§ 38 (1) GmbHG regulates the free and at any time recallability of the managing director. Only if a corresponding agreement has been made in the statutes is dismissal possible only if there are important reasons (§ 38 paragraph 2 GmbHG). If such an agreement is missing, the free recallability of the managing director remains. In the following we explain the requirements of the orderly dismissal and the dismissal of managing directors for an important reason.

1st General Removal of the Managing Director

1.1 Principle: Free and at all times recallability

The removal of the managing director is regulated in § 38 GmbHG. § 38 paragraph 1 GmbHG establishes the principle of the free and everyone’s recallability of the managing director. This unrestricted right of removal is the flip side of the executive director's power of representation unrestricted in accordance with § 37 paragraph 3 GmbHG in external relations. This allows shareholders to react if they believe that the management body should be replaced or changed.

In the statutes, however, this principle can be limited according to § 38 paragraph 2 GmbHG. Therefore, the removal can be linked to the existence of important reasons. Then a removal of the managing director is only possible if there are important reasons. If, on the other hand, such an agreement has not been concluded, the principle of the free removal of the director remains.

However, these regulations are tailored to external managers. In fact, however, people from the shareholder circle are often managing directors. When dismissing the Managing Director, it is regularly considered to restrict the principle of free and at all times dismissibility.

1.2. Resignation of the sole managing director

The Managing Director is the necessary organ of every GmbH (§ 6 (1) GmbHG). Nevertheless, the removal of the sole managing director is also possible. After the removal of the sole managing director, the shareholders have free discretion as to whom they appoint as successor. The social fiduciary duty does not oblige the shareholders to appoint a specific person or even one of the shareholders as managing director. If the shareholders cannot agree on the appointment of a new managing director, the appointment of an emergency managing director according to § 29 BGB must be requested. This emergency manager cannot be freely recalled. However, his office can be reached by a new appointment of a managing director.

1.3. Independence of organ ratio and employment relationship

With regard to the position of the managing director, the so-called separation principle applies. Accordingly, the institutional relationship and the employment relationship are different legal relationships, which stand independently next to each other and must therefore be assessed legally independently of each other. Therefore, there are also different conditions for ending the respective relationship. #

According to the legal concept, the interests of the managing director are protected solely within the framework of his employment relationship. According to the principle of separation, the removal of the managing director has no influence on the employment contract. Consequently, this and the resulting remuneration entitlements initially continue to exist.

Whether the employment relationship can be terminated early depends not on § 38 paragraph 1 GmbHG, but on whether the much stricter requirements of § 626 paragraph 1 GmbHG are also fulfilled. Therefore, the GmbH must be unreasonable for the continuation of the employment contract, considering the mutual interests and circumstances of the individual case until the expiry of the notice period. Conversely, the removal of a managing director according to § 38 paragraph 1 GmbHG, subject to deviating employment contractual provisions, does not constitute uncontractual behavior of the company within the meaning of § 628 paragraph 2 BGB. Thus, the dismissed manager is not entitled to terminate his employment contract for an important reason.

1.4 Connection of organ position and employment relationship

The legal fate of organ status and employment relationship can, however, be linked by contract. Here, the most far-reaching coupling clause is that the managing director employment contract is concluded in a dissolving condition due to the removal as managing director. However, it is also conceivable to define dismissal as a managing director as a reason for dismissal with regard to the employment contract. Regardless of the specific design of the coupling clause, such a clause does not lead to the employment relationship ending without notice due to § 622 paragraph 5 BGB. Therefore, shorter deadlines than those mentioned therein cannot be effectively agreed. Therefore, at least the notice period of § 622 BGB must be adhered to, unless an important reason in the sense of § 626 BGB exists for the termination of the managing director employment relationship.

Ordinary removal of the managing director

2.1. Prerequisites

Ordinary recall does not require a justification or prior hearing of the person concerned. It shall be carried out by simple majority, subject to differing statutory provisions. In the context of the vote on dismissal, the person concerned is not subject to a voting ban.The dismissal must be entered in the commercial register (§ 39 paragraph 1 GmbHG). However, this is merely declaratory in nature.

The decision must be explained to the managing director. The managing director is not responsible for this. Rather, the shareholders in their entirety make the declaration. Dismissal shall take effect upon access by the Managing Director. Actual knowledge is therefore not necessary. Upon the effective date of the revocation, the management authority and the representative power of the managing director expire.

2.2 Restrictions on the removal of the Managing Director due to fiduciary duty

In the case of shareholder-managing directors, the restriction of the principle of free recallability may result from the loyalty ties existing between the shareholders. The social fiduciary duty obliges the shareholders, when exercising their member powers, i.e. in particular when exercising the right to vote, to orient themselves to the interests of the company and the purpose of the company and to refrain from the contrary measures. Furthermore, the fiduciary duty requires that the member interests of other partners be taken into account in an appropriate manner. In particular, the interests of the minority must be taken into account. Their rights must not be unduly reduced.

From the fiduciary duty of the shareholders to each other, different requirements are made for the removal of the shareholder-managing director. On the one hand, the case law partly requires that the removal of the shareholder-managing director should not be arbitrary, i.e. without any objective reason. The Federal Court of Justice (BGH) assumed in a decision, however, that the shareholder-managing director can be recalled without reason, as long as this does not take place in a manner that is in good faith and contrary. An unrecognizable, substantive justification should suffice.

