The Limited Liability Company under German Law (the GmbH). Dr Alexander Schröder-Frerkes
splitting
C.Conversion
D.Tax issues relating to reorganisations
XII.Taxes
XIII.Group relationships
A.Group relationships based on contract
B.Relationships not based on agreement
XIV.Liquidation
XV.Insolvency
XVI.GmbH & Co. KG
A.Overview
B.General rules pertaining to a GmbH & Co. KG
C.Publikumsgesellschaft (publicly owned company)
About the authors
About Globe Law and Business
Welcome to The Limited Liability Company under German Law (the GmbH).
With over one million entities, by far the most common and, thus, the most important legal company form used in Germany is the limited liability company (the GmbH). The GmbH has a number of advantages: it limits shareholder liability, it can be adapted to the specific needs of shareholders and their business model, and it provides a platform for small businesses as well as for holding companies for international groups and not-for-profit organisations. Given its ample scope, and the fact that it can be very easily established and requires minimal administrative effort, the GmbH is also the most frequent legal form used by foreign investors in Germany.
Against this backdrop, this book explores the most relevant legal issues and topics for investors seeking to establish or acquire a GmbH in Germany and is aimed at readers with a legal background, as well as those without, focusing (where relevant) on the most important legal discussions without losing itself in lengthy academic argument.
In addition to providing an overview of the requirements of the formation process, this book demonstrates the GmbH’s inherent flexibility as well as helping legal practitioners (based in Germany and elsewhere) to decide on whether a GmbH is most suitable for their needs.
We would like to address a special thank you note to Lucinda Bowles for her great efforts in proofreading the volume and providing helpful advice in making the book easier to read.
Any comments or proposals are welcome. You may contact the authors via the contact details set out in the ‘About the authors’ section at the back of the book.
Dr Alexander Schröder-Frerkes
Dr Armin Göhring
I. Introduction
1. Basic concepts underlying the GmbH
The GmbH is a limited liability company (Gesellschaft mit beschränkter Haftung) under German law, being a separate legal entity distinct from its shareholders. A GmbH may have one or several shareholders, and shareholders in a GmbH may either be an individual or another legal entity. The total number of shareholders is not limited. As a separate and distinct legal entity, the GmbH itself and not its shareholders holds title to its assets, is bound by agreements it enters into, is the partner acting in legal relationships of any kind, and is the entity which may sue other parties or entities or be sued itself in court.1 The GmbH is also entitled to acquire ownership of real property and other legal rights in real property.
Regarding its liabilities, only the GmbH itself is liable for the fulfilment of its obligations towards third parties.2 The shareholders in a GmbH are generally not liable towards third parties for the fulfilment of the obligations of the GmbH. There are, however, some exceptions to this principle within German case law (for details see Section 65 et seq. below).
A GmbH under German law is established upon its registration in the commercial register.3 All GmbHs have two mandatory corporate bodies: (i) the managing directors (Geschäftsführer), and (ii) the shareholders’ meeting (Gesellschafterversammlung). According to statutory law, the shareholders’ meeting is the principal corporate body which reaches decisions (passes resolutions) on fundamental corporate matters such as, for example, changes to the articles of association, an increase or decrease in the share capital, the approval of financial statements, and the nomination or removal of the managing directors etc. The GmbH is represented by one or several managing directors who also manage the daily business of the company. In contrast to many other countries, in Germany the managing directors all have an executive function and none of them can take on a supervisory role in overseeing the other managers or the company as a whole. The supervision of the managing directors is the task of the shareholders’ meeting or of a supervisory board. Such a supervisory board may be established at any time on a voluntary basis unless a supervisory board is mandatorily required under certain Co-Determination laws.4 Speaking very generally, the Co-Determination laws prescribe the appointment of a supervisory board if the number of employees of the company or associated group companies goes beyond a certain threshold, in which case, the employees must be mandatorily represented within the supervisory board, either with a quota of one third or 50% (half of the seats on the board).
In order to establish a GmbH a minimum share capital of at least €25,000 is required.5
The Act on Limited Liability Companies (GmbHG) sets out the basic rules that apply to a GmbH. Since most of the provisions of the Act on Limited Liability Companies are flexible regulations, to a large extent the shareholders may establish their own (tailor-made) set of rules in the articles of association.
2. Other important legal forms of entities in Germany
Other forms of legal entity which are often used for conducting business in Germany are the stock corporation (Aktiengesellschaft – AG), the general partnership (offene Handelsgesellschaft – OHG), the limited partnership (Kommanditgesellschaft – KG) and limited partnerships with a GmbH as the (sole) general partner (GmbH & Co. KG).
A stock corporation under German law (AG) is a separate legal entity distinct from its shareholders which is itself responsible for the fulfilment of its obligations. In other words, the corporate veil protects the shareholders from personal liability towards third parties as is the case where the GmbH is concerned. An AG has three mandatory corporate bodies: (i) the board of directors (Vorstand), (ii) the shareholders’ meeting (Hauptversammlung), and (iii) the supervisory board (Aufsichtsrat). The statutory rules on stock corporations (in particular the German Stock Corporation Act – AktG) are in most cases mandatory laws, which makes it more difficult to establish a ‘tailor-made’ company designed to meet the special requirements of the shareholders. This makes the GmbH the simpler form for doing business. If, however, the company is supposed to be listed on the stock exchange, this is only possible with an AG, as a GmbH does not issue shares to be traded on the stock exchange. To establish a stock corporation, a minimum stated capital of €50,000 is required.
In a general partnership, all shareholders are jointly and severally liable for any and all obligations of the general partnership, even though the general partnership is a separate legal entity in its own right. In other words, a debtor of a general partnership may sue the partnership itself along with any of its shareholders in full for the fulfilment of its obligations. The general partners are accessorily liable for the liabilities of the partnership. This