When it comes to the social security status of a GmbH managing director who is also a shareholder, consultants have to consider several options. In principle, managing directors of corporations have an employee relationship with the company. Thus, they have a basic social security obligation. However, in certain cases, shareholder-managing directors are exempt from social security obligations. Different criteria must be assessed to distinguish this. Business consultants who also advise their clients in this regard should know them and align the advice of their clients accordingly. Of course, it is also important to document the scope of the consultation and have it countersigned for your own protection.

1st introduction

As part of the social contractual advice of GmbHs, it regularly happens that already existing management contracts are reviewed or new/modified employment contracts for the management are drafted by the consultant. In addition to various, rather obvious contractual regulations, the question of social security obligation often plays a decisive role both for the GmbH and for the concerned managing director himself.

Especially if one considers that a social security status may only be established after several years, one can imagine the extent of the financial (after-)payment burden for society, which in the worst case can have a life-threatening effect. If no comprehensive advice or written risk information has been provided by the consultant in this regard, the topic of consultant liability will not be dismissed.

Now this article should show the legal basis and design possibilities for the consultant, so that he has a guide with regard to the experience often on the part of the client time-limited consulting order with regard to the managing director contracts at hand.

The social insurance obligation of GmbH managing directors is based on the general principles of § 7 (1) SGB IV. It states as follows:

“Employment” means non-self-employment, especially in an employment relationship. Indications of employment are an activity according to instructions and an integration into the work organization of the instructor.

In other words, this means that the managing partners of a GmbH can be treated as “normal employees” with regard to their activity as managing directors of social insurance, with the consequence that all benefits entitlements under German social security law are eligible, such as pension entitlements, health benefits, unemployment benefits I and II.

On the other hand, depending on the design, the activity can also be carried out independently without entitlement to benefits in the sense of social security.

On the part of the consultant, it is important to coordinate in advance in detail with the shareholders, the management and, if necessary, the supervisory board, what is actually wanted.

2.2 Legal Recognition

As can be seen from the above provision, the main indications for qualification as an activity subject to social security are the instruction-bound and the integration into the work organization.

It is important for the consultant that the assessment according to the previous case law is individual case-related and depends on the overall picture of the activity. Therefore, a weighting of several criteria must take place, which must be weighed in the context of the overall consideration.

Social insurance obligation of shareholder-managing directors in practice

This leads to the consultant being able to make a weighting assessment based on different criteria depending on the individual case, but this may be assessed differently by the competent authority. Against this background, it is advisable in such cases to issue and countersign appropriate risk warnings to the client.

How high the consulting risk is in individual cases depends on the following starting situations:

3.1. Shareholder-Managing Directors: Freedom of instruction regarding decisions of the general meeting

According to the requirements of the case law, it is fundamentally of decisive importance to what extent the GmbH Managing Director, due to his participation or his (associated) voting rights, is independent of instructions within the meaning of § 7 (1) SGB IV. [] 1]

3.1.1. Managing directors with at least equal participation

If the GmbH Managing Director has a participation of at least 50% of the share capital of the GmbH with corresponding voting rights, the Deutsche Rentenversicherung Bund and the case-law assume in principle that the Managing Director is independent and therefore free from social insurance, since the Managing Director is not subject to any instructions of the shareholders' meeting and is thus free in his activity as Managing Director. [] 2]

In these cases, the consultant only has to check whether unusual exceptions are made here due to any contractual provisions, in particular in the social contract, which restrict an instruction freedom.

3.1.2. Managing Director with blocking minority

In addition, freedom of instruction on the part of the jurisprudence is in principle affirmed, provided that the shareholder-managing director is not free of instruction with regard to decisions of the shareholders' meeting due to his voting rights, but (contractually) has a blocking minority in the sense of a right of veto. [3]

The prerequisite is that the blocking minority or the right of veto applies to all matters of the company and that the Managing Director of the shareholder is in a position to prevent any instructions he does not agree with at the shareholders’ meeting. In the case-law, in particular, the question is whether a dismissal or termination of the shareholder-managing director is possible against his will. [] 4]

Here too, in the case of a comprehensive blocking minority, the consultant has only to check whether unusual exceptions are made due to other contractual provisions, in particular in the social contract, which restrict an instruction freedom.

Shareholder-Managing Director: Other criteria within the meaning of § 7 SGB IV

It becomes more difficult for the consultant if a freedom of instruction of the shareholder-managing director cannot be established either on the basis of voting rights or on the basis of a blocking minority.

In such cases, a balancing shall be carried out in accordance with the following non-exhaustive criteria:

For a self-employed and thus social insurance-free activity speaks, for example, that