94 |
3 Limited Liability Company (GmbH) |
|
|
3.3.3 Supervisory Board (Aufsichtsrat)
If the GmbH is subject to German co-determination rules, the establishment of a supervisory board is not optional, but mandatory.53 In other cases, the GmbH may choose to have a supervisory board (Aufsichtsrat) by way of establishing this body in the articles of association.54 Composition and procedure of such an optional supervisory board are regulated in the AktG; the shareholders may, however, exclude certain or all of these provisions and provide for their own rules in the articles of association.
In practice, many GmbHs also choose to have an optional advisory board (Beirat), an administrative board (Verwaltungsrat) or a shareholders’ committee (Gesellschafterausschuss) consisting of shareholders’ representatives or external experts (such as bankers, lawyers or auditors) appointed by the shareholders. Such boards may have a purely advisory function or may be designed to closely resemble supervisory boards.
3.4 Duties and Liability Risks of the Managing Director
The managing director of a GmbH has many duties and responsibilities to the company itself, to its shareholders and to its creditors. These duties result from statutory regulation, judge-made law, or can be provided for in the articles of association or in the managing director’s service agreement with the company. In general, the managing director has to comply with all applicable statutory and judge-made rules, as well as with the instructions of the shareholders and must use her/his best efforts to act in the interests of the company. The following section provides an overview of some important duties and responsibilities of the managing director, as well as an outline of the most important liability risks.
3.4.1 Duties and Responsibilities of the Managing Director
3.4.1.1 Formation and Raising of the Share Capital
As a matter of principle, the shareholders are responsible for raising the registered share capital and the managing director may not be held responsible for any subscribed share capital contribution. However, when filing for registration of the company, the managing director must confirm that the required contributions for the shares (i.e. cash payments or contributions in kind), have been duly made and that they are at the free disposal of the managing directors. If false statements have been
53 For an overview of the relevant co-determination statutes see supra, Sect. 2.5.3. 54 See Sec. 52 GmbHG.
3.4 Duties and Liability Risks of the Managing Director |
95 |
|
|
made in this respect, the managing director may have to pay the missing amounts himself or may be liable to pay compensation.55
3.4.1.2 Preservation of the Share Capital
The GmbHG contains strict rules regarding the preservation of the registered share capital which can be summarized as follows: a GmbH may not, neither directly nor indirectly, make payments to its shareholders without full consideration, and may not engage in any other activities which directly or indirectly benefit its shareholders, if such payments or activities would affect the registered share capital of the GmbH.
Although the MoMiG reform introduced certain exceptions to this rule, the general principle still applies. Therefore, every managing director should be familiar with the basic principles of the capital preservation rules as a violation of these provisions may lead to claims for damages by the GmbH and its creditors, and may even lead to criminal penalties under Sec. 266 of the German Criminal Code (Strafgesetzbuch, StGB).56
In contrast to the situation prior to the MoMiG reform, a payment made to a shareholder is not considered a violation of capital preservation rules provided that the payment is compensated by a full claim for repayment.57 Accordingly, the managing director may no longer reject a payment to a shareholder by simply pointing out that the payment may cause or increase a deficit balance but rather needs to review the balance on an individual basis. In case of a lack of solvency of the receiver of the payment, the managing director must reject the claim.
Furthermore, the managing director must refrain from making payments to a shareholder if these would lead to the insolvency of the company.58 Otherwise, the managing director will be liable in the amount of the payments made to the shareholder, unless the managing director—exercising the diligence of an orderly businessman—could not foresee that such payment would lead to the company’s insolvency.
3.4.1.3 Accounting Duties
The managing director must ensure that the company’s accounts follow proper accounting procedures.59 The managing director may delegate the performance of the accounting duties to employees or third parties (such as public accountants) but she/he remains responsible for the careful selection and proper supervision of such persons.Aviolation of accounting duties may not only trigger a managing director’s liability but may also be subject to criminal sanctions.
55 See Sec. 9a para 1 GmbHG. 56 See Secs. 30 et seq. GmbHG.
57 See Sec. 30 para 1 sentence 2 GmbHG. 58 See Sec. 64 sentence 3 GmbHG.
59 The specific accounting duties are set out in Secs. 238 et seq. of the German Commercial Code (Handelsgesetzbuch, HGB) and Secs. 41 et seq. GmbHG.