Ordinary recall, however, cannot be based on groundless, recognizably constructed, untrue or otherwise unworthy of protection. As factual reasons, for example, unfortunate business transactions or the loss of trust in those affected are sufficient. This also applies if the reasons for the loss of confidence subsequently prove to be inappropriate. On the other hand, the removal of a Managing Director is ineffective because he fulfills or wants to fulfill the legal obligations. The latter concerns, for example, the case that the managing director prepares a corresponding application if there is an objective obligation to file for insolvency.

For the fact that the recall was for immaterial reasons, the recalled person bears the burden of presentation and evidence. Therefore, he must also be informed of the reasons for his removal on request. In the event of failure to do so, the dismissed partner’s right to debate is infringed and the dismissal order is therefore subject to appeal.

2.3 Limitations of agreements outside the statutes

Company owners may also regulate legal relationships in the company and with the company outside the statutes by means of a contractual ancillary agreement, insofar as this does not conflict with mandatory law.

Also such agreements that restrict the principle of free recallability are permitted. These can often be found, for example, in the employment contract of the managing director. However, they do not effectively protect the managing director against dismissal at any time. The reason for this is that the purely contractual agreements do not have any cooperative effects. If the articles of association do not provide for a restriction on dismissal, an agreement to the contrary in the employment contract does not prevent the shareholders from calling the managing director. The law and the social contract take precedence over the debt agreement. The agreement only has the effect that its violation obliges the company to pay damages.

If a shareholder resolution violates an ancillary agreement made outside the statutes, this does not constitute a direct right to challenge the shareholder resolution. However, this does not apply without exception. For example, a managing director can conclude a voting agreement with all shareholders, according to which he may only be recalled for an important reason. Then he does not have to file a lawsuit against his co-shareholders for conviction to vote to the contrary in the event of a breach of contract. On the contrary, it may contest the decision in breach of contract if the contractual relationship exists with all shareholders, i.e. no change of shareholder has taken place since the conclusion.

3. limitation of the removal of the managing director, § 38 paragraph 2 GmbHG

3.1. Limitation in the statutes to important reasons

The statutes may restrict the possibility of dismissal of the managing director. However, the possibility of removal for an important reason must always be maintained at any time and with immediate effect (§ 38 paragraph 2 GmbHG). Furthermore, it must remain within the competence of the shareholders and be perceivable by them with a simple majority.

Restrictions on revocation other than in the case of the important reason are permissible insofar as they represent a minus compared to the restriction on the case of the important reason and leave the revocation untouched for an important reason.

3.2. Definition of the important reason

Whether there is an important reason for the removal of the managing director is to be decided on the basis of all circumstances of the individual case. It depends on whether the company can no longer be expected to retain the managing director in his previous position until the end of his term of office, having regard to the conflicting interests, when assessing all the material circumstances in the specific case. A forecast for the future is therefore required. Circumstances to be taken into account in the balancing of interests are, in particular, the gravity of the misconduct, its consequences for society, the loss of confidence caused by it, the extent of the fault and the risk of repetition. The extent of the Managing Director’s capital injection is also relevant for consideration. However, a fault of the managing director or damage to the company is not absolutely necessary.

3.3. No voting rights of the Managing Director

If there is an important reason, the shareholder-managing director concerned is not entitled to vote. A majority shareholder can therefore also be appointed by the minority of shareholders if there is an important reason. The vote prohibition also covers all shareholders who have committed the breach of duty in question together with the person concerned, as well as shareholders who are significantly influenced by the person concerned. Nevertheless, the person concerned has a right of attendance and right to speak at the public meeting.

As a result, however, the votes of the person concerned in the determination of the decision result should only be left out if the claimed important reason actually exists. Therefore, the merely substantiated assertion of an important reason is not sufficient. If the managing director of the shareholder agrees, although the important reason is in truth, the shareholder who carries out the dismissal must have the court clarified by means of an action for a resolution that there was a vote ban. In practice, it happens all regularly that the shareholder-managing director votes against his removal. This is because the shareholder engaged in the dismissal regularly does not bring an action for a defective resolution.

3.4 Liability of the Assembly Leader

However, the problem is how the meeting leader deals with the uncertainty as part of the voting process as to whether the alleged reason actually exists. Theoretically, he decides to the best of his knowledge, neutrally and on the basis of the true facts. In fact, the facts are mostly highly controversial. In addition, it happens that the meeting leader interprets the circumstances in an interest-driven manner and often cannot make neutral decisions. That is why, in practice, the correct result of the vote is often not established.

In contrast, it should be noted that the meeting leader, who accepts an important reason, imposes the burden of action on the shareholder-manager. He must now file an action against the dismissal order within the month period of § 246 (1) AktG. In addition, he must ensure by means of an application for an interim measure that he can continue to exercise his office pending a decision on the substance of the matter.

Due to these disadvantages for the shareholder-business director, the meeting leader is personally liable for misconduct under strict conditions. In particular, if he carries out the recall in the specific situation in breach of obligation, unreasonable or even arbitrary, a liability-based duty of care vis-à-vis the company is assumed. Therefore, in the event of unclear circumstances, the head of the meeting will often be advised to refrain from adopting a resolution for safety reasons. In any event, he or she should not make any decision to recall in an interest-driven manner, contrary to duty, irresponsible or arbitrary.

3.5. Obligation to withdraw the Managing Director

It may be that the dismissing partner does not have the simple majority of the votes even if the co-shareholder managing director is excluded from voting rights. Then the question arises as to whether the other shareholders have the obligation, if there is an important reason, to agree to the removal or whether they may at least not prevent the removal. In any case, the vote of the abusive co-shareholder is not to be counted in such a case when determining the result of the decision. A decision taken with his vote is contestable. The decisive factor is whether there is actually an important gurnd.