What is a blocking minority (Sperrminorität) in terms of German limited liability companies, the GmbH? And, how can a blocking minority affect the social insurance obligation (Sozialversicherungspflicht) for GmbH CEOs and the status determination procedure (Statusfeststellungsverfahren)? What’s the difference between a true and a false blocking minority? Answers to these questions and all other relevant information on the subject of ‘Sperrminorität’ can be found here.
A blocking minority is the portion of a company with which shareholders can prevent resolutions. With a blocking minority, it’s possible for the shareholders, by means of minority rights, to block resolutions which do not align with their interests. The blocking minority is also an important decision criterion in order to determine the social insurance obligation of a CEO at a GmbH (limited liability company). As part of a status determination process, it can be determined whether the GmbH CEO is to be regarded as an employee or not.
If the voting rights of the shareholders are not regulated differently by an individual statute in the articles of association, the blocking minority of 25% applies as a rule. According to § 53 GmbHG (German Limited Liability Companies Act), the GmbH must have a three-quarters majority for amendments to the articles of association, and as a result, a proportion of at least 25% constitutes a blocking minority.
Voting rights and majorities
As a rule, the simple majority is sufficient, ie the votes of at least 50% of the shareholders are required to pass a resolution (German article). In particular, on important issues, such as a change in strategy, a qualified majority (three-quarters majority) is generally required for decision-making. This applies to the protection of minority shareholders. Minority shareholders are shareholders who hold between 25.1% and 49.9% of the company and thus have a blocking minority. The idea behind it is that minority shareholders can block important decisions, such as a takeover, merger or change to the statutes.
Investors, eg capital funds, who generally want to trade only semi-actively, often seek a blocking minority. This allows investors weak operational activity and at the same time, a say in all important decisions, which can be prevented in the event of doubt. Thus, the blocking minority is a double-edged sword that on the one hand protects the minorities, but on the other hand can also lead to a dead end, such as if critical decisions are prevented by the blocking minority and in this way can even lead to insolvency. As a result, the blocking minority can have a major impact on the company without holding the majority of shares. Therefore, the investors of the ‘Lion’s Den’ always try to negotiate this share.
The statutes – or ‘articles of association’ (Gesellschaftsvertrag) – of the GmbH, represents the core of the GmbH; however, from time to time changes have to be made, especially if a template statute (Mustervertrag/Musterprotokoll) was used in the start-up phase. Modalities change, objectives and strategy need to be adjusted, which can be a difficult undertaking if a blocking minority opposes changes to the articles of associations.
Blocking minority for GmbH-shareholder-managing director and the social insurance obligation
It’s often unclear whether the CEO of a GmbH is subject to social insurance or not. The social welfare court (Sozialgericht) has a different view than the labour court (Arbeitsgericht), and so it often can’t be decided beyond any doubt whether the CEO now counts as an employee with social security obligations or not. This is determined based on the articles of association, namely whether the CEO possesses either a dominant position or at least a blocking minority so that he or she is able to decide and act like a self-employed entrepreneur within the GmbH.
CEOs with a minority of shares are regularly classified as employees subject to social security contributions, although this is not always the case. Although many GmbH CEOs are minority shareholders, they still have the option of a blocking minority. They can block decisions and resolutions. If a CEO has this kind of influence, it’s usually not the case that the labour court classifies him or her as an employee subject to social security contributions.
However, there are also minority CEOs (for example, with a share of 30%) without a blocking minority. The shareholders can accommodate these CEOs if they wish to be employed without social insurance. For example, the partners can change the statutes so that resolutions require a majority of at least 70%. As a result, the CEO is able to block all decisions and thus is not subject to social insurance.
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True blocking minority vs false blocking minority
In general, a distinction is made between a false and a true blocking minority, which has a direct influence on the social insurance obligation of the CEO at the GmbH:
False blocking minority
The false blocking minority exists if the shareholders can only prevent certain decisions and resolutions clearly defined by the shareholders. Apart from these decisions, the law requires that shareholders’ meetings, which concern for example everyday business, may make decisions by simple majority only. CEOs with a false blocking minority are only exempted from the social insurance obligation in exceptional cases.
True blocking minority
With a true blocking minority, the shareholder can block any decision with his or her blocking minority. If a CEO with a minority share can exert a significant influence on the decisions and resolutions of the GmbH, then he or she is not regarded as being liable to social security contributions and is thus exempt from this. A true blocking minority is also often referred to as a ‘comprehensive blocking minority’ (umfassende Sperrminorität).
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