The sphere of liability of the GmbH management begins with its appointment. In order to prevent your liability in the management, we develop appropriate strategies. Conversely, we assert corresponding claims for damages against managing directors. As a matter of principle, the management is obliged to conduct the business in an orderly manner. It shall exercise the diligence of a prudent businessman in the affairs of the company. The training and professionalism of the respective managing director is irrelevant here.
Liability risks arise, for example, from payments to shareholders and the granting of loans to shareholders. Payments that lead to insolvency maturity, liability for actions against shareholder creditors / creditor disadvantage.
Our experience shows that the biggest liability case for managing directors is always the timely submission of the tax return and payment of taxes for the GmbH. The personal liability of the managing director results according to the tax code opposite the tax office. There is also always a risk of criminal tax evasion for the managing director. The tax shortening results in the remainder with the payment of the income tax as well as the value added tax.
The same applies to the payment of social security contributions. Here, too, there is both civil and criminal liability. The managing director also has a duty of loyalty towards the GmbH. This results from the managing director employment contract. Therefore it is forbidden to him to become active for other companies (for the competition). In addition, the managing director of the GmbH is obliged to report a loss as soon as half of the paid-up share capital has been used up. In case of violation of this obligation by the managing director, a liability under civil law is accordingly given and also this is criminally proven. The biggest liability trap is also the obligation to file for insolvency. His breach of the obligation to file an insolvency petition leads to unlimited civil liability as well as to criminal prosecution for delay in insolvency. A resignation of the management does not exempt from liability either. According to the MoMiG, an alleged GmbH without a managing director is also obliged by the respective shareholder to file for insolvency. In this respect, the shareholders are now also subject to increased liability. We are also pleased to take over the negotiations with your D&O insurance for you.
In order to run a GmbH successfully, managing directors often enter into risky transactions. Therefore managing directors should consider with risk business transactions that neither the managing director adhesion nor a hidden profit distribution threaten them.
Hidden distribution of profits and suspicion of breach of trust to the detriment of the GmbH
The losses from so-called risk transactions have repeatedly occupied the financial courts. While the tax authorities often regarded the assumption of losses by the GmbH as a hidden distribution of profits (vGA), according to established case law, it is generally at liberty to carry out risk transactions.
In the opinion of the Bundesfinanzhof (BFH), it is not decisive whether the type and scope of the transaction in question is unusual for the business activity or involves a high risk. Instead, the fact that the GmbH has seized an opportunity to make a profit in the interest of its own pursuit of profit is likely to be relevant to the assessment.
However, if losses are realised, they can only lead to a hidden distribution of profits in exceptional cases, i.e. if the transactions were carried out predominantly or even exclusively in the private interest of their shareholders. As a rule, this then also fulfils the criminal offence of breach of trust and, at the latest in the event of insolvency, calls the public prosecutor into action.
For the operational recognition of losses, it is even irrelevant that there is no or at most a distant connection between the corresponding transaction and the actual object of the company, e.g. when investing operating funds in speculative investments. In the case of transactions with risk potential, the contracts must therefore always be concluded in the name of the GmbH.
Especially in securities transactions, the recognition of losses as operating expenses has repeatedly led to legal disputes with the tax authorities. Even if the jurisdiction of the Federal Fiscal Court (BFH) is clear, the tax authorities have regularly reacted to this with non-application decrees. That is, the respective judgement may not be used beyond the concrete individual case.
The recognition of losses from risk transactions as operating expenses of a GmbH is of course not a carte blanche for the managing director. If the managing director does not supervise risk transactions sufficiently (stock companies must even furnish and operate comprehensive risk early recognition system due to legal regulations), then a liability consequence for the managing director can result from it, because despite fiscal deductibility a damage developed for the GmbH. The scope of risk transactions conducted, e.g. in relation to operating assets, is also decisive here. So it is always important to install a risk management system here, even if it is with the help of an external auditor who accompanies the GmbH. In concrete terms, this means that the managing director should create sufficient documentation, especially in the case of transactions with risk potential. In addition to the reasons for the decision for the respective transaction, if available, this includes excerpts from trade journals, written recommendations from banks or other financial service providers, yield calculations, statement of the tax consultant. In addition, management should describe the risk and consider whether it should be avoided or mitigated. The shareholders’ instructions should also be documented and signed by the shareholders if they are not in writing anyway.
