders who passed the redemption resolution for the compensation claim of the withdrawing shareholder. 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.

Reaching through to the private assets

The Federal Supreme Court has thus created a further group of cases in which the GmbH shareholders are personally liable. The ruling provides an opportunity to present the most important cases in which the private assets of the GmbH shareholder can be accessed. First, the (rarer) cases of direct external liability of shareholders are discussed.

Subsequently, it deals with the practically relevant constellations of internal liability vis-à-vis the company, in which an obligation of the GmbH shareholders vis-à-vis third parties can arise through an attachment and assignment of the claims of the GmbH vis-à-vis the shareholders.

GmbH shareholder liability – external

The most prominent groups of cases in which a GmbH shareholder’s liability towards third parties – i.e. in the external relationship – is disputed are the following:

Undercapitalisation and “Cinderella” constellations

In the past, there has always been a discussion about pass-through liability in cases where the capitalisation of the company is not in an appropriate proportion to the business carried on. However, this case constellation has probably been overtaken by recent legal developments.

The Federal Supreme Court ruled that access to the company’s assets is only possible in the case of a “destruction of existence”. However, this obligation to destroy the 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.

From the point of view of intentional immoral damage to creditors, liability under § 826 BGB can be considered if the legal connection between the shareholder and the GmbH is such that the disadvantages from the commercial activity must inevitably affect the company’s creditors.

This comes into consideration, for example, in the case of withholding business opportunities for the GmbH. However, case law assumes absolute extreme cases here (harming 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 person may not be disregarded without hesitation.

Shareholder GmbH: Liability for severance payments in the case of redemption

According to the BGH decision, in the context of the redemption of shares pursuant to section 34 (1) GmbHG, the compensation due to the shareholder affected by the redemption cannot be paid out of the free assets of the company.

A payment of the compensation nevertheless made after the fact would constitute a violation of the capital preservation principle pursuant to section 34 (3) in conjunction with section 30 (1) GmbHG. Previously, it was disputed whether the withdrawal of the shareholder affected by the replacement from the company only becomes effective with the payment of the compensation.

However, case law currently assumes a prompt withdrawal after the announcement of the redemption resolution, even if the severance payment cannot be paid from the free business assets as described above.

In order to protect the withdrawing shareholder, the BGH 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 favour 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 continues to be argued that in order to avoid liability, shareholders should inform themselves comprehensively before approving a redemption resolution whether the GmbH’s free assets are sufficient to pay the redemption.

If this is not the case, alternatives to redemption should be examined. Many articles of association provide, for example, that instead of redemption, the assignment of the withdrawing shareholder’s shares to a third party can be agreed. Ideally, this element should already be taken into account when formulating 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 claims 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: Mixing of Assets

According to case law, personal liability vis-à-vis financiers of the GmbH may be considered if it is not possible to clearly allocate the assets to the assets of the GmbH or to the private assets.

The shareholder can therefore only claim limited shareholder liability if he can prove an independent company asset through proper bookkeeping and accounting and separates the company assets from the 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 vis-à-vis the company occurs in particular in the following constellations:

Deficiency liability in case of violation 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 because the shareholders are not sufficiently informed about the problems that arise.

The legal consequences of § 31 (1) GmbHG include a claim by the GmbH for repayment of the amounts paid. Pursuant to § 31 (3) GmbHG, the shareholders are liable up to a certain amount for the debts to creditors 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-partners are liable for their payment obligations in proportion to their remaining shares.

Shareholder GmbH: Default liability for the raising of share capital

If the amount of a capital contribution cannot be collected by the responsible shareholder or compensated for by the sale of the share in question, the other shareholders of the GmbH are liable under § 24 S. 1 GmbHG for the deficit in proportion to their shares.

If the deficit is divided among the shareholders responsible under § 24 S. 1 GmbHG according to § 24 S. 2 GmbHG, this is done in proportion to their shares. This aspect of the obligation of a GmbH often escapes attention.

This is particularly explosive when one considers that in legal literature it is sometimes argued that liability should apply not only to contributions of defaulted shareholders, but also to contributions of encumbered property or over-indebted companies through contributions in kind, and even to the difference between the (negative) value of the object of the contribution and the nominal value of the share.

The liability of the shareholders should be avoided as early as possible through appropriate measures, such as timely contributions and an accurate valuation of the contributions in kind.

Existence destruction liability – GmbH shareholder liability

Shareholder liability also includes so-called existential destruction liability, which is an important group of cases. This is intended to cover situations in which shareholders of a GmbH unintentionally damage the company’s assets, which are intended to benefit the creditors.

Since the “Trihotel” ruling of the Federal Court of Justice, this amount has been qualified as internal liability of the aggrieved shareholders towards the GmbH according to § 826 BGB, i.e. as tortious liability – immoral damage with intent.

The prerequisite for liability is, in addition to the necessary intent to cause damage and the absence of grounds for justification

• an encroachment by the shareholder on the business assets without compensation, which leads to insolvency or aggravates it,
• the 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
• the immorality, which is only given if the interference is particularly serious, e.g. if it concerns 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 to avoid liability. The fact that a GmbH is unable to meet its obligations does not mean that it is therefore liable.

Underbalance Liability and Loss Coverage Liability

The GmbH does not come into existence through its formation, but only through the constitutive entry of the GmbH in the commercial register. In the period between formation and registration, it existed as a so-called “pre-GmbH”. According to case law, in the case of registration the shareholders are liable for old debts which reduce the assets of the company at the time of registration below the amount of the share capital (so-called under-balance liability).

In the event of non-registration, the liability is referred to as “loss cover liability”. The liability arises in connection with the gap between the share capital under the articles of association and the value of the company’s assets, which may also be negative. In the case of multi-person companies, the underbalance liability is structured as a proportionate internal liability towards the company.

However, even in the case of a one-man limited liability company, internal liability towards the limited liability company is predominantly assumed. This then concerns the sole shareholder of the GmbH. In order to prevent such liability, it is advisable that the shareholders commence their business activities immediately after registration.

Tasks of the shareholders’ meeting

The general meeting of shareholders plays an essential role in the organisation, because it is here that the rights and interests of the shareholders are bundled. It is the supreme decision-making body in which the shareholders organise themselves and where they have the final decision-making authority in all matters.

The partnership agreement, i.e. the articles of association, is decided by the partners’ meeting, which has a lot of power because the legislator gives it a lot of leeway. The managing director must comply with the provisions of the shareholders’ agreement and the instructions of the shareholders’ meeting.

The partners’ meeting also has the power to determine the activities of the managing director in all details and to supervise his work performance. Individual shareholders, on the other hand, have only limited powers outside the general meeting of shareholders.

Shareholder GmbH: 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, supervises them and gives them instructions.

The right to issue instructions is the lever for the shareholders of the GmbH that allows them to direct 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

Financing the company is one of the responsibilities of the shareholders. This means that they decide in what form the company is to be provided with the necessary capital or equity. This also includes the scheduling of 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 may decide to contribute through further contributions or to inject outside capital into the company through shareholder loans.

While in external relations the managing directors are responsible for taking out loans from third parties, in internal relations the shareholders often decide whether the planned loan procurement is acceptable or not.

Structural decisions

The general meeting of shareholders 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.

In addition, the partners’ meeting meets when the partners have to discuss structural transactions, such as a spin-off, a change of legal form or investments in or mergers with other companies.

Shareholder GmbH – Legal advice

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