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Parent Category: Business Legalities

Created on Saturday, 03 November 2012 19:44

Last Updated on Sunday, 17 November 2013 18:39

Managing Director = CEO = Geschäftsführer

The managing director has to carry out many duties and cope with a lot of liabilities – all depending on the exact situation and financial status of the company. This is true for any kind of corporation, be it a GmbH, AG, PartnerschG, or whatever. No matter what the name might be, the managing director has more or less the same duties.

How do you correctly translate managing director to German? I have heard so many terms for this position. What is correct?

Actually, there are only two different terms, either Geschäftsführeror “Vorstand”. and sometimes you might read Vorstandsvorsitzende(r). The managing director of a GmbH is called Geschäftsführer and nothing else. The joint-stock corporation (Aktiengesellschaft) is led by the Vorstand (which can also mean “board of directors”) and if the management consists of several persons, there must be a head manager, the Vorstandsvorsitzender. Associations (Vereine) also need a director and this position is called Vorsitzender – sometimes more generic as Vorstand. Got it? It is all logical and very precise, isn’t it?
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Wait a second! Didn’t you miss something? What’s this gesellschaftsführende Geschäfter or geschäftsführender Gesellschafter?

Oh, right. That’s nothing special! First of all, to the language: geschäftsführender Gesellschafter is correct. This simply translates as “managing shareholder.” It implies that a shareholder (very often the only one) is also the managing director of the company.
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What is the function of a managing director? Is this a position where you can play the big boss and bully everyone around?

Har. Har. Har. Bullying around… The function is to represent this legal person in or out of court. It’s as simple as that.
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Huh? Legal person? What’s that? A new kind of soft drink?

Nonsense! The law differentiates between (natürliche Personen) physical or natural (§13 BGB) and (juristische Personen) juristic or legal persons (§14 BGB).
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Hey wait now. Somebody just threw another such legalistic word at me. It was “capacity”, right, “ legal capacity”? Now what’s that all about? Is this some kind of measurement? Sort of, when I have legal capacity I’m drunk beyond my senses?

Legal capacity simply means that in terms of the law a person (be it juristic, natural, physical or legal) has the capacity to hold rights and be subject to duties (§104 BGB).
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Got that. Tell me one more thing. What is a legal representative?

You need a legal representative (gesetzliche Vertreter) when you cannot or should not act by yourself. The legal representative of children are their parents. For associations (§26 BGB), for GmbH the Geschäftsführer (§§6, 35 GmbHG) and Aktiengesellschaft the Vorstand (§76 AktG) and Partnerschaftsgesellschaft (§26 BGB i.c.w. §4 I PartGG).
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Wait a second! I just found this word “Fremdgeschäftsführer”. Isn’t some kind of director two-timing while working away from home?

No, no, nice idea. This simply means that the managing director does not belong to the shareholders. This third person is typically, but not necessarily, employed.
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Is being a managing director an easy job? Some of my friends claim I’d be crazy to take such position. What are the risks of being a Geschäftsführer?

The managing director has a wide span of responsibilities that can easily lead to either personal liability and/or criminal prosecution. Below, we will describe the most important duties and the consequences of not meeting them. As a rule of thumb, the more official an issue becomes, the more careful you ought to be. Buying typical assets for the company is hardly as dangerous as not punctually applying for bankruptcy. The first might lead to personal liability while the latter typically leads to criminal prosecution (not necessarily conviction).
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Gee, that sure sounds frightening. Where do all these duties come from? Is there any chance to do my own research?

Frightening is exaggerating it all. Everywhere, you have duties and rights. So, relax. Sure, you can do your research. Finding the law is easy, like every law student in Germany learns in their first semester: "Ein Blick ins Gesetz erleichtert die Rechtsfindung! (A glimpse into the code eases the finding of law.)” Naw, seriously: The required duties come from corporate law (GmbHG, AG, PartGG, BGB, etc.), articles of association, and especially from your employment contract.
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Can’t you give a general guide as to what is expected of me as a managing director?

§43 I GmbHG expects the diligence of a prudent businessman – no more and no less. Your personal experience, qualifications, age, cultural background are irrelevant. The inexperienced manager is just as liable as the experienced one. If you fail to constantly monitor the economic and financial situation of the company, you can be liable to the company (§43 II GmbHG).
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Who actually runs the company?

You, as the legal representative, run the company. You are bound to what the shareholders directly instructed you to do, your employment contract and maybe the articles of association. Even if you recognize that the shareholders are only a bunch of nincompoops and their actions are going to harm the company, you have to do what they say. Of course, it goes without saying that your duties are to do the best for the company. When things are going roughly, somehow make sure that you have everything in writing (letters, memos, eMails, etc.). You need to be able to prove what your instructions were. This of course depends on how serious the matter is and how complicated your position in the company is.
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Aha. Are there any differences between managing directors or not having shares in the company?

Oh, yes indeed! Generally, though you are talking about two different legal subjects. There is one main concept to consider! This concept is called “reasonability”. Reasonability is tested by comparison with what would be agreed upon with a third person (so-called “Fremdvergleich”). If what you agree upon in your employment contract as a managing director holding shares is very preferential and not standard, your contract will cause problems.
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Being the sole shareholder as well managing director, I know I am to give myself a salary as much as I want. Are there really no limits?

Your salary has to meet normal standards. “Normal” in this regard is what an employee not having shares would get. This is relevant because this salary has direct influence on corporate and trade tax. The higher the salary the lower these business taxes will be. This will be true for fixed and variable income.
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