Managing director of a limited liability company: rights, duties, remuneration
Running a business is a big responsibility. Therefore, not everyone can become the CEO of a company. What does such a person have to do and what are his/her duties?
Who is a managing director?
The managing director is the statutory body of the Ltd. He is therefore responsible for the business management of the company and acts on its behalf (e.g. signs contracts). He is also registered in the commercial register. The managing director is appointed and dismissed by the general meeting of the company consisting of the shareholders.
A company may have several managing directors. Their powers are regulated by law and the articles of association. There are two basic options: either all the managing directors represent the company together (and thus every decision must be approved by all of them), or each of them may represent the company separately.
Who can (not) become a managing director?
A natural person and a legal entity can be a managing director (the latter designates a natural person to represent it in this capacity).
Requirements for managing directors
The person appointed as managing director or representative of a legal entity must meet the following conditions:
- full legal capacity and over 18 years of age;
- integrity (or not subject to the impediment to the exercise of the function pursuant to Section 46 of the Business Corporations Act - hereinafter referred to as the BCA);
- is not a member of the supervisory body of the company;
- no decision has been made to exclude her from holding office pursuant to §63 of the Companies Act.
Restriction of the function of the managing director
The Act also provides for situations when the managing director cannot perform the function, although he meets the above-mentioned conditions. These include, for example, prohibition of activity or bankruptcy.
In addition, the executive officer is prohibited from competing (unless he or she negotiates an exception in the articles of association), which means that he or she may not:
- engage in the same or similar business himself;
- be a member of the statutory body of another company that is doing business in that field;
- be an unlimited partner or controlling person of a competing firm.
In the event of an imminent conflict of interest, he or she must also inform the other managing directors and the Supervisory Board or the General Meeting of Shareholders, who will decide on further action.
What does the managing director do?
The duties of the managing director are regulated primarily by the German Civil Code and the Civil Code.
The managing director is mainly responsible for the following activities:
- keeping the prescribed records, accounts and list of shareholders;
- informs the partners on request about the situation in the company;
- convenes the general meeting of the company at least once a year;
- arranges for the registration of the company in the register of beneficial owners;
- submits a proposal for registration of changes to the company's data in the Commercial Register, and in the event of a change to the articles of association, enters the current version of the articles of association in the collection of documents;
- promptly files an insolvency petition against the company if the company becomes insolvent (if the insolvency is caused by the managing director's breach of his/her duties, the court may additionally order compensation to the managing director in accordance with the provisions of the CCC).
The basic duty of a managing director is the so-called due care of a good manager. According to the law, the managing director must perform his duties "with the necessary loyalty and with the necessary knowledge and care". This means that he or she must act in an informed manner and in the company's defensible interests (see Sections 51-53 ZOK).
If he breaches this duty, he is liable for the damage caused by his conduct. Thus, if a company finds itself in debt due to the negligence of a managing director, the court may order him to pay the company's debts out of his own pocket.
What is the difference between a managing director and a partner?
Many people confuse managing director and partner - but the two functions are fundamentally different.
Amanaging director is responsible for representing and managing the business of the company. As long as he or she fulfils his or her duties, he or she is not liable for the company's liabilities with his or her own assets.
A partner is the (co-)owner of the Ltd. and a member of the general meeting. However, he does not act for the company and is not liable for its obligations with his own assets - as long as the company has paid up share capital.
Themanaging director may also be a shareholder, but this is not a condition.
TIP! Read more about the differences between a managing director and a shareholder.
Remuneration for managing directors
The managing director and the company usually conclude a so-called performance contract, which regulates their relationship in more detail (it is not a classic employment relationship). This often also includes information on the remuneration for the executive.
If the contract deals with remuneration, it must contain the following elements:
- a definition of all components of remuneration (including non-monetary benefits or pension contributions);
- the amount of the remuneration and how it is calculated;
- the rules for payment of special remuneration or profit sharing (if agreed by the parties).
If the remuneration is not contractually fixed, the performance of the executive officer's duties shall be deemed to be gratuitous.
The remuneration of an executive officer is taxed as an employee's salary - at the personal income tax rate. The same rules apply in the case of health and social insurance contributions, which are compulsorily deducted from the executive's remuneration.
Please note: If an executive violates the duty of care, the court may order the executive to repay all or part of the remuneration.
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