GmbH Managing Director (Geschäftsführer): Duties and Liability

• Who: one or more individuals with full legal capacity, appointed in the articles or by the shareholders (GmbHG §§ 6, 46). A company can't be a managing director.
• Role: represents the GmbH in and out of court (§ 35) and runs it within the limits the shareholders set (§ 37).
• Duties: proper bookkeeping (§ 41), annual accounts on time (HGB § 264), the company's taxes (AO § 34), the shareholder list (§ 40), and calling a shareholder meeting if half the capital is lost (§ 49).
• Liability: the care of a prudent businessman; breaches make the director liable to the company for the damage, for five years (§ 43).
• Insolvency: file within three weeks of illiquidity and six weeks of over-indebtedness (InsO § 15a), and stop most payments from that point (§ 15b).

A managing director must be a natural person with full legal capacity (GmbHG § 6(2)). Shareholders or outsiders can be appointed (§ 6(3)), either in the articles of association or by shareholder resolution (§ 46 no. 5).

Under § 6(2), a person can't be a managing director while:

• under a court-ordered guardianship that requires consent for their financial affairs;
• banned by a court or authority from a profession or trade that overlaps with the company's business;
• within five years of a conviction for an intentional offence listed in the Act: delaying an insolvency filing, insolvency crimes, false statements to the register or in accounts, or a fraud-type offence with a sentence of at least one year.

The grounds in § 6 are the complete list of who can't be a managing director, and nationality and residence are not on it. Comparable bans in another EU or EEA country, and comparable convictions abroad, count too (§ 6(2), last sentences). A foreign parent company can therefore appoint one of its own managers, wherever they live.

Each new managing director must declare to the register court that none of the disqualifications applies, and that they've been told of their duty to give the court full information (§§ 8(3) and 39(3)). Giving false information is a criminal offence (§ 82).

• Power of representation: the managing directors represent the GmbH in and out of court (§ 35(1)). If there are several, they act jointly unless the articles say otherwise (§ 35(2)).
• Internal limits don't bind outsiders: shareholders can restrict what a managing director may do, for example by requiring approval for large contracts, and the director must follow those limits (§ 37(1)). But towards third parties the restriction has no legal effect (§ 37(2)): the contract still binds the company.
• Sole shareholder and director: if one person holds all the shares and is the only managing director, their own transactions with the company follow § 181 of the Civil Code and must be recorded in writing straight away (§ 35(3)).
• Business letters: every letter and order form must show the legal form, registered office, register court and number, and all managing directors' names (§ 35a).
• Registration: every change of managing director must be filed with the commercial register (§ 39(1)).

A managing director must apply the care of a prudent businessman (Sorgfalt eines ordentlichen Geschäftsmannes) to the company's affairs (§ 43(1)). Directors who breach their duties are jointly liable to the company for the damage (§ 43(2)), and claims expire after five years (§ 43(4)).

Several duties carry liability or penalties beyond that:

• Payments that breach capital maintenance: the director must make good payments to shareholders that § 30 prohibits. Acting on a shareholder resolution doesn't remove that liability where the money is needed to pay creditors (§ 43(3)). For a subsidiary, that includes instructions from the parent company.
• Taxes: directors are personally liable for taxes not assessed or paid on time because they breached their tax duties intentionally or through gross negligence, including late-payment surcharges (AO § 69).
• Employees' social security contributions: withholding employees' contributions from the collecting agency is a criminal offence punishable by up to five years' imprisonment or a fine (StGB § 266a).
• Payments after insolvency: once the company is illiquid or over-indebted, the directors may not make payments for it, except those consistent with the care of a prudent manager, such as keeping the business running while preparing a filing (InsO § 15b).
• Failing to report the loss of half the capital to the shareholders is punishable by up to three years' imprisonment or a fine (§ 84).

The managing director runs the company, but the shareholders keep the key decisions (§ 46). Unless the articles say otherwise, they:

• approve the annual accounts and decide how profit is used;
• appoint, remove and discharge (Entlastung) managing directors;
• set rules for supervising the management;
• appoint authorised signatories (Prokuristen);
• bring claims against managing directors on the company's behalf.

Appointing a managing director is part of the cost of having your own GmbH: someone has to take on these duties, whether a local hire, one of your managers or a professional director you pay. With an Employer of Record, the provider's own company is the employer and you don't need a German entity or managing director. In Germany, though, an EOR arrangement is usually employee leasing with an 18-month limit.

For the costs side by side, see GmbH setup costs, GmbH running costs and foreign subsidiary vs EOR.