The Limited Liability Company under German Law (the GmbH). Dr Alexander Schröder-Frerkes
56. Rights to be exercised collectively by the shareholders as a whole: the right to claim damages
The shareholders of a GmbH are entitled to issue decisions on the enforcement of claims of the company against the managing directors and certain shareholders relating to the formation or the management of the GmbH.31 Usually, the managing directors are entitled to pursue and enforce any claims the company may have. In the aforementioned cases, however, there is a danger that internal information of the company may be revealed in a process connected herewith or that the corresponding claims will be detrimental to relations between the shareholders and towards the managing directors. Therefore, since such claims may have these kinds of far-reaching effects on the company as a whole, the shareholders’ meeting, as the superior corporate body, shall reach a resolution as to whether such claims should be enforced or not. Without a resolution to this effect, the enforcement of a claim of the company against the managing director or against a shareholder would be invalid. The defendant may claim in court that a resolution to this effect has not been passed, in which case, the court would dismiss the claim on the merits, solely on the grounds of a failure to satisfy this procedural requirement. Shareholders against whom a claim is to be enforced are not entitled to vote in the shareholders’ resolution regarding the enforcement of the claim.32
The term ‘claims’ in this context must be interpreted broadly and comprises any and all damage claims on whichever legal grounds due to the violation of duties either on the part of the managing directors or the shareholders.
The enforcement of such a claim not only comprises the initiation of court proceedings (which is the usual case), but also extra-judicial measures such as payment reminders, set-offs or waivers and settlement of the claim.
The aforementioned regulation may, however, be freely amended by the shareholders in the articles of association and may even be entirely excluded.
57. Rights to be exercised collectively by the shareholders as a whole: the right to represent the GmbH against managing directors in court proceedings
The shareholders are not only entitled to decide whether claims shall be enforced against the managing directors but are also responsible for deciding who will represent the company in proceedings against its managing directors.33 Since the shareholders decide upon the enforcement of the claim per se, it makes sense that the shareholders should also decide who is to represent the company, as it is not always guaranteed that the other managing directors of the company will pursue the interests of the company with the necessary vigour. In addition, a decision to this effect on the part of the shareholders is in any case required if the GmbH only has one managing director. If a managing director is also a shareholder in the company, he or she is excluded from voting on a corresponding resolution in which the shareholders decide who will represent the company in the proceedings.34 Persons entitled to represent the company in proceedings against the managing director may be one or several shareholders, members of the supervisory board, or third parties (typically legal or tax advisers). The person appointed by the shareholders acquires the status of a legal representative of the company (like a managing director) and is bound by the instructions given by the shareholders, just as a managing director would be. Again, this provision is subject to any amendments or specifications in this regard in the articles of association of the company.
A different situation arises in a GmbH which is subject to one of the Co-Determination laws. In this case, the mandatory provisions of the Co-Determination laws replace the regulations of the Act on Limited Liability Companies.35 According to these provisions, in cases where the company is engaged in proceedings against a managing director, the company is mandatorily represented by the supervisory board.36
58. Exclusive rights of individual shareholders
Apart from the rights of the shareholders based on statutory law and case law, a shareholder may also be granted exclusive rights in the articles of association. The shareholders may draft the articles of association according to the particular requirements of their business and thus create a personalised GmbH. The articles may thereby grant a shareholder exclusive administrative or financial rights such as, for example, multiple voting rights, veto or approval rights, the right to appoint or remove managing directors or members of the supervisory board (if applicable), preferred dividends etc. The only restrictions upon the granting of such exclusive rights are those prescribed by the mandatory regulations of the Act on Limited Liability Companies or by general civil law (eg, standards of morality and good faith). These exclusive rights may already be contained in the articles of association at the point in time of the formation of the company or they may be introduced at a later date. Amendments to this effect require the consent of all other shareholders affected by such exclusive rights. If there is a failure to obtain this consent, the resolution is challengeable. The exclusive rights may only be revoked with the respective consent of the privileged shareholder and by way of an amendment of the articles of association. An increasing number of legal scholars are of the opinion that exclusive rights may also be revoked for cause. Cause is in particular given if, upon weighing all of the respective interests, the continued existence of the exclusive right of the shareholder is felt to be unacceptable to the company or the other shareholders.
Additionally, as well as granting such exclusive rights based on the membership of the GmbH, the articles of association may also grant certain rights which are not based on membership, but only confer upon the respective shareholder an ordinary contractual (schuldrechtlich) position. A right based on a contractual obligation on the part of the company, for example the use of certain company facilities or the right for a person to avail themselves of certain other company benefits, may be terminated not by amendment of the articles of association, but by the means of the ordinary applicable contractual and legal rules. The distinction between whether a right granted to a shareholder in the articles is based on his or her membership or is a mere contractual right must be drawn on the basis of the intention of the company and the shareholders.
59. Obligation to pay in contributions
The most important obligation of the shareholders in a GmbH is the obligation to make the contribution as set down in the articles of association.37 As outlined above, the obligation to pay in the share capital may either take the form of a contribution in cash or a contribution in kind.38 The contribution must actually be paid in, that is, the stated share capital must really be raised.39
60. Additional contributions
The articles of association may stipulate that the shareholders may resolve to call for additional contributions from the shareholders beyond the contributions they agreed to pay when founding the company.40 The additional contributions may either be limited or unlimited in terms of their amount.41 The purpose of such additional contributions is to enable the company to call for additional funds in case they are needed without the necessity of collecting the money from third parties.
In the event that the amount of the additional contributions is not limited, a shareholder who is not willing or able to pay this additional contribution in whose regard a resolution has been reached by the majority shareholders has the right to free him or herself