Definition and Concept of the GmbH Group
A GmbH Group refers to the association of several limited liability companies (GmbH), in which a controlling company (parent company) exercises unified management over one or more dependent companies (subsidiaries). The GmbH Group thus represents a special form of corporate association whose legal basis is mainly regulated in the German Stock Corporation Act (AktG), as well as the German Limited Liability Companies Act (GmbHG), the Transformation Act (UmwG), and the German Commercial Code (HGB).
Legal Basis of the GmbH Group
Statutory Foundations
Since the GmbHG does not contain comprehensive regulations on the GmbH Group, the group law provisions of the Stock Corporation Act (§§ 15 et seq. AktG) are essential for understanding. According to prevailing opinion, these provisions also apply analogously to GmbHs, unless expressly regulated otherwise.
Distinction from Sole Proprietorships and Other Corporate Forms
Unlike a sole proprietorship, the GmbH Group consists of at least two legally independent GmbHs, which are nonetheless economically and organizationally connected. Furthermore, the term GmbH Group must be distinguished from other types of groups, such as a stock corporation group or mixed groups, where different company forms are interconnected.
Formation and Types of the GmbH Group
Formation of a GmbH Group
A GmbH Group arises when a GmbH attains a controlling position over another GmbH. This typically occurs through majority voting rights (majority shareholdings), but can also be achieved via corporate law contracts, in particular by concluding a control or profit and loss transfer agreement.
Equity Group
An equity group exists when a GmbH exerts a controlling influence over another GmbH through majority shareholding.
Contractual Group
A contractual group is established especially by concluding control or profit and loss transfer agreements under §§ 291 et seq. AktG, which apply analogously to GmbHs via § 13 GmbHG in conjunction with § 291 AktG.
Other Forms
Further distinctions are made according to the degree of legal and economic connection:
- De Facto Group: Unified management without explicit contract, based solely on organizational arrangements.
- Contractual Group: Intensive legal connection through the conclusion of relevant contracts.
Legal Relationships and Liability in the GmbH Group
Liability of the Parent Company
A key feature of the GmbH Group is its liability regime. In principle, the independence of the individual GmbHs is maintained; however, according to § 322 AktG (by analogy) and case law, both liability piercings and special protective provisions for minority shareholders and creditors apply.
Piercing the Corporate Veil
So-called piercing of the corporate veil applies especially if the legal independence of the companies is disregarded (abuse of corporate form), for example, in cases of commingling of assets or undercapitalization.
Internal and External Liability
Within the group, liability is often relaxed in favor of the parent company. Externally, liability is generally limited to the share capital, as with a single GmbH. The parent GmbH is only liable for the obligations of the subsidiaries if special circumstances exist, such as actual group management with qualified loss of influence of the subsidiary.
Protection of Minorities and Creditors
To protect minority shareholders and creditors, there are rights of challenge and extensive rights to information and control. For example, the parent company must provide compensation if the subsidiary suffers disadvantage as a result of intra-group measures (analogous to § 311 AktG).
Organization and Management in the GmbH Group
Unified Management
In the GmbH Group, the parent company regularly manages the entire group. Unified management may be secured either by corporate law (control agreement) or on a de facto basis.
Management and Control
The individual GmbHs generally retain their own managing directors and corporate bodies. However, these are usually subject to the instructions and directives of the parent company. Depending on contractual arrangements and the degree of influence, the management structure can be more centralized than with independent companies.
Intra-Group Compliance and Reporting Obligations
GmbH Groups are regularly required to prepare consolidated financial statements and group management reports, insofar as they are subject to consolidation under § 290 HGB. The consolidation and disclosure obligations increase transparency for creditors, shareholders, and authorities.
Consolidated Financial Statements and Accounting for GmbH Groups
Preparation Requirement and Consolidation
GmbH group companies are subject to the requirements for consolidated financial statements under §§ 290 et seq. HGB, provided the threshold values are exceeded. In such cases, the parent GmbH must prepare and publish an exempting consolidated financial statement and a group management report.
