§ 35 Representation of company
(1) The company shall be represented in and out of court by the directors. If a company has no director, the company shall be represented by the shareholders whenever declarations of intent are made or documents are served on it.
(2) If several directors have been appointed, they shall only all be jointly entitled to represent the company, unless otherwise provided in the articles of association. Where a declaration of intent is to be made to the company, it shall be sufficient for it to be made to one representative of the company in accordance with subsection (1). Declarations of intent may be made to and documents addressed to the company may be served on the representatives of the company referred to in subsection (1) under the address entered in the Commercial Register. Notwithstanding that, the declarations may also be made to and documents may also be served under the registered address to persons authorised in accordance with section 10 (2), second sentence.
(3) If all the company’s shares are held by one shareholder or besides by the company and if that shareholder is at the same time the sole director, section 181 of the German Civil Code shall apply to his legal transactions with the company. Legal transactions between him and the company he represents shall, even if he is not the sole director, be documented without undue delay following their performance.
Information for non-professionals
Relevance for legal relations
Section 35 of the German Limited Liability Companies Act (GmbHG) is the basic law governing representation of the enterprise by the managing directors ("Geschäftsführer"). To provide an initial overview of the importance of section 35 of the Limited Liability Companies Act to legal transactions and cases in which the law applies, it is warranted to first delineate some distinctions from the perspectives of the various stakeholders.
1a) Section 35 of the Limited Liability Companies Act from the perspective of the partners/holders of shares
From the perspective of the holders of shares in the enterprise (partners/shareholders), section 35 of the Limited Liability Companies Act is above all of importance with regard to an understanding of the structure of powers within the enterprise.
2aa) Shareholders’ Meeting
The Limited Liability Companies Act stipulates that the Shareholders’ Meeting is the supreme institution governing the enterprise. It is in particular responsible for fundamental decisions made by the enterprise (section 46 GmbHG).Lenz, in: Michalski, GmbHG, 2. Aufl. (2010), section 35 Rn. 1 Thus, for example, powers over personnel – with regard to appointment and dismissal of the managing directors laid down in section 6 (3) GmbHG on the one hand and section 38 GmbHG on the otherWisskirchen/Kuhn, in: Ziemons/Jaeger, Beck’scher Online-Kommentar GmbHG, 22. Edition (Stand 15.03.2015), section 35 Rn. 1 - each respectively in connection with section 46 (5) GmbHGAltmeppen, in: Roth/Altmeppen, GmbHG, 7. Aufl. (2012), section 35 Rn. 5 - is assigned to the Shareholders' Meeting.
The organisational constitution of the English limited liability company provides for two institutions. The supreme institution is also the Shareholders’ Meeting. Analogously to the tasks of the Sahreholders’ Meeting of the GmbH, its tasks include reviewing and exercising checks and controls on the management and appointing the managing directors.Erle/Berberich, in: Müller/Winkeljohann, Beck’sches Handbuch der GmbH, 4. Aufl. (2009), section 1 Rn. 125
The managing director does not run the GmbH under his own responsibility in contrast, for instance, to the board of management ("Vorstand") of a joint-stock company ("Aktiengesellschaft").vgl. section 76 Abs. 1 AktG They manage it within the framework laid down by the Shareholders’ Meeting and the resolutions adopted by it (section 37 (1) GmbHG).Oetker, in: Henssler/Strohn, Gesellschaftsrecht, 2. Aufl. (2014), section 35 Rn. 2
The Shareholders’ Meeting can reserve the right to exercise management powers or assume these tasks as it sees fit.Altmeppen, in: Roth/Altmeppen, GmbHG, 7. Aufl. (2012), section 35 Rn. 2 The statutory distribution of powers is for the most part at the discretion of the partners, who are able to stipulate arrangements differing from the articles of association (see section 45 GmbHG).Altmeppen, in: Roth/Altmeppen, GmbHG, 7. Aufl. (2012), section 35 Rn. 3 This is one of the reasons making this an interesting company form. Thus, for example, in addition to the free election of the managing director – which eases the process of company succession, for example through the appointment of a managing director from outside the company in the event that none of the shareholders wants to assume the management of the company – there is a possibility to create additional institutions (e.g. administrative board, advisory board "Beirat") in the articles of association and assign these wide-ranging monitoring, consulting and decision-making powers.Altmeppen, in: Roth/Altmeppen, GmbHG, 7. Aufl. (2012), section 35 Rn. 3 “This reflects the flexibility in the structure of the GmbH. The legal form is first of all supposed to be suitable for a businessperson who wants to become entrepreneurially active with a controllable liability risk. Secondly, it is supposed to also be available to investors who depend on outside expertise in the management of the operative business.”Jaeger/Stephan/Tieves, Münchener Kommentar zum GmbHG, 1. Aufl. (2012), section 35 Rn. 14
