When setting up a GmbH in Germany, entrepreneurs usually ask about the position of a board member, Geschäftsführer, and what the consequences are. The President (Geschäftsführer) of the GmbH, who takes decisions that are binding for the operation of the company, in particular where there is a risk of confusion or even economic failure, will always bear the risk of personal liability.
According to the line of case-law in Germany (judgment of 14 July 2008 – II ZR 202/07), the President may take a business decision of considerable risk if he has previously obtained all the necessary factual and legal information (e.g. consultation of a lawyer and a tax advisor) and made his decision solely on the basis of that information. Otherwise, he is personally liable without any limitation.
Internal liability (towards company shareholders)
- a) Due diligence
In particular, the due diligence in managing the company’s affairs (Article 43 GmbHG) includes fundamental compliance with all legal provisions. E.g. civil and commercial law, accounting, antitrust and unfair competition law, labour law, social and tax law, administrative law and criminal law. This should also include measures to ensure that the company’s employees also comply with these rules.
The President of the GmbH must observe the Prudent Businessman Rule. This obligation states that the President is accountable to the members of the Management Board.
- b) Breach of obligations
In his work, the President must protect the interests of the company as its trustee and refrain from actions that could damage the company.
Obligations of the President of the GmbH
In general, the President’s obligations include 6 basic activities:
– obligation to comply with the law, statutes, articles of association, service contracts, guidelines, etc.,
– the obligation to comply with the Prudent Businessman Rule,
– the obligation to organise the company and monitor employees,
– the obligation to constantly monitor the financial situation of the company,
– the obligation of loyalty to shareholders,
– the obligation to manage the company carefully.
Specific obligations of the President, the violation of which may lead to personal financial liability:
– failure to file for bankruptcy after the company’s excessive debt has been established pursuant to §64 of the GmbHG,
– breach of the prohibition on submitting false financial statements pursuant to §43(3) of the GmbHG.
The personal financial liability of the President towards the company is considered only if he has culpably violated the obligations incumbent on him, which cause damage to the company he represents. Such claims shall be made in the case of bankruptcy proceedings by the insolvency administrator.
This article does not constitute a legal opinion, legal interpretation or opinion.
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