The Limited Liability Company under German Law (the GmbH). Dr Alexander Schröder-Frerkes
by placing his or her share at the disposal of the GmbH.42 This step must occur within a period of one month after the company has requested the shareholder to pay in his additional contribution. If the shareholder fails to respond to the request of the company (either by paying in the contribution or by placing the share at the disposal of the company), the GmbH may declare towards the shareholders via registered letter that it considers his or her share to be placed at the disposal of the company. Once the share is at the disposal of the company, the GmbH is entitled to sell the share by way of public auction within a period of one month after it was placed at the GmbH’s disposal or, with the consent of the shareholder, in any other way the company deems appropriate. If the company generates a surplus when selling the share, the shareholder abandoning the share is entitled to receive the surplus. If the price achieved when selling the share is not sufficient to cover the outstanding additional contribution, the share falls to the GmbH.43 The other shareholders are not liable for the payment of any outstanding additional contribution if a shareholder fails to pay in the contribution or if the sale of the share does not yield sufficient funds to cover the additional contribution.
If the additional contributions are limited to a certain amount and the shareholder does not pay in his or her contribution in due course, the share may be forfeited and the company may sell it by way of auction to collect the outstanding amount.44 Remaining shareholders may not be held liable for any unpaid additional contributions owed by one of the shareholders.
61. Obligation to refrain from competition
The Act on Limited Liability Companies does not contain an explicit provision regarding the prohibition to compete with the company – neither for managing directors nor for shareholders – whereas for instance the stock cooperation law45 (members of the board of directors) or the law on general partnerships46 (shareholders) do.
In practice, the articles of association or the service agreements of the managing directors often contain wording to this effect. If neither the articles nor the service agreement provide a corresponding regulation, it is generally recognised under German case law that a managing director of a GmbH, whether or not he or she is a shareholder, must refrain from any kind of competition with the company unless explicitly entitled to do so. An entitlement of this kind may be based on a shareholders’ resolution to this effect if the articles of association stipulate that such an exemption may be granted.
Shareholders who are not managing directors are also subject to an obligation to refrain from competition if they hold the majority of the shares in the company or in any other way exercise a dominant influence within the company.47
Irrespective of a dominant influence, shareholders are subject to an obligation to refrain from competition if they become aware of certain business opportunities in their capacity as a company shareholder and the business is either important for the company or falls within the scope of its business purpose. The shareholder must then refrain from pursuing the business opportunity and must inform the company of the said opportunity. The shareholder may only pursue the transaction when the company does not seize the opportunity itself.
In its decision of 11 November 2010,48 the Munich Court of Appeal (Oberlandesgericht München) had to issue a ruling on a non-compete clause contained in the articles of association of a GmbH. The clause was directed towards the shareholders and towards the managing directors of the company alike. In particular, it prohibited any kind of activities, whether independent or under employment, direct or indirect, in the party’s own name or in the name of a third party, for its own account or for the account of a third party, in an enterprise having a business similar to the business of the GmbH, or any of its subsidiaries or affiliates, which: (i) competed or could compete with these entities, or (ii) entertained a significant business relationship with any of these entities. The shareholders and the managing directors were also not allowed to hold any stakes in such entities. In the event of violation, a contractual penalty in the amount of €50,000 was due for each violation. The shareholders’ meeting could grant an exemption from the non-compete clause by way of a shareholders’ resolution. The Court of Appeal came to the conclusion that the clause was invalid and that it constituted a violation of moral standards49 and of the Act against Restraints of Competition.50 When considering any non-compete clause, the courts must weigh the valid business interests of the company against the professional aspirations of the shareholder/managing director in continuing to work in the business segment he or she was active in.51 A non-compete clause may not be used to exclude competition from the market. In this context, a provision prescribing that, irrespective of their business purpose and also encompassing their (currently unknown) future business purposes, any and all subsidiaries constitute a barrier for competitive activities, was considered too broad and unspecific.
Any non-compete clause must be specific, not only with regard to time and territorial scope, but also in terms of its business scope. The fact that an exception to the non-compete clause may be granted by way of a shareholders´ resolution was also not deemed sufficient for the court to hold the clause valid. The articles did not specify in detail when such an exception was to be granted. Further, a shareholder/director pursuing potentially competitive activities cannot be expected to wait for a final court decision on the matter. Finally, the clause may also not be saved by way of the court reducing its scope to an acceptable degree. A reduction to an acceptable degree has in some cases been considered by the courts in connection with temporal scope but not where other situations are concerned. This was confirmed by a decision of the Nuremberg Court of Appeal.52 The court ruled that a non-compete clause excluding a managing director of a GmbH from doing business with any customer of the group of the GmbH (which comprised 120 companies) was too excessive and therefore invalid in its entirety. The court refused to accept a reduction of the clause to, for example, customers of the GmbH or to those customers with whom the director had personal contact. Similarly, in the same decision, the court refused to reduce a contractual penalty it considered too high to an acceptable amount in the specific case (€100,000 for each violation).
In the event of a violation of the obligation not to compete, the company may file for injunctive relief or claim damages against the violator.
62. Confidentiality obligation
The shareholders in a GmbH have the right to inform themselves comprehensively regarding the affairs of the company.53 The corresponding obligation in return for being granted full inspection rights regarding the business affairs of the company is the shareholder’s duty to keep confidential all information received from the company or obtained while inspecting its books and records. Moreover, a shareholder must refrain from disclosing any confidential information about the company, irrespective of its source. The obligation to keep the information confidential derives from the duty of loyalty of each shareholder.
62a. Obligations during insolvency
Regarding the obligations of the shareholders of a GmbH during the insolvency of the company, see Section 109.
63. Auxiliary and additional obligations
Within the articles of association, the shareholders may assume any and all kinds of additional and auxiliary obligations towards the company or towards other shareholders. Such additional obligations are not unusual and may