Basics and Definition of the GmbHG
Das GmbHG, short for Act on Limited Liability Companies, constitutes the central German law governing the legal form of the GmbH (limited liability company). The GmbHG regulates the formation, structure, organization, rights and obligations as well as the dissolution of the GmbH. It thus forms the statutory basis for one of the most important and common corporate forms in German business life.
The first version of the GmbHG was adopted on April 20, 1892 and has since been amended numerous times to adapt it to economic and corporate law developments. The GmbHG applies exclusively to limited liability companies incorporated and domiciled in Germany.
Scope and Importance of the GmbHG
The GmbHG stipulates under what conditions and in what manner a limited liability company can be established, managed, and dissolved in Germany. It applies to both natural and legal persons acting as shareholders.
Key regulatory areas:
- Formation and Registration of the Company
- Articles of Association and Statutory Provisions
- Organization and Representation of the GmbH
- Rights and Duties of the Shareholders
- Capital Requirements and Asset Binding
- Changes in Shareholder Structure and Transfer of Shares
- Dissolution and Liquidation of the GmbH
Formation and Registration of the GmbH (§§ 1-12 GmbHG)
Requirements for Formation
The GmbHG provides that a GmbH may be established by one or more shareholders (§ 1 GmbHG). The required minimum share capital is 25,000 euros according to § 5 GmbHG. Formation takes place by executing a notarized articles of association (statutes), which must regulate key provisions such as company name, registered office, corporate purpose, share capital, and business shares.
Registration and Entry
Once the articles of association have been executed, the GmbH must be entered in the commercial register (§ 7 GmbHG). Only upon entry does the GmbH obtain its legal capacity. Registration with the commercial register is completed by the managing directors and requires that the share capital has been paid in or is proven to be available.
Governing Bodies of the GmbH (§§ 13-35 GmbHG)
The Management
The management is the central executive body of the GmbH (§ 6 GmbHG). The managing directors represent the company in and out of court (§ 35 GmbHG). They are required to exercise the care of a prudent businessman and to ensure proper organization of administration and accounting.
The Shareholders’ Meeting
As the “supreme decision-making body” of the company, the shareholders’ meeting (§§ 46-51 GmbHG) is where shareholders make key decisions. This includes the appointment and dismissal of managing directors, amendments to the articles of association, resolutions on profit distribution, and decisions on incorporation, restructuring, or dissolution of the company.
Rights and Duties of the Shareholders (§§ 14-17, 29-34 GmbHG)
Shareholder Rights
The central rights of the shareholders include:
- Participation in the shareholders’ meeting
- Voting rights in proportion to their business shares
- Rights to information and disclosure about the management
- Entitlement to profit share (dividends)
Shareholder Obligations
Obligations of the shareholders in particular include:
- Contribution of the payments to the share capital agreed in the articles of association
- Duty of loyalty towards the company
- Obligation to participate in certain resolutions
Share Capital and Business Shares (§§ 5, 15-19 GmbHG)
Share Capital
The minimum share capital of a GmbH is 25,000 euros (§ 5 GmbHG). The minimum contribution of each shareholder is 1 euro, with the total commitment having to reach at least the share capital.
Business Shares and Transfer
The amount of the business shares is freely configurable. Their transfer requires notarization (§ 15 GmbHG). Changes in shareholder composition must be entered in the commercial register without delay.
Annual Financial Statements and Accounting (§§ 42-42a GmbHG)
GmbHs are required, after the end of each fiscal year, to prepare an annual financial statement – consisting of a balance sheet, profit and loss account, and a notes section (§ 42a GmbHG). Larger GmbHs are also subject to additional requirements under the Commercial Code (HGB). The shareholders’ meeting decides on the approval of the annual financial statement and the allocation of results.
Amendment of the Articles of Association and Capital Measures (§§ 53-57 GmbHG)
Amendments to the Articles of Association
Resolutions amending the articles of association require a qualified majority (generally three-quarters of the votes cast) and notarization (§ 53 GmbHG).
Capital Increase and Capital Reduction
Measures to increase or decrease capital are also subject to strict formal requirements and require, among other things, entry in the commercial register (§§ 55, 58 GmbHG).
Termination of the GmbH (§§ 60-74 GmbHG)
Dissolution and Liquidation
The dissolution of the GmbH may occur by shareholder resolution, expiration of a specified term in the contract, initiation of insolvency proceedings, or by a final court judgment (§ 60 GmbHG). After dissolution, the GmbH enters the liquidation phase (§ 66 et seq. GmbHG), in which the company’s assets are settled and distributed to the shareholders.
Liability and Insolvency Provisions (§§ 13, 64 GmbHG)
Shareholder liability is generally limited to the contribution to share capital (§ 13 GmbHG). In certain cases, in particular with payments made despite insolvency, the managing directors are personally liable (§ 64 GmbHG). The GmbHG also contains comprehensive creditor protection provisions, especially in the event of insolvency.
Reforms and Developments of the GmbHG
The GmbHG has been repeatedly reformed, most recently in particular by the Act to Modernize the Law on Private Limited Companies and to Combat Abuses (MoMiG) in 2008. Key innovations included the simplification of formation, the introduction of the entrepreneurial company (limited liability), improvement in the raising and maintenance of capital, and strengthening of creditor protection provisions.
Summary
The GmbHG is the key law for the limited liability company in Germany and regulates its legal foundations, organization, rights and obligations of those involved, as well as dissolution and winding-up. By continually adapting to economic developments, the GmbHG remains a central pillar of German corporate law and guarantees legal certainty and flexibility for companies of all sizes.
Frequently Asked Questions
What requirements must be met to establish a GmbH under the GmbHG?
