Resigning as a company director in Germany can be complex, and it is essential to understand the legal implications and obligations involved. Whether you are stepping down due to personal reasons or as part of a company restructuring, it is crucial to ensure that the resignation is carried out correctly to avoid any potential legal issues. When resigning as a managing director, the company’s articles of association play a critical role in the matter.
At Schlun & Elseven Rechtsanwälte, we offer comprehensive advice to our corporate clients and support them in resignation cases. If you require professional legal assistance, please do not hesitate to contact us directly using our details below.
Resigning as a Managing Director
Managing directors are not considered to be employees under German law; therefore, different rules apply to them regarding leaving a company. Under German law, managing directors of limited liability companies can resign from their position at any time, without needing to give notice and without needing to state a reason. An exception to this rule applies in cases where the company’s articles of association or their contract state otherwise and provide an outline regarding reasoning and notice periods.
However, other exceptions also exist, such as the managing director is not permitted to resign during the midst of a crisis or when it is going insolvent. Managing directors who attempt to act in breach of the law, in this case, can leave themselves open to legal challenges and claims for damages by the company. This principle applies in cases where the managing director holds shares within the company and is its sole managing director.
There are several considerations when resigning. Managing directors are legal representatives of their company; therefore, they have a fiduciary duty to the company. Thus, their resignation must be accomplished consistently with this duty.
The managing director should also inform the board of directors or the shareholders when resigning and tell them of the effective date of the resignation. The resigning director should give the company enough time to arrange for a replacement before then.
Managing directors should also consider the effect of the resignation on their personal liability and consult with professional legal advice beforehand. This decision can also impact their future employment prospects, which should be considered when planning their future.
Managing directors are not considered “employees” in the traditional sense; therefore, they do not come within the scope of German employment law regulations. They do not benefit from laws relating to employee dismissal. Thus, the shareholders of the GmbH can decide to revoke the position of the managing director at any time, without good cause and without observing a period of notice. To achieve this, they often must achieve a majority of the votes cast in a shareholders’ meeting.
When dismissing a managing director, it is essential that shareholders base the decision on a shareholders’ resolution and that the authorised representative of the shareholders signs the notice letter. Once this letter is signed, the shareholder resolution should be attached, and the letter and resolution must then be delivered in the original form to the managing director.
However, there are cases where it is not so simple, and one of those cases involves where the party is a shareholder-director and has been appointed in the articles of association. Such a situation has the benefit that the articles of association need to be changed before the dismissal. Such amendments require a three-quarters majority of the votes cast. Similarly, the articles of association can be drafted in a manner whereby dismissal can be limited to specific reasons.
Once the revocation has been decided upon, the company should register the decision with the Commercial Register without delay. Although it is not strictly necessary, this entry ensures that the managing director cannot enter into obligations on behalf of the company with third parties.
At Schlun & Elseven Rechtsanwälte, our corporate law team regularly advises managing directors, shareholders and other parties within companies about their articles of association. Managing directors should strongly consider legal advice in such cases to ensure that they are protected under the articles of association. These protections can take the form of continued employment as an employee in the event of dismissal, pension benefits or guaranteeing special severance packages.
In cases where there are protections within the articles of association, the company and managing director can negotiate the terms of the dismissal. Our lawyers are available for companies and managing directors in such negotiations.
Termination without Notice as a Managing Director
In some circumstances, the GmbH has the authority to terminate the managing director’s contract without notice and thus does not comply with either the statutory notice periods or the notice periods agreed in the managing director’s contract. However, just like in the extraordinary termination of employees, an important reason is required under § 626 (1) BGB.
Essentially, this provision allows the extraordinary termination in situations where the GmbH cannot reasonably be expected to continue the contractual relationship until the expiry of the notice period or, if a managing director’s contract has a fixed term, until its agreed end date.
Important reasons for extraordinary termination include the following:
- Assaulting members of staff or shareholders (verbal and physical),
- Culpable delay by the managing director in filing for insolvency,
- Criminal conduct: including fraud,
- A significant breach of trust.
- Repeated disregard of instructions of the shareholders’ meeting,
A legal professional must examine how such reasons apply to specific circumstances. There is some guidance under § 626 BGB, as it states:
The service relationship may be terminated by either party to the contract for a compelling reason without complying with a notice period if facts are present on the basis of which the party giving notice cannot reasonably be expected to continue the service relationship to the end of the notice period or to the agreed end of the service relationship, taking all circumstances of the individual case into account and weighing the interests of both parties to the contract.
Managing directors can also terminate their contract without notice based on the conditions outlined under § 626 BGB.
At Schlun & Elseven Rechtsanwälte, our lawyers advise companies and managing directors in such cases. Companies must ensure that they have applied the law correctly to the situation, as not doing so leaves them open to legal challenges. Similarly, dismissed managing directors should consult with legal advice in cases where they feel that the company has acted excessively.
Practice Group: German Corporate Law
Practice Group:
German Corporate Law
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