3bb) Managing directors
Arrangements relating to the managing directors are summarised in section 35 to section 44 GmbHG and amended by section 6 GmbHG, which above all contains provisions relating to appointment and eligibility for office. Dismissal of the managing director is laid down in section 38 GmbHG, while section 43 GmbHG stipulates the managing director’s liability for damage. Section 35 and section 37 GmbHG relate to representation of the company towards the outside world (section 35 GmbHG) and the management (section 37 GmbHG).
Section 35 GmbHG thus for the most part regulates representation of the enterprise by the managing director or managing directors, which it is mandatory for the company to have (see section 6 (1) GmbHG,Zöllner/Noack, in: Baumbach/Hueck, GmbHG 20. Aufl. (2013), section 35 Rn. 2 and the manner of its execution. section 35 and section 37 GmbHG by the same token relate solely to the institutional position of the managing director. A distinction must be made here with respect to the employment relationship under the law of obligations, which is not regulated in the Limited Liability Companies Act. The employment relationship under the law of obligations is for the most part determined by law governing employment contracts (section 611 of the German Civil Code) if individual labour law provisions do not apply to outside managing directors (perhaps analogously).Oetker, in: Henssler/Strohn, Gesellschaftsrecht, 2. Aufl. (2014), section 35 Rn. 4
4A distinction is to be made in the institutional power of representation with respect to the power of managing the company, which addresses – at least implicitlyAltmeppen, in: Roth/Altmeppen, GmbHG, 7. Aufl. (2012), section 35 Rn. 4 – the authorisation but also the obligation of managing directors vis-à-vis the enterprise to manage the business of the enterprise in section 37 (2) GmbHG. Representation of the company is merely part of the management powers. If only one managing director has been appointed for the company, he or she has the power to represent the company acting alone. In the event that two or more persons have been appointed as managing directors, section 35 (2) (1) of the GmbH Act lays down the joint powers of representation for all managing directors if the articles of association (the statutes) do not stipulate any arrangement to the contrary. In the case of joint representation as well, individual powers of representation may come about, for instance when all but one of the managing directors are eliminated, for instance by death or dismissal, or they no longer possess (unlimited) legal capacity. If the managing directors want to prevent power to represent the company acting alone from coming about, this requires stipulation of an arrangement in the articles of association.
The organisational constitution of an English Limited – a legal entity – provides for a similar institution for the purpose of representing the company in legal transactions and management of the business. In an English Limited, the task of management and representation is placed in the hands of the directors, a legal institution comparable to the German Geschäftsführer (managing directors).Erle/Berberich, in: Müller/Winkeljohann, Beck’sches Handbuch der GmbH, 4. Aufl. (2009), section 1 Rn. 126
In contrast to law governing English limited liability companies, German company law does not provide for any splitting up of tasks in which in addition to the directors conducting the business (executive or managing director) there may also be directors who are not allowed to perform the management or are only assigned supervisory functions (a so-called monistic system)
The dualist system has been adopted in German company law, providing for a strict separation between management and monitoring of the enterprise by codification and statutes, although the GmbH only has a separate supervisory institution in the cases of exception mentioned in the foregoing.Erle/Berberich, in: Müller/Winkeljohann, Beck’sches Handbuch der GmbH, 4. Aufl. (2009), section 1 Rn. 126
5b) Section 35 GmbHG from the perspective of managing directors/procurators (holders of commercial authority)
6aa) Managing directors
The prevailing opinion distinguishes between two legal groups in the legal relationship between the managing director and the company (the so-called separation theory).Lücke/Simon, in: Saenger/Inhester, GmbHG, 2. Aufl. (2013), section 35 Ziffer 11
Appointing a managing director first of all creates a corporate legal relationship, the content of which is spelled out above all through the tasks assigned – management of the enterprise. This is to be distinguished from the employment relationship, which lays down the relationship between the managing director and the enterprise under the law of obligations.
Lawmakers expressly recognised this fundamental conception, as section 84 (1) (5) of the German Joint-Stock Companies Act (AktG) addresses the employment contract separately in addition to the legal relationship established by the appointment and the German Co-Determination ("Mitbestimmung") Act (MitbestG) (section 31 (1)) and the German Iron and Steel Codetermination Act (MontanMitbestG) (section 12) stipulate that the provisions of section 84 (1) (5) of the Joint-Stock Companies Act are applicable in the case of a GmbH with co-determination arrangements.BGH, Urteil vom 14.11.1983 – II ZR 33/83 -, BGHZ 89, 48, 51 f. = NJW 1984, 733 = GmbHR 1984, 151 zu section 31 Abs. 1 MitbestG
Both legal relationships supplement each other and overlap. The obligation of the management is both part of the corporate legal relationship as well as the service owed by the managing director based on the employment contract. At the same time, these legal relationships are independent of one another. A linkage may be created, however, by making the institutional legal relationship subject to the suspensive condition or time bar that an employment contract is concluded. Similar contractual linkages may also be agreed upon with regard to the termination of the employment contract.vgl. hierzu im Zusammenhang die Kommentierung bei section 37 GmbHG
7bb) Procurators (holders of commercial authority - "Prokuristen") / authorised signatories ("Handlungsbevollmächtigte")
The GmbH, represented by the managing director(s), can of course also issue powers of representation including with regard to legal transactions such as for example by issuing power to sign ("Handlungsvollmacht") (section 54 of the German Commercial Code), issue of power of procurator ("Prokura") (sections 48 to 53 of the German Commercial Code)Oetker, in: Henssler/Strohn, Gesellschaftsrecht, 2. Aufl. (2014), section 35 Rn. 35 or other powers of attorney (section 164 of the German Civil Code)Lücke/Simon, in: Saenger/Inhester, GmbHG, 2. Aufl. (2013), section 35 Rn. 8. Regarding details pursuant hereto see U. Grooterhorst, Vollmachten im Unternehmen, 6. Aufl. (2014), S. 159. There are also sample wordings contained therein for conceivable powers of attorney in German and English.
The articles of association may stipulate that a managing director can only represent the company jointly with a procurator (so-called secondary joint representation; analogously to section 78 (3) of the Joint-Stock Companies Act (AktG) and section 125 (3) of the German Commercial Code).Zöllner/Noack, in: Baumbach/Hueck, GmbHG, 20 Aufl. (2013), section 35 Rn. 111 f. The procurator then acts in place of the other managing director (entitled to joint representation). Because section 78 (3) of the Joint-Stock Companies Act and section 125 (3) of the German Commercial Code limit the secondary joint representation to procurators, this applies correspondingly to the GmbH as well. Secondary joint representation with the involvement of an authorised signatory ("Handlungsbevollmächtigten") (section 54 of the German Commercial Code) is therefore not possible. A distinction must be made with secondary joint representation with regard to the “secondary joint proxy ("unechte Gesamtprokura").Oetker, in: Henssler/Strohn, Gesellschaftsrecht, 2. Aufl. (2014), section 35 Rn. 51 This binds a proxy ("Prokurist") to involving a managing director. Individual or joint power of representation by the managing director and hence the institutional power of representation remain unaffected by this.
8c) Section 35 of the Limited Liability Companies Act from