Disclosure and Publicity
The disclosure obligation serves to increase publicity in the interests of creditor and minority protection. Deadlines and procedures are governed by commercial law provisions for groups.
Tax Specifics of the GmbH Group
Tax Grouping and Fiscal Consolidation
For tax purposes, a GmbH and its subsidiaries can form a so-called fiscal unity (Organschaft). This allows profits and losses to be consolidated within the group for accounting and tax purposes. A profit and loss transfer agreement and financial integration of the subsidiary are required.
Specifics of Value Added Tax
For VAT purposes, the GmbH Group can be treated as a fiscal unity (Organkreis). Transactions between parent and subsidiary companies are not subject to VAT, while external transactions must be taxed by the parent or the controlling entity.
Distinction and Relationship to Other Corporate Forms
The GmbH Group is distinct from sole proprietorships, general partnerships (OHG), limited partnerships (KG), as well as stock corporation groups and mixed groups, each of which is subject to different legal frameworks.
Summary
The GmbH Group is a complex corporate association subject to both company and group law, as well as commercial and tax regulations. Its special characteristics include unified management over legally independent GmbHs, its liability structure, consolidated financial statements, and special protection mechanisms for minority shareholders and creditors. The relevant legal bases can be found in the Stock Corporation Act, the GmbHG, and the German Commercial Code as applied appropriately to GmbHs. The legal structure is diverse and depends, in each case, on the specific design of the group association.
Frequently Asked Questions
What legal requirements must be met to form a GmbH Group?
To form a GmbH Group, it is necessary that several legally independent GmbHs are in a so-called “subordinate relationship” to each other, meaning that one GmbH (parent company) has the ability to exercise controlling influence over one or more other GmbHs (subsidiaries). According to § 18 AktG, which applies to GmbHs via reference in § 17 (1) GmbHG, a group is formed when one company (the parent) can directly or indirectly exert controlling influence over another company (the subsidiary)—usually through majority of voting rights or a control agreement. The legal foundations thus arise primarily from the Stock Corporation Act and, additionally, from the GmbHG, whereby special provisions of group law, such as the requirement to prepare consolidated financial statements pursuant to §§ 290 et seq. HGB, must be observed. Antitrust and co-determination aspects must also be taken into account. Group status arises by operation of law, regardless of the chosen corporate structure, if the controlling situation actually exists.
What protection mechanisms are available for minority shareholders within a GmbH Group?
Minority shareholders of subsidiary GmbHs are potentially in a weaker position within a group, since the parent company often dominates. The legislator grants them various protection mechanisms. For example, important resolutions (such as amendments to the articles of association or capital measures) and contracts (such as control and profit and loss transfer agreements under §§ 291 et seq. AktG, which also apply to GmbHs) require qualified majorities and, in part, approval. In addition, § 47 GmbHG protects shareholders’ voting rights, and there are restrictions on the parent’s influence to protect the subsidiary (such as prohibitions against frustrating the purpose of the subsidiary or issuing grossly unfair instructions). In the event of breaches of obligations in favor of the group, minority shareholders may also have rights to challenge and claim damages, as well as a right to information under § 51a GmbHG. Minority protection also exists with squeeze-out actions, tag-along/drag-along rights, and other contractual safeguards.
How is liability structured within a GmbH Group?
Under German law, the principle of separation applies, meaning each GmbH is a separate legal entity and other companies in the group are generally not liable for its obligations. However, there are exceptions to this principle: First, the parent company can be liable for the subsidiary if it has destroyed its existence through improper interference, according to the case law of the Federal Court of Justice (BGH). Second, in certain cases, actual or contractual group relationships under § 322 AktG may result in a duty to compensate disadvantaged creditors. Piercing the corporate veil may also apply in cases of group abuse—such as commingling of assets or overriding corporate personalities. Managing directors are internally liable to the GmbH for damages under § 43 GmbHG if they violate or exceed group-related instructions. Externally, shareholders and managing directors of a GmbH are liable only in exceptional cases, particularly in the event of intentional immoral damage (§ 826 BGB) or destruction of the company’s existence.
What co-determination rules apply to a GmbH Group?
