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Everything you should know as a GmbH managing director about liability towards the company

Are you the managing director of a GmbH or are considering becoming one? Then we recommend giving thought to the risks of liability in an internal relationship in advance. For managing directors in practice have to handle a number of legal issues in addition to their actual commercial responsibilities, which they have usually been trained for. If mistakes are made, then this can have jeopardizing liability consequences for the managing director himself.

Roland Kirsten, our lawyer for company law, will outline the possible risks and the legal situation.

General

The position of a managing director is not a protected job description but an appointment prescribed by law. No particular qualifications are stipulated.

Liability risks arise right from the ongoing year, but exponentiate when the company gets into a crisis situation and the managing director has to fulfil additional civil and public law related obligations that partially collide with each other. The least managing directors are prepared for these issues, so that legal advice by a lawyer can be helpful and even save an existence.

The responsibilities of a managing director

A managing director has a very significant liability risk towards the company. In order to avoid or minimise this liability, the managing director must know his responsibilities.

A managing director has both external and internal responsibilities. He represents the company externally towards third parties. An act of legal significance is even effective if the managing director violates internal obligations and instructions. That means he is able to act more externally than he may internally. However, in doing so, he misuses his authority and violates his duties towards the GmbH, which can result in liability consequences.
Furthermore, the managing director has a large number of other internal obligations towards the company whose assets and interests he manages.

The position of the managing director

He is in two legal relations with the company. On the one hand, he is an organ and on the other hand an employee. For that reason, he has to attend to the interests of the company and not those of the shareholders. In contrast to that, he is also even obliged to enforce the claims of the company against the shareholders.
The managing director's liability directly towards the shareholders thus does not exist in principle, yet towards the company.

Internal liability thus represents a special kind of liability risk for the managing director, especially if the company's claims against the managing director are distrained by a creditor of the company or are claimed by a liquidator later.

Period of liability for the managing director

Liability for the managing director already begins with the formal act of appointment, even if this is ineffective or has not yet been registered in the commercial register.
No more claims can be made against the managing director after he has resigned from his position as managing director or has been asked to stand down. Being deleted from the commercial register is not decisive. Claims arising before termination can, however, be lodged until the limitation of actions has been passed, thus to a maximum of five years after resigning.

Avoid liability by means of risk management

The basic requirements for liability risks are always the same: negligence or a breach of fiduciary duties by the managing director.
The shareholder can never rely on good relations to the shareholders, but always have to anticipate the circle of shareholders changing or that the claims of the GmbH being enforced by a creditor or liquidator.
Especially in times when the relationship between shareholders and managing director is good, liability risks can be minimized. The managing director should always behave objectively and dutifully and strive to avoid or limit cases of liability in good time.

The managing director should thus arrange for risk management, for his own sake because it is his responsibility to avert risks from the company. For this reason, risks for the GmbH are also his own personal liability risks.
Thus, he must recognize his obligations, define the risks resulting from them and look ahead, both for the GmbH and himself.
This includes legal obligations, statutory duties, instructions by the shareholders, internal organisation, finance planning, insurances, contractual liability limitations, approval by the shareholders, general duties and waivering on leaving the company.

Legal advice can save money

In these issues, both the managing director and the shareholders should obtain legal advice, in order to minimize liability risks and be able to react correctly in crisis situations. In our lawyer's office, Roland Kirsten gives you legal advice.

Learn more about Roland Kirsten here.