What are property, control and administrative rights? And what exactly does the ‘fiduciary duty of loyalty’ entail? Read this firma.de guide to find out all about the rights and obligations held by the shareholders of a GmbH, such as property and control rights and the consequences of non-compliance.
Contents
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Introduction
GmbH shareholders have certain rights and obligations, some of which are derived from the laws governing GmbHs and other legal regulations, and others which are defined in the company’s articles of incorporation.
Shareholder rights and obligations can be individual or collective. Individual rights refer to an individual shareholder’s claims or entitlements, whereas collective rights apply to all shareholders in a GmbH.
A shareholder’s rights, as well as their obligations, are tied to their share in the company. If that share is sold, the rights and obligations are transferred to the new holder.
GmbH shareholder rights
Property rights accommodated by GmbH shareholders
Individual property rights
- Claim to profit distribution
Shareholders may decide if profits are to be distributed to the shareholders or remain in the corporation. When profits are distributed, each shareholder will usually receive a percentage of it. This entitlement only exists, however, when a profit appropriation resolution is reached in a shareholders’ meeting.
- Subscription right
In the case of a capital increase, shareholders enjoy a ‘subscription right’ – the right to buy more shares in the company proportionate to their percentage ownership.
- Right to liquidation proceeds
Liquidation proceeds are the funds left over from the liquidation/dissolution of a company.
Collective property rights
- Right of the shareholders’ meeting to make decisions regarding the allocation of profits
Decisions regarding profit distribution and establishing reserves are made in shareholders’ meetings. The distribution of annual net profit is based on the percentage of share capital held by the shareholders. In the case of so-called mini GmbHs or UGs (limited liability), the company is obligated to maintain reserves of at least 25% of its annual profits.
Control rights held by GmbH shareholders
Right to information
One type of control right enjoyed by shareholders is the right to information – a legally mandated right that cannot be restricted.
In general, the right to information applies to all company matters, whether external (regarding business partners) or internal (regarding individual shareholders). Every shareholder can request information on any of these matters from the managing director, who must provide complete and true information in good conscience. The right to information includes:
- Right to information about company matters
Every shareholder has the right to be informed of all the GmbH’s affairs. The refusal to share such information, be it information withheld by the managing director or another shareholder, is only permissible under certain conditions and requires approval in the form of a resolution reached in a shareholders’ meeting. There are also special privileges that can be defined in the company’s articles of incorporation and used, for example, to protect minority shareholders.
- Right to inspect company accounts and correspondence
For example:
- Company contracts
- Written and electronic records such as company files and email correspondence
- Minutes of shareholders’ meetings
- Company invoices
- Company’s customer list
- Company accounts
- Documents concerning the company’s holdings in other companies
- Documents concerning the company’s role as a general partner
Right to monitor/supervise the managing director
This shareholder right, while exercised as part of the general right to information, is also exercised during shareholders’ meetings. In a public limited company, those meetings are referred to as general meetings of shareholders (Versammlung aller Gesellschafter or Aktionäre Hauptversammlung).
Administrative rights held by GmbH shareholders
Right to vote at the shareholders’ meeting / Right to participate in and speak at the shareholders’ meeting
The right to vote at the shareholders’ meeting is a shareholder’s most important administrative right. Other administrative rights include the right to participate in and speak at shareholders’ meetings and in the discussions that take place therein.
Minority shareholder rights
Along with their individual and collective rights, shareholders also enjoy so-called Sperrminorität (blocking minority) rights. These are rights that are only available to certain minority shareholders rather than to all shareholders.
One legally binding minority right provides a shareholder who holds more than 10% of the share capital with the power to demand that a shareholder’s meeting be convened. They may also have an item added to the agenda for that meeting.
Special privileges enjoyed by GmbH shareholders
In addition to legally provided shareholder rights, special privileges for shareholders can be contractually specified. These privileges must be regulated in the company’s articles of incorporation.
Got questions about setting up a business in Germany?
- Startup expert
- 10+ years experience
Hi, I’m Andreas and I’ve been advising businesses in Germany for over a decade. I’d be happy to call you and answer any questions you have in a one-on-one consultation.
GmbH shareholder obligations
Obligation to contribute
The most important shareholder obligation is their obligation to make their initial contribution (Leistung der Stammeinlage). No shareholder is exempt from this obligation. At the time of incorporation, a shareholder must pay in at least a fourth of their initial contribution, and at least 50%, of the total share capital must be met.
If a shareholder’s initial contribution payment is due and they cannot make the payment in full, their share may be declared invalid. The remaining shareholders are then obligated to cover the missing payment by contributing an amount based on their share percentage. Any shareholder contributions that have yet to be paid into the company’s account are considered ‘outstanding contributions’ (ausstehende Einlagen).
Outstanding contributions
There is a difference between outstanding contributions that are called in (eingeforderte austehende Einlagen) and those that are not (nicht eingeforderte ausstehende Einlagen). As long as the company hasn’t called in the outstanding contribution, it is considered an adjustment item of the subscribed capital. If the company does call it in, it is commercially considered a receivable.
Fiduciary duty of loyalty
Another primary shareholder obligation is the so-called fiduciary duty of loyalty (Treuepflicht) – both to the company as well as to the other shareholders. This duty entails upholding the company’s interests and refraining from taking any action that could damage the company. The interests of the other shareholders must also be taken into account when pursuing personal interests.
Non-competition obligation
In general, a GmbH’s articles of incorporation may include a non-compete clause that forbids shareholders from holding shares in a competing company or forming one. Such restraints, however, may restrict a shareholder’s occupational freedom and can become problematic in terms of the antitrust prohibition of vertical agreements.
Got questions about setting up a business in Germany?
- Startup expert
- 10+ years experience
Hi, I’m Andreas and I’ve been advising businesses in Germany for over a decade. I’d be happy to call you and answer any questions you have in a one-on-one consultation.
Want to know more about the GmbH?
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The difference between the AG and the GmbH
How to guides
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Your guide to starting a non-profit company
Equity/shares
Everything you need to know about company shares
Share capital
GmbH share capital
Delving into capital contributions in Germany
Shareholders
What is a GmbH blocking minority?
How to do a shareholders’ resolution for the GmbH