Co-determination by employees is also significant for a GmbH as a parent or group company. According to the Co-Determination Act (MitBestG) and the One-Third Participation Act (DrittelbG), co-determination within the group is calculated by including all employees of all group companies in Germany. If, for example, the threshold of 2,000 employees is reached across the group, the parent company’s supervisory board is subject to equal co-determination (§ 1 MitBestG). Individual subsidiaries may be exempt from co-determination if the supervisory board is formed at the level of the parent company (“group privilege”). However, co-determination may also apply at the subsidiary level if certain statutory requirements are met. Employee representatives, works councils, and group works councils are able to exercise rights on a group-wide basis (e.g., group works council under § 54 BetrVG).
What specific reporting obligations exist in a GmbH Group?
Reporting obligations under group law are particularly regulated in the German Commercial Code (HGB). A parent GmbH is required, if it holds a majority or controlling interest in domestic or foreign companies, to prepare consolidated financial statements and a group management report, provided the thresholds of § 290 HGB are exceeded or it is required to do so due to capital market orientation. This obligation also includes all subsidiaries—even foreign GmbHs—to the extent they are controlled. The annual report must include certain minimum disclosures regarding relationships between the group companies, and in cases where control and profit and loss transfer agreements exist, pursuant to § 312 AktG (so-called dependency report), the nature and appropriateness of intra-group transactions must be presented. In addition, reporting obligations toward shareholders and the public must be observed by disclosure in the commercial register pursuant to § 325 HGB. Violations of these obligations can lead to fines and liability risks for managing directors.
What special rules apply to profit and loss transfer within a GmbH Group?
In a GmbH Group, profit and loss transfer between the parent and subsidiary can be contractually regulated by a profit and loss transfer agreement, as provided by §§ 291 et seq. AktG—these provisions apply accordingly to GmbHs pursuant to § 17 (2) GmbHG. Such a contract may only be concluded with the approval of the subsidiary’s shareholders’ meeting by qualified majority (§ 53 GmbHG), requires notarization, and must be registered in the commercial register. Upon conclusion of the contract, the subsidiary is obliged to transfer its entire profit to the parent company, while compensation payments to minority shareholders must be provided for. In the case of loss assumption, the parent is obliged to cover the subsidiary’s losses. Tax specific regulations, such as the requirements for fiscal unity for income tax purposes (§§ 14, 17 KStG), must also be observed, and compliance with rules on compensation and protection for minorities is monitored.
What regulations apply to restructurings or mergers within a GmbH Group?
Restructurings within a GmbH Group—such as mergers, spin-offs, or changes of legal form—are governed by the provisions of the Transformation Act (UmwG). Approval by the shareholders’ meeting of the involved GmbHs is required, usually with a qualified majority (three-quarters of the votes cast) (§ 50 (1) GmbHG, § 13 UmwG). For intra-group mergers, a merger agreement must be concluded and notarized. Minority protection is crucial in this context, especially where there is a merger into another group company or the parent, since compensation for squeezed-out shareholders may be provided (§ 29 UmwG). Antitrust clearance, employee participation rights (e.g., information/participation of the works council), and tax law implications (Transformation Tax Act) must also be observed.
How are intra-group transactions within a GmbH Group treated for tax purposes?
The tax treatment of intra-group business relationships (so-called transfer pricing) is subject to strict regulations, in particular the arm’s length principle under Section 1 of the German Foreign Tax Act (AStG) and the corresponding OECD guidelines for transfer pricing. Transactions and supplies between group GmbHs must be settled at market rates; otherwise, tax adjustments and additions may be imposed. If there is a fiscal unity for income tax purposes between a parent and subsidiary GmbH, profits and losses are consolidated within the fiscal unity group (Section 14 et seq. of the German Corporate Income Tax Act – KStG). For VAT purposes, group companies are generally regarded as independent taxable entities, but under certain conditions, they can be treated as a VAT group and jointly assessed (§ 2 para. 2 no. 2 of the German VAT Act – UStG). Failure to comply with tax regulations results in significant liability risks as well as consequences under criminal tax law.
