The managing director of a GmbH: Everything you need to know

Definition

A managing director (MD)💬Geschäftsführer/in of a GmbH is the natural person—or several persons—appointed by the shareholders to legally represent the company and manage its day-to-day operations. Managing directors act both internally (overseeing business activities, compliance and administration) and externally (representing the company in all legal and commercial matters). They are responsible for ensuring that the GmbH meets its statutory obligations and follows the decisions and instructions of the shareholders.

Appointing a GmbH managing director

A managing director is appointed through a shareholder resolution, which formally records the decision and the scope of the director’s powers. The appointment must then be notarised and registered with the commercial register to become legally effective. From the moment of official appointment, the managing director represents the GmbH both in and out of court, manages day-to-day operations and is responsible for ensuring that the company meets all legal, tax and administrative obligations. A GmbH may appoint one or multiple managing directors, and the shareholders may define whether they act individually or jointly.

Requirements

Only natural persons with full legal capacity can be appointed as managing directors of a GmbH. This excludes legal entities such as other companies. A managing director must be at least 18 years old and legally able to manage their own financial affairs.

Certain individuals are barred from the role. Anyone convicted of insolvency offences, fraud or embezzlement cannot be appointed for five years after the conviction. At the notary appointment, every new managing director must sign a declaration of no disqualifying circumstances.

Shareholder vs. external MD

A managing director can either be a shareholder of the GmbH, a so-called shareholder-managing director, or an external managing director who is employed by the company.

A shareholder-managing director holds a particularly strong position because they have a dual role: they help make decisions as a shareholder and then implement those decisions in their role as managing director. If they hold more than 50% of the voting rights, they are considered a controlling managing director.

An external managing director, on the other hand, does not hold shares in the company and is therefore bound by the instructions of the shareholders. They usually work under an employment contract, whereas shareholder-managing directors typically operate under a service contract.

Managing director contract

Before a managing director can officially begin their role, a managing director contract must be put in place—
ideally in written form. Although there is no legally prescribed structure for this contract, the managing director must be formally appointed through a shareholder meeting.

In some cases, the managing director may be treated as an employee, in which case an employment contract applies. Otherwise, the agreement is considered a service contract.

In addition to the standard elements of any employment agreement, a managing director contract should also specify:

• Travel expenses
• Company car arrangements
• Scope of responsibility
• Special duties

Salary

The salary of a managing director is often a point of scrutiny. While the compensation may exceed typical employee wages, it must remain appropriate. Otherwise, it may be classified as a hidden profit distribution during a tax audit.

Tax authorities consider salaries appropriate when they are comparable to those of managing directors in companies of similar industry and size. All components — such as base salary, bonuses, and pension commitments — are evaluated.

Conflict of interest and self-dealing

Under civil law, managing directors are generally prohibited from entering into contracts with themselves or representing multiple parties at once. These restrictions are designed to prevent self-dealing.

In practice, many GmbHs choose to exempt their managing directors from these restrictions to ensure smooth business operations — especially when managing directors oversee multiple companies. If such an exemption is intended, it must be explicitly stated in the managing director contract.

Social insurance contributions

Whether a managing director is liable for social insurance contributions depends largely on whether they are bound by instructions. A managing director who acts independently and shapes business decisions is typically considered self-employed and not subject to social insurance.

If the managing director is integrated into an organisational hierarchy and must follow instructions, they are regarded as employed and thus subject to social insurance obligations. For shareholder-managing directors, their voting rights and shareholding are key indicators.

A shareholder-managing director with a blocking minority—the ability to prevent shareholder resolutions—
is generally viewed as having significant influence and therefore as self-employed, meaning they are not subject to mandatory social insurance contributions. If the situation is unclear, the GmbH may request an official status determination procedure to obtain legal certainty.

Tasks and duties

• Implementing the company’s business purpose and supporting the achievement of all operational and strategic objectives incl. hiring of employees etc.
• Protecting the company’s interests and ensuring responsible management of its assets
• Representing the GmbH both in and out of court in all legal and commercial matters
• Preventing harm to the company and taking action to avert potential or imminent damage
• Ensuring that the company complies with all legal, tax and regulatory obligations

Learn more about an MD’s responsibilities here.

Liability of the GmbH managing director

A managing director can be held personally liable if they fail to perform their duties properly—whether through negligence, incorrect actions or a complete failure to act. In such cases, the managing director may be required to compensate for any resulting damage.

A distinction is made between two types of liability:

• Internal liability: Responsibility towards the GmbH and its shareholders for breaches of duty that harm the company.
• External liability: Responsibility towards third parties, such as customers, suppliers or public authorities, if the managing director violates legal obligations.

These potential liabilities make it clear that the role of a managing director carries significant personal risk and requires careful, compliant and responsible management.

Termination and dismissal

A managing director’s contract may be fixed-term or open-ended. Fixed-term contracts end automatically, while open-ended contracts require formal termination.

The shareholders can dismiss the managing director at any time by passing a resolution. In addition to dismissal from the role, the managing director contract must also be terminated separately.

An extraordinary termination is possible if there is an “important reason”, as required by law.

If the GmbH is left without a managing director

If a managing director resigns or is dismissed unexpectedly, the company must appoint emergency management to remain legally capable of acting.

Replacing the managing director

When dismissing a managing director, a successor should already be selected. Every change must be notarised and reported to the commercial register. This process incurs costs such as notary fees, registry fees and possible severance payments.

Personal bankruptcy of the managing director

Personal insolvency does not automatically remove a managing director from office. The GmbH usually continues unaffected. However, the insolvency trustee may terminate the contract, and salary may be seized in exceptional cases.