You want to start a GmbH? Then of course you have to know which characteristics actually characterize the GmbH. We explain what a GmbH actually is, how it is structured and what structural features it has.

The GmbH did not develop in practice, but was created by the legislator. The legislator felt obliged to do so, according to which the stock corporation (AG) was subjected to stricter conditions and therefore it was only suitable for mergers of a personalistic type only to a limited extent. Nevertheless, mergers which do not deduct from making use of the capital market should also have the possibility of excluding personal liability. Accordingly, the GmbH was created in the GmbH Act. However, its goal of also enabling personalistic type mergers to exclude liability continues to shape its structure.

Since the GmbH is a corporation, the question arises as to how a corporation differs from a partnership. In a partnership, the focus is on personal liability and this personal association in particular. It is therefore central to personal cooperation. In contrast, a corporation is primarily concerned with the use of capital, whereas it is irrelevant who is actually involved in the company.

The function of the company with limited liability (GmbH) to also enable associations of personalistic type to exclude liability shapes its structural features. The exclusion of liability must be compensated by setting up a liability fund. This minimum capital is referred to as share capital, which is fixed in the statutes. Accordingly, there is also the principle of capital conservation and capital raising at the GmbH.

Further structural features follow from the capacity of the GmbH as a capital company, such as that the GmbH requires a statute according to §§ 2 f. GmbHG and that it is a legal person according to § 13 GmbHG. In addition, their creation must be controlled by the state, see §§ 7 ff., 11 GmbHG. The will is formed by majority decision according to capital shares according to § 47 GmbHG.

All these structural features are similar to Aktiengesellschaft (AG). Due to the lack of capital market orientation of the GmbH, however, there are also various differences.

In particular, it corresponds to the personal design that the law gives the shareholders, for example in accordance with § 45 I GmbHG, a greater scope for designing the GmbH. Accordingly, the rights of the shareholders can be defined in the articles of association and thus determined themselves. For this reason, the protection provided by the legislator is not as comprehensive as for the AG, so that the GmbHG also has a considerably lower regulation density. The share capital is also only half as high as at the AG.

The GmbH is also mostly founded by entrepreneurially independent members. Therefore, the management does not have to be undertaken independently of them. Rather, the managing director is subjected to the instructions of the shareholders and must provide them with information and insight into books and writings according to § 51a GmbHG.

But then the question arises when you should start an AG and when a GmbH. You should set up a GmbH if you do not care about the capital collection function of the public limited company, but rather want to raise the funds yourself. Then it does not make sense to follow the complicated and rigid regulations of stock company law, but to found a flexible GmbH.

This also applies if the future shareholders want to directly influence the management of the company. The GmbH can be organised in such a way that personal cooperation and direct influence on the company management are secured. How you found a GmbH, we have explained in one of our other contributions.

Only if you can not raise the corresponding share capital, you can consider a UG in which you only have to raise a share capital of one euro.

The strongest organ of the GmbH is the shareholders’ meeting, which can issue direct instructions to the management. In principle, the GmbH does not need a Supervisory Board. The shareholders themselves are able to supervise the management due to their close proximity to the company, their often existing expertise and their smaller circle of shareholders.

4.1.1. Conditions

The GmbH may have one or more managing directors. When ordering, however, the personal requirements of § 6 (1) GmbHG must be observed. However, a personal requirement is not that the shareholder is also managing director. Accordingly, the managing director can also be a so-called external managing director, i.e. one who is not a shareholder himself.

In a so-called Einmann GmbH, all organs are staffed identically. However, if the managing partner wishes to conclude a transaction with the GmbH himself as a private person, the prohibition of self-contracting within the meaning of § 181 BGB applies to him pursuant to § 35 (3) GmbHG. He cannot therefore conclude contracts with himself. In practice, however, this regulation is regularly laid down in the social contract, which is also possible. Since this design is so widespread, it has even found its way into the model protocol according to § 2 Ia GmbHG.

4.1.2. Limitation of management power

A clear regulation for which the managing director is authorized is missing. Rather, the managing director is appointed to represent the company in accordance with § 35 paragraph GmbHG. Decisive for the distribution of competences between shareholder and managing director is therefore basically the social contract. This can, for example, contain regulations about the type of transactions or make the managing director's actions dependent on the company's approval. Only insofar as the articles of association do not contain any provisions is the managing director entitled to all measures that belong to the company management.

