When a co-shareholder unlawfully withdraws funds from a GmbH — whether without a valid profit distribution resolution or in breach of the statutory capital maintenance rules — this goes beyond a technical formality. It represents a serious interference with the rights of the other shareholders. Those affected often need to act on several fronts at once: recovering the withdrawn assets, preventing further losses, and in serious cases, removing the offending shareholder from the company entirely. German GmbH law provides a range of tools for exactly these situations, from repayment claims and interim injunctive relief through to exclusion proceedings.
At Schlun & Elseven, our corporate law team advises and represents shareholders and managing directors in disputes involving unlawful withdrawals in Germany in all their forms — from constructive distributions and unauthorized fund transfers through to full exclusion proceedings. Where these matters carry tax implications, as they frequently do, our lawyers work across both corporate and tax law to provide advice that reflects the full picture.
Withdrawals from company assets are subject to strict requirements under German law. First and foremost, there must be a valid resolution of the shareholders’ meeting approving the financial statements and the application of profits. Without such a resolution, any withdrawal lacks a proper legal basis under German corporate law. Furthermore, distributions may only be made from the net profit shown in the annual financial statements — the company’s share capital may not be drawn upon. The key restriction here is Section 30 of the GmbHG (the German Limited Liability Companies Act), which protects the maintenance of share capital. Under this provision, payments to shareholders are prohibited to the extent that they would reduce the company’s net assets below the level required to cover its share capital. Even where a resolution has been validly passed, the company’s liquidity must be maintained.
The following additional points are particularly relevant:
- Loss offset: Current-year profits must first be applied to offset any losses carried forward from prior years.
- Capital maintenance: Distributions may not reduce the company’s net assets below the level of the share capital.
- Distribution in proportion to shareholding: Profits are distributed in accordance with the shareholding ratios set out in the articles of association, unless the articles provide otherwise.
- Tax treatment: Profit distributions are generally subject to withholding tax; alternative tax treatments may apply in specific cases.
Unlawful Profit Withdrawals in a GmbH: Common Scenarios
The range of unlawful withdrawals encountered in practice is broad. A common pattern involves shareholders — often also serving as managing directors — using company funds for personal purposes without a corresponding shareholders’ resolution. Such withdrawals have no legal basis and are impermissible under German law. Also significant in practice are constructive distributions (verdeckte Gewinnausschüttung, or vGA). These arise where a shareholder receives a financial benefit — such as excessive remuneration, reimbursement of private expenses through the GmbH, or any other advantage — that would not have been extended to an unrelated third party under comparable circumstances.
Typical categories include:
- Withdrawals without a shareholders’ resolution: Use of company assets without the required resolution.
- Constructive distributions (vGA): Unreasonable remuneration or benefits outside of a proper profit distribution process.
- Private expense reimbursement: Settlement of non-business expenses by the company.
- The two-shareholder GmbH: Particular conflict situations can arise in a GmbH with only two shareholders, where the parties cannot agree and a deadlock results. In such cases, the majority required to pass shareholders’ resolutions is often absent, making it significantly harder either to enforce or to prevent measures relating to withdrawals. Interim legal relief and corporate dispute resolution mechanisms take on particular importance in these situations.
Withdrawals that result in a net asset deficiency — or that deepen an existing one — are especially serious. In these cases, the statutory repayment obligation under Section 31 GmbHG applies directly. Limited good-faith protection under Section 31(2) GmbHG may be available where the recipient had no actual knowledge and was not grossly negligent in failing to recognize the unlawfulness of the payment at the time it was made. However, this protection has clear limits. Where the company’s financial position was evidently precarious, or where the withdrawal occurred during a period of financial difficulty, German courts will generally hold that the recipient had an obligation to make inquiries, with the result that the repayment claim will succeed regardless.
Unlawful withdrawals should not be treated as minor procedural violations. They can carry serious consequences under German civil and corporate law, and can permanently damage the trust between shareholders.
German GmbH law provides co-shareholders with two independent claims, which can be pursued individually or in combination depending on the circumstances.
Repayment Claims and the Actio Pro Socio
Where a withdrawal violates Section 30 GmbHG, the company acquires a statutory repayment claim against the recipient under Section 31 GmbHG. The shareholder must return what was received — in the case of a cash payment, by repaying the amount; in the case of an asset transfer, by returning the asset or paying its equivalent value. The claim arises by operation of German law, regardless of any shareholders’ resolution, and is generally due immediately.