Instructions of the shareholders
The managing directors do not have to follow the instructions of the shareholders if they would result in the managing director being liable to prosecution or damages. Instructions are only admissible if a shareholders’ resolution has been passed. The mere instruction of a majority shareholder is not sufficient (because it would circumvent the possibility for minority shareholders to bring an action for annulment before a court). Instructions of the shareholders may also be “economically nonsensical” up to the limit of systematically leading the company into insolvency. The management must point out the economic disadvantages of the instructions, but then execute the instructions.
The inadmissible withdrawal to the shareholder
A withdrawal to the partners may not lead to the GmbH incurring a loss. This can happen, for example, if claims against shareholders are justified that are economically worthless, or if hidden profit distributions are granted to the shareholder. If these payments cannot be reclaimed by the shareholders, the managing director is liable for them.
Distribution of responsibilities among several managing directors and overall responsibility
Basically, the management is responsible for “everything”. This means that it is also responsible for “everything”. Several managing directors are liable as joint debtors, i.e. according to their heads. It is recognised that the division of responsibilities established by shareholders limits liability. This is usually done within the framework of rules of procedure. If a case of liability arises outside one’s own area of responsibility, only the person who is responsible for the respective area of responsibility is liable. But there is an overall responsibility of all managing directors for the economic and financial data of the company if a partner must have the “suspicion” that something goes wrong in the neighboring department, with tax debts, with social security contributions, with cash or goods shortfalls and with deliveries to insolvent companies.
Discharge of the management
When an annual financial statement is presented, not only is it adopted and a resolution on the distribution of profits adopted, but the actions of the managing director are also relieved. This discharge means the expression of confidence in the future actions of the managing director, but also the waiver of claims for damages, insofar as these are recognised at the time of the discharge decision or could have been recognised.
The managing director is obliged to monitor the economic situation of the company on an ongoing basis and to obtain an overview of its assets by drawing up an interim balance sheet (or similar) if there are signs of a crisis in financial development. If the managing director cannot do this himself, he must commission an expert. This expert may even have to be independent, so that lawyers employed by the company or supervisory board members who are lawyers are not sufficient.
Employee social security contributions
Withholding employee social security contributions is a criminal offence. Anyone who does not pay these employee contributions to the social insurance institutions is personally liable. These amounts must be paid with priority. Only the due date of the contributions is decisive, not any payment of wages to employees, not even any partial payment.
The income tax is based on the amounts paid to the employees. If there is too little freely available money, managers tend to pay out net amounts to the employee, but “forget” to pay the income tax to the tax office. If employees are paid reduced amounts compared to the normal entitlement, the income tax is reduced proportionately. The managing director is liable as if he had acted “correctly” and made the correctly calculated wage tax amounts available to the tax office.
Liability is excluded if the managing director could assume that he was acting for the benefit of the company on the basis of reasonable information. The red line to infidelity and punishability is only crossed if the management takes unmanageable risks that endanger the existence of the company. BGH, judgment of 28.5.2013, 5 StR551/11
The Directors & Officers Insurance, short: D & O
In the meantime there is a special property liability insurance for managing directors and supervisory board members. Since it comes from America, the term “D&O”, i.e. “Directors and Officers” liability insurance, has been adopted. There are about 40 insurers with different conditions. The company’s financial losses as well as the lawyer’s fees for defending claims are reimbursed (up to a maximum amount to be agreed). This replaces liability claims against the managing director, which is not only helpful for the managing director, but also regularly for the company, because the compensation claims often exceed the assets of a managing director.