Various legal requirements must be observed to establish a limited liability company (GmbH) under the GmbHG. Firstly, notarization of the articles of association is mandatory (§ 2 GmbHG). This contract must include, among other things, the registered office, company name, corporate purpose, amount of share capital, and the business shares to be taken over by each shareholder (§ 3 GmbHG). Furthermore, a minimum share capital of 25,000 euros is required, and when the company applies for registration in the commercial register, at least half, i.e., 12,500 euros, must have been paid in (§ 7 para. 2 GmbHG). The founders must also appoint managing directors who, in the application for entry in the commercial register, declare that the contributions have been paid and that there are no circumstances preventing their appointment (§ 8 para. 3 GmbHG). Additionally, the GmbH must be registered for entry in the commercial register, with all managing directors required to participate (§ 78 GmbHG). Only upon entry does the GmbH obtain its legal capacity. Special provisions apply when contributions in kind are provided: In this case, the value of such contributions must be proven and the actual control over the property by the company must be documented. Finally, tax and trade registrations must be completed.
Who is liable for the obligations of the GmbH, and are there exceptions?
According to § 13 para. 2 GmbHG, in principle only the company’s assets are liable for the obligations of the GmbH. The personal assets of the shareholders are generally not subject to claims by creditors. However, exceptions apply: For example, ‘piercing the corporate veil’ may occur if shareholders misuse the company to the detriment of creditors, such as through asset commingling or immoral conduct (misuse of rights, piercing the corporate veil according to case law of the Federal Court of Justice). Managing directors also may be personally liable to creditors in certain cases, such as violation of the obligation to file for insolvency (§ 15a InsO). Furthermore, prior to entry into the commercial register (pre-GmbH), persons acting on behalf of the company may be personally and jointly liable (§ 11 para. 2 GmbHG). In the context of share contributions that are not, or not properly, made, shareholders are also obliged to make subsequent contributions.
What are the obligations of the managing directors of a GmbH under the GmbHG?
The managing directors are the statutory representative body of the GmbH and have far-reaching duties under the GmbHG. They must exercise the care of a diligent businessman (§ 43 GmbHG). This includes, in particular, managing the company in compliance with the law, the articles of association, and the interests of the company. Key duties include the obligation to keep accounts (§ 41 GmbHG), preparation and disclosure of the annual financial statements (§§ 42a, 42b GmbHG), proper registration of changes in the commercial register (e.g., changes in shareholder structure or management), as well as timely filing for insolvency in cases of insolvency or over-indebtedness (§ 15a InsO). They must also comply with tax, social security, and other legal obligations. In the event of breaches of duty, they are liable to the company and, under certain conditions, to third parties (in particular for payments made after insolvency, cf. § 64 GmbHG former version, now § 15b InsO).
How are contributions in kind made when establishing a GmbH?
The contribution of assets in kind is permissible under § 5 para. 4 GmbHG but requires special care. The articles of association must already clearly specify the items to be contributed as assets in kind, their value, and the contributing shareholders (§ 5 para. 4, § 7 para. 3 GmbHG). When applying for registration in the commercial register, it must be proved that the assets contributed are completely and unconditionally at the company’s free disposal (§ 8 para. 2 GmbHG). The value of assets in kind must be realistically assessed, as overvaluation can result in liability for the shareholders. In the case of defects, such as incompleteness or undervaluation, the shareholder is personally liable for the difference. Typical examples of assets in kind include real estate, vehicles, patents, or machinery.
What rights do the shareholders of a GmbH have under the GmbHG?
The GmbHG grants shareholders numerous rights. The key right is the right to vote in the shareholders’ meeting, which is generally exercised in proportion to the business shares held (§ 47 GmbHG), unless otherwise provided in the articles of association. Additional rights include profit participation in accordance with their ownership (% 29 GmbHG) and the right to information and inspection of the company’s books and records (§ 51a GmbHG). Shareholders also have the right to participate in the appointment and removal of managing directors (§ 46 no. 5 GmbHG), to resolve on amendments to the articles of association (§ 53 GmbHG), and, under certain circumstances, to demand a special audit (§ 46 no. 6 GmbHG). Each shareholder also has a minority right to call a shareholders’ meeting (§ 50 GmbHG). Additional rights may arise from special contractual provisions.
How can business shares in a GmbH be transferred under the GmbHG?
The GmbHG prescribes mandatory formal requirements for the transfer of business shares. The transfer, that is, the assignment of a business share to a third party, is valid only if notarized (§ 15 para. 3 GmbHG). The acquirer assumes the legal position of the previous shareholder, with all rights and obligations. The articles of association often contain rights of first refusal or consent requirements by other shareholders. In addition, the transfer must be recorded in the list of shareholders (§ 40 GmbHG) and the management is required to promptly correct the commercial register. The transfer may affect voting rights and the appointment of managing directors, especially where linked to specific equity interests.
What must be observed with regard to the dissolution and liquidation of a GmbH under the GmbHG?
The dissolution of a GmbH can occur for a variety of reasons, such as by shareholders’ resolution (§ 60 para. 1 no. 2 GmbHG), expiry of the period specified in the articles of association, or opening of insolvency proceedings. After dissolution, liquidation follows, unless insolvency proceedings are immediately commenced (§ 66 GmbHG). The liquidators—usually the previous managing directors—are required to sell the assets of the GmbH, settle liabilities, and issue a call to creditors by publishing a notice three times in the Federal Gazette (§§ 65-73 GmbHG). Creditors thus have an opportunity to register their claims. After expiry of the blocking period (at least one year after the announcement, § 73 GmbHG), any remaining assets are distributed to the shareholders. The liquidation must be registered with the commercial register, and upon its completion, the GmbH is considered dissolved (§ 74 GmbHG). The company’s records must be retained for ten years.