In practice, enforcement can be complicated where the benefiting shareholder also holds influence over the management and is in a position to delay or prevent the company from pursuing the claim. In such cases, co-shareholders may bring the company’s claim in their own name through the actio pro socio — a mechanism under German corporate law that allows a shareholder to pursue a claim on behalf of the company where management fails to act.
Managing Director Liability for Unlawful Withdrawals
In addition to the repayment claim against the shareholder, the managing director may also face personal liability under Section 43 GmbHG. A managing director who breaches the duty of care owed to the company is liable to the company for any loss resulting from the breach.
A breach of duty arises in particular where the managing director initiates, facilitates, or fails to prevent unlawful withdrawals. Claims against the shareholder under Section 31 GmbHG and liability claims against the managing director under Section 43 GmbHG can, in principle, be pursued in parallel.
Unlawful withdrawals should be addressed as quickly as possible to prevent further damage to the company. The following measures are available under German law:
- Shareholders’ resolutions and instructions: The shareholders’ meeting can resolve to instruct management to cease any further payments or withdrawals.
- Removal and corporate measures: Where the shareholder in question also serves as managing director, immediate removal from that position may be appropriate. Revocation of bank account authorizations should also be considered.
- Internal controls: Strengthening internal approval and oversight processes — in particular, introducing or consistently applying a dual-signatory requirement for payment approvals.
- Court-ordered interim relief: Where there is an ongoing risk of further unlawful disposals, an interim injunction can be sought before the German courts to prohibit additional payments and protect the company’s assets.
Exclusion of a shareholder requires cause (wichtiger Grund). Serious breaches of duty — including repeated or substantial unlawful withdrawals that permanently destroy the trust between shareholders — can meet this threshold under German corporate law. A shareholders’ resolution is generally required; the precise procedure depends on the articles of association. Exclusion is typically implemented by requiring the departing shareholder to redeem their interest or by forcing the transfer of their interest to the remaining shareholders.
Where an amicable solution cannot be reached, or where the articles of association do not provide a clear mechanism, exclusion must be pursued through the German courts. Courts apply a high standard: the breach must be serious, and continuing the shareholder relationship must be genuinely unreasonable. An early legal assessment is therefore important for evaluating prospects and identifying the right course of action.
Enforcing rights in connection with unlawful withdrawals in a GmbH is complex in practice and requires careful analysis of both corporate law and tax law considerations under German law. Even small errors in applying Section 30 GmbHG or in pursuing repayment claims under Section 31 GmbHG can give rise to significant financial exposure and personal liability for shareholders and managing directors alike.
Early legal advice is therefore important — both to properly assess unlawful profit distributions, constructive distributions, and potential managing director liability, and to act decisively. At Schlun & Elseven, our lawyers advise shareholders and managing directors on identifying unlawful withdrawals, enforcing repayment claims, and defending or asserting rights within the GmbH.
A withdrawal is unlawful where there is no valid profit distribution resolution or where it reduces the company’s net assets below the level required to maintain share capital under Section 30 GmbHG. Constructive distributions — such as excessive salaries or reimbursement of private expenses through the GmbH — also fall into this category.
Yes. Where Section 30 GmbHG is violated, a statutory repayment claim arises under Section 31 GmbHG — regardless of whether the withdrawing shareholder acted in bad faith. Our lawyers can assist with enforcing this claim.
The actio pro socio is a mechanism under German corporate law that allows co-shareholders to pursue the GmbH’s repayment claims in their own name — for example, where management fails to act because the withdrawing shareholder controls it.
Yes. Where the managing director facilitated or tolerated unlawful withdrawals, personal liability for damages arises under Section 43(2) GmbHG — in parallel with the repayment claim against the shareholder.
A constructive distribution triggers corporate tax and trade tax at the level of the GmbH, and capital gains tax for the benefiting shareholder. Early tax advice is recommended to avoid retrospective assessments.
Exclusion is possible where there is cause. Serious or repeated unlawful withdrawals that permanently destroy the trust between shareholders can meet this threshold.
Internally, the managing director can be removed, and bank account authorizations can be revoked. In court, an interim injunction can be sought to prevent further access to the company’s assets at short notice.
Practice Group: German Corporate Law
Practice Group:
German Corporate Law
Contact Schlun & Elseven Rechtsanwälte
Please use our online form to outline your request to us. After receiving your request, we will make a brief initial assessment based on the facts described and provide you with a cost offer. You can then decide whether you would like to engage our services.
