Definition and Legal Classification of the Sole Shareholder
The Term Sole shareholder refers, in corporate and company law, to an individual or a legal entity that holds all the shares of a corporation. The position of the sole shareholder entails far-reaching legal consequences, particularly with regard to decision-making, liability, and disclosure obligations. This structure typically occurs in companies with limited liability (GmbH), entrepreneurial companies (with limited liability), as well as in stock corporations (AG).
Legal Basis and Areas of Application
Corporate Law Fundamentals
Under German law, the GmbH Act (GmbHG) does not explicitly define the sole shareholder, but expressly recognizes the one-person company (§ 1 para. 1 sentence 3 GmbHG). Comparable regulations exist for other company forms, for example, according to the German Stock Corporation Act (AktG) or the Austrian Law on Limited Liability Companies (§ 1 para. 2 öGmbHG).Areas of Application:
- Formation of a One-Person GmbH
- Sole Acquisition of Existing Companies
- Legal Succession, for example in case of inheritance
Admissibility of the One-Person Company
Under German law, for companies with their own legal personality, particularly the GmbH, both the formation and existence as a one-person company is permissible. The company law structures remain intact; the company does not automatically merge with the person of the shareholder in the case of sole ownership.
Rights and Obligations of the Sole Shareholder
Decision-making and Formation of Will
The sole shareholder fully exercises the shareholder rights alone. He adopts all resolutions without the involvement of third parties. However, under company law, the process of decision-making must still be documented by recorded shareholder resolutions (§ 48 para. 3 GmbHG). In a one-person company, the shareholder is required to create and retain written records of the resolutions passed.
Liability and Asset Spheres
The legal separation between the company’s assets and the private assets of the sole shareholder remains intact. The principle of limited liability to the company’s assets continues. By way of exception, so-called ‘piercing of the corporate veil’ may occur, for example in cases of abuse of rights, commingling of asset spheres (‘asset commingling’), or circumvention of the law.
Liability Grounds and Piercing of the Corporate Veil
- Abuse of Legal Form: If the company is merely a ‘shell’, piercing of the corporate veil may apply.
- Destruction of Business Basis and Undercapitalization: If the sole shareholder disregards capital maintenance rules, liability may be extended.
Obligations of Disclosure and Transparency
A one-person company is subject to special publicity and documentation obligations. This applies in particular to:
- Disclosure of the status as a one-person company in the commercial register
- Disclosure of the name and address of the sole shareholder (§ 8 para. 1 no. 4 GmbHG)
- Disclosure when registering amendments to the articles of association
Omissions may lead to the invalidity of legal transactions and, in some cases, personal liability.
Special Legal Situations
Change of Sole Shareholder
A purchase of all shares by a new shareholder is permissible at any time under company law. The new sole shareholder assumes all shareholder rights and disclosure obligations; in the case of a GmbH, notarization of the purchase agreement for the shares is required (§ 15 GmbHG).
Management and Representation
The sole shareholder can also act as managing director, but there must be a clear distinction between management bodies and the shareholder role. In a one-person GmbH, strict separation of roles for internal and external affairs must be maintained to preserve the company as an independent legal entity.
Procedural Law Aspects
In the event of insolvency proceedings, the company law separation between the sole shareholder and the company remains intact. Insolvency administrators pay particular attention to hidden profit distributions, commingling of asset spheres, and abusive conduct.
Tax Law Implications
Hidden Profit Distribution
For a one-person company, there is special tax scrutiny. Payments between the company and the sole shareholder are subject to increased examination by tax authorities for hidden profit distributions, especially when the management is also exercised by the sole shareholder.
Withdrawals and Contributions
Gratuitous or non-arm’s length withdrawals by the sole shareholder lead to income tax adjustments at the level of the company. The same applies to unusual contributions, which are qualified as capital contributions.
International Aspects
To ensure the principle of freedom of establishment, one-person companies are largely recognized in the European Union. National implementation rules, for example in Austria (§ 1 para. 2 öGmbHG) and in Swiss law, harmonize the legal position of the sole shareholder within Europe.