On the other hand, § 37 I GmbHG stipulates that the managing directors of the GmbH are obliged to comply with the restrictions that have been set. However, § 37 (2) sentence 1 GmbHG stipulates that such a restriction has no meaning towards third parties. Consequently, for reasons of road safety, the restriction does not apply in external relations. They therefore only affect the internal relationship, so that the managing director may well be liable for damages against the shareholders. Unlike the AG, however, the restrictions on the power of representation are not only possible within the framework of the legal provisions, but also comprehensively.

4.1.3. Problems with commercial registration law

The appointment of the managing director of a GmbH is to be entered in the commercial register according to § 39 GmbHG. However, errors can occur. The publicity of the commercial register is then decisive. First of all, the registration has only declaratory meaning. If it is omitted, that is insignificant. However, the managing director can also be recalled, which is permissible according to § 38 paragraph 1 GmbHG without further requirements. Accordingly, the entry in the commercial register is not a prerequisite for effectiveness. However, this circumstance cannot be countered by the business partner in the presence of the requirements of § 15 (1) HGB. Therefore, the recall is insignificant to the business partner, even if he was not otherwise aware of the same. Consequently, the restriction of the power of representation affects only the external relationship.

According to § 46 GmbHG, the shareholders have the tasks assigned to the Annual General Meeting or the Supervisory Board in an AG. However, maintaining these tasks is not mandatory. Rather, it is possible to change the responsibilities in the social contract. The limit lies solely in restrictions that would lead to the disempowerment of the shareholders. The latter exists, for example, if the managing director is empowered to make changes to the statutes on his own.

The resolutions of the shareholders in principle according to § 48 paragraph 1 GmbHG in meetings. In the case of a one-man company, a record of the decision is required. The meeting of shareholders shall be convened by the managing director. The convocation shall be convened at least once a year for the decision on the annual accounts. In addition, the general meeting must be convened if it appears necessary in the interests of the company, if more than 50 % of the share capital is consumed or if a minority of 10 % of the share capital is required. Decisions shall be taken by majority vote, with voting rights weighted according to the level of participation.

The shareholder's share denotes the totality of the rights and obligations of the shareholder. On the one hand, property rights result from the share of the company, which includes in particular the right to share in the profit. However, this only condenses into a concrete payment claim in conjunction with the shareholder resolution on the use of profits. Until such a decision is taken, the shareholder may only require such a decision to be taken. Furthermore, the property rights also include the right to participate in the liquidation proceeds from § 72 GmbHG and the subscription right of the shareholder in the event of capital increases.

In addition to property rights, there are administrative rights. These include in particular the right to participate in resolutions of the general meeting. This implies both the right to participate and the right to speak. In addition, the shareholder has a right of challenge in respect of resolution deficiencies. Furthermore, the shareholder has extensive rights of access and rights of inspection.

According to § 14 GmbHG, the shares are to be designated with a nominal amount, which is determined according to the parent contribution.

Membership can be obtained originally in the course of the founding act, but also by subsequent derivative acquisition. Shares are saleable and heritable. However, since the GmbH is not oriented towards the capital market, its shares do not have to be fit in a way comparable to the share. Therefore, they are not securitised in a security. The transfer takes place according to §§ 398, 413 BGB. The assignment contract and the commitment transaction aimed at assignment must be notarised.

In order to save notary fees, there are people who agree on a lower purchase price before the notary, but only indicate it as a note and actually transfer the participation at a higher price. The transaction concluded before the notary is invalid as a mock transaction according to § 117 paragraph 2 BGB. Therefore, the hidden transaction applies. However, since this was not duly certified, it is ineffective according to § 125 BGB. However, § 15 (4) sentence 2 GmbHG opens up a healing possibility if the informally concluded contract is executed by formal assignment in accordance with § 15 (3) GmbHG. However, it is important to realize that you are not entitled to assignment due to the invalid purchase contract. Therefore, healing does not occur until the assignment has been carried out in a form-effective manner.

In addition, the articles of association can make the assignment of the share of the business more difficult, for example, depending on the approval of the GmbH or other shareholders. In the case of a GmbH, this is regularly advisable, as it can be guaranteed that the personalistic character of the GmbH is maintained even in the event of a sale.

In the further course of things, however, it may turn out that the GmbH is not as solvent as intended. How you can then reclaim the purchase price, we have explained in one of our other contributions.

A GmbH is a less capital-market-oriented personalised company whose strongest organ is the shareholders’ meeting. The latter is the reason for the possibility to regulate and determine the structure of the GmbH in more detail in the social contract. The exclusion of liability, on the other hand, requires the provision of a high share capital.