96 |
3 Limited Liability Company (GmbH) |
|
|
3.4.1.4 Duty to Prepare and Submit the Annual Accounts
At the end of each fiscal year, the managing director must prepare the company’s annual accounts (balance sheet, income statement and annex), as well as the management report.60 Immediately following these preparations, the managing directors must submit the annual accounts to the shareholders for approval.61 If the annual accounts are subject to auditing requirements, the managing directors must submit the audited accounts, along with the management report and the auditor’s report to the shareholders; the submission has to be effectuated immediately upon receipt of the auditor’s report.
The managing directors must electronically file the annual accounts, along with the auditor’s qualified or unqualified opinion, with the electronic Federal Gazette (Elektronischer Bundesanzeiger)62 immediately following submission to the shareholders; however, no later than the last day of the twelfth month of the fiscal year following the record date. The managing directors must also electronically file the management report, as well as the management’s proposal and the shareholders’ resolution regarding the use of profits including the GmbH’s net income or net loss, unless such proposal and resolution are included in the annual accounts filed with the Commercial Register. Upon filing these documents with the Commercial Register, the managing directors must immediately publish a notice in the electronic Federal Gazette specifying the name of the Commercial Register and the number under which the documents have been filed.63
3.4.1.5 Duty to File Petition for Initiation of Insolvency Proceedings
The duties regarding proper accounting and annual accounts include a duty to closely monitor the financial situation of the GmbH. If the GmbH becomes insolvent or its liabilities exceed its assets, the managing directors must file a petition for initiation of insolvency proceedings or judicial composition proceedings without undue delay, but no later than three weeks following the date it is determined that the company is insolvent or its liabilities exceed its assets.64
3.4.1.6 Calling of the Shareholders’ Meeting
The managing director must call a shareholders’meeting without undue delay if the balance sheet prepared at the end or in the course of a fiscal year shows that 50% (or more) of the company’s registered share capital has been lost.65
60 See Secs. 264 and 289 HGB. Requirements as to the form and contents of the annual accounts of a GmbH are set forth in Secs. 242–256 and 264–289 HGB and in Sec. 42 GmbHG.
61 See Secs. 264 and 289 HGB. Requirements as to the form and contents of the annual accounts of a GmbH are set forth in Secs. 242–256 and 264–289 HGB and in Sec. 42 GmbHG.
62 See Sec. 325 para 1 HGB.
63 The above duties apply to so-called medium-sized corporations as defined in Sec. 267 para 2 HGB.
64 See Sec. 15a para 1 Insolvency Code (Insolvenzordnung, InsO). 65 See Sec. 49 para 3 GmbHG.
3.4 Duties and Liability Risks of the Managing Director |
97 |
|
|
If an entrepreneurial company (UG) is formed with a registered share capital below the minimum registered share capital of EUR 25,000, the managing director must call a shareholders’ meeting in case of the UG’s imminent inability to pay its debts.66
The managing director must also call a shareholders’ meeting whenever it appears to be reasonably necessary to protect the interests of the company.67
3.4.1.7 Duty of Disclosure towards the Shareholders
The managing director is obliged to provide information about the company’s matters to every shareholder on request and to grant access to books and documents, unless there is a reasonable reason to believe that the shareholder will use the information in a harmful way and cause considerable disadvantages to the company.68
3.4.1.8 Duties Arising in Connection with Entries in the Commercial Register
The managing director also has numerous duties arising in connection with filings of the Commercial Register required by law. The managing director must file all applications to be entered in the Commercial Register on behalf of the GmbH, such as the application for registration of the company,69 registration of the managing directors,70 registration of any amendments to the articles of association,71 registration of any capitalization measures,72 registration of the dissolution of the company73 and registration of the stipulations regarding legal representation of the GmbH.74
Furthermore, upon effect of each change in the identity of the shareholders or the size of their shareholding, the managing directors shall, without undue delay, submit to the Commercial Register a list of the shareholders signed by the managing directors, providing the surname, first name, date of birth and place of residence of the shareholders, as well as the nominal amounts and the serial numbers of their share capital contributions.75 Managing directors who breach their duties are jointly and severally liable to the creditors of the company for the damages arising therefrom.
66 See Sec. 5a para 4 GmbHG. 67 See Sec. 49 para 2 GmbHG. 68 See Sec. 51a GmbHG.
69 See Sec. 7 GmbHG.
70 See Sec. 39 GmbHG.
71 See Sec. 54 GmbHG.
72 See Secs. 57 et seq. GmbHG. 73 See Sec. 65 GmbHG.
74 See Secs. 10 para 1 39 para 1 GmbHG. 75 See Sec. 40 para 1 sentence 1 GmbHG.