Summary
The sole shareholder occupies a central role in German corporate law. The legal form of the one-person GmbH is permissible and subject to specific legal requirements. The rights and obligations of the sole shareholder comprise extensive control powers, but also strict separation and disclosure obligations. Misconduct can lead to personal liability. The one-person company is permitted for both natural and legal persons and is an established part of both national and international company law.
Frequently Asked Questions
What special obligations does a sole shareholder have regarding the adoption of resolutions?
A sole shareholder of a corporation – in particular a GmbH under German law – is obliged to properly document resolutions that would need to be adopted at the shareholders’ meeting. Even if no other shareholders are involved, such resolutions must be recorded in writing and archived in the minutes book (§ 48 para. 3 GmbHG). This serves transparency, enables third parties (such as creditors or the commercial register court) to trace the decisions made, and prevents suspicion of misuse of sole decision-making power. If the sole shareholder fails to fulfill this obligation, this can have liability consequences.
Does a sole shareholder have to handle contracts with himself/herself in a special way?
Yes, so-called self-dealing transactions, i.e., contracts that the sole shareholder concludes with the company he or she controls (such as employment or loan agreements), are subject to special formal requirements. According to § 181 BGB, a self-dealing transaction is generally prohibited unless there is a statutory permission or exemption. In the case of a sole shareholder, it is noted in the commercial register that all contracts between the shareholder and the GmbH, for and against the company, are only effective if they are set out in writing (§ 35 para. 4 GmbHG). This written form is intended to prevent abuse and lack of transparency. The entry ‘sole shareholder’ in the register only ceases to apply when another person participates in the share capital.
How is the sole shareholder liable towards the company’s creditors?
Although the sole shareholder is generally not liable with his personal assets, and liability is limited to the company’s assets, there are exceptions. In particular, if the sole shareholder violates his duties as a governing body or deliberately commingles private and company assets (so-called ‘piercing of the corporate veil’), he may be held personally liable for the creditors’ losses (keyword: ‘liability piercing’). Typical cases involve delayed insolvency filing, culpable insolvency procrastination, or abusive asset transfers.
Who represents the company externally if there is only one shareholder?
The representation of the company towards third parties continues to be carried out by the appointed managing directors (§ 35 GmbHG). Even if the sole shareholder is also the managing director, a distinction must be made between his role as shareholder and as representative body. Especially for contracts which the sole shareholder concludes in personal union both for himself and for the company, the special regulations on self-dealing apply (see above). If there is no other managing director or authorized officer, special care must be taken to strictly separate the functions and to record matters properly in the minutes.
Do the shares of a sole shareholder require notarization?
The transfer of shares in a GmbH is subject to mandatory notarization (§ 15 GmbHG). This also applies if the sole shareholder splits, sells, or transfers his shares to a third party. Notarization is required even in cases of transfer by inheritance or gift. Notarial certification serves to protect creditors and is intended to ensure secure documentation and traceability of the shareholding structure.
What special features exist in the liquidation of a one-person GmbH?
In the event of liquidation, special notification obligations apply to the sole shareholder. He must document all liquidation resolutions and properly carry out the required calls to creditors in accordance with legal regulations (§ 65 et seq. GmbHG). The distribution of the liquidation proceeds must be recorded and liquidation must be carried out in such a manner that the interests of creditors are sufficiently protected. Only after all creditor claims have been settled may the remaining company assets be distributed to the sole shareholder.
What happens to contracts and rights upon the death of a sole shareholder?
Upon the death of the sole shareholder, his company shares are transferred to his heirs through universal succession (§ 1922 et seq. BGB). The company remains capable of acting externally, provided a (non-shareholder) managing director is appointed. If the sole shareholder is also the sole managing director, the heirs must promptly appoint a new managing director to ensure the company’s capacity to act. The transfer of shareholder rights in the case of a GmbH also requires notarization.
Are there notification or reporting obligations for sole shareholders?
Yes, according to § 40 GmbHG any change in the person of the sole shareholder, as well as the acquisition or loss of sole shareholder status, must be reported to the commercial register without delay. The notification must be submitted by all managing directors of the company and must be notarially certified. Proper fulfillment of this reporting obligation is crucial to ensure clear transparency of the shareholder structure for third parties. A violation of these duties can result in fines.
