A set of rules of procedure governs the respective responsibilities in companies that have several managing directors. This is primarily relevant in the internal relationship and towards the shareholders and thus makes a lot of sense. This way, every managing director knows what accountability one has to answer to the shareholders. However, it can also be useful to distinguish the responsibility of the managing directors in possible cases of liability to third parties. This applies, for example, to neglected taxes to the Treasury (wage tax) or social security benefits for employees.

1. Rules of Procedure in a Company – Introduction

A GmbH with a shareholder-managing director is probably the simplest constellation for a corporation. The leadership and participation are in fact subject to one and the same person. It must therefore represent its decisions solely to itself. And although there may be situations in which, despite the limitation of liability, a personal liability of the shareholder-managing director vis-à-vis third parties may arise, this is at least clearly clarified.

But what is the distribution of responsibility at a GmbH that has more than one managing director? Is it possible, for example, to regulate the question of liability in accordance with internal agreements on the areas of responsibility? After all, it would be unfair to be held liable for the mistakes of other managers as well. Because the management by several managing directors takes place in a GmbH in principle together. So one should assume that there is a way out of this, only which one? We are happy to tell you: the solution is the company's rules of procedure.

2. What is a Rule of Procedure?

The rules of procedure are a requirement according to which shareholders arrange for the management of business within their company. It is irrelevant whether they themselves take over the management or leave this to external managers. Thus, managing directors can be assigned certain tasks. However, it is only effective internally. Therefore, there is no obligation to notarize or make public any rules of procedure. § 35 paragraph 2 GmbHG stipulates that the managing directors can only represent the company externally together.

3. What are the rules of procedure?

However, each managing director also assumes his or her own area of responsibility. If a responsible managing director makes a serious error that leads to external liabilities, this is therefore to be attributed to him alone. This is the case, for example, if a managing director fails to transfer the employee’s wage tax on time. In any case, every other managing director is thus protected from any liability.

In addition, rules of procedure serve the shareholders – especially if they entrust the management to external directors. Because with a set of rules of procedure, shareholders can specify a framework to which the external managers must adhere. This can include, for example, the introduction of certain limits, for example when borrowing is to be taken out. Thus, it can be stipulated in rules of procedure that borrowing from a certain amount may only take place with the prior approval of the general meeting. Similarly, information to be provided to shareholders when certain events occur, such as reaching certain key figures. Also in this control function, the rules of procedure can define the scope of action of managing directors more precisely.

Often the most important function is certainly the division of the tasks and thus the responsibilities of the managing directors by means of rules of procedure. Because without rules of procedure, every managing director would have to be always informed about all events within the company. And this is almost illusory with increasing complexity in practice.

4. When do we adopt the Rules of Procedure?

The best time to conclude an internal rules of procedure is undoubtedly the same as when a second managing director joins a GmbH. Of course, this also applies to any other entering managing director. It is also clear, however, that no retroactive Rules of Procedure can be agreed. In the event of liability to third parties, for example in the event of insolvency, this would potentially reduce the rights of creditors and their right to satisfy their claims. And thus the backdating of a Rules of Procedure is also excluded. What is more, it is even punishable. It is therefore absolutely necessary to discourage this.

Therefore, please take the time and agree on rules of procedure with your partners in the management and the shareholders right at the beginning of the start of the management activity. They save themselves from possible trouble and protect themselves against claims of third parties, which are basically solely the responsibility of their partners. Conversely, they certainly hardly want to answer for any mistakes they make, right?

5. Rules of Procedure for Managing Directors – our conclusion

The rules of procedure are a particularly useful regulatory mechanism for companies with two or more directors. He assigns the individual managing directors precisely defined competences. In particular, the question of responsibility for certain tasks and the related accountability to shareholders is at the heart of the rules of procedure. In this way, even a case of adhesion can be unambiguously assigned. However, the exact design is a matter that should definitely be assigned to lawyers. Finally, one would like a Rule of Procedure to be both legally compliant and comprehensive. For companies with only one managing director, on the other hand, rules of procedure are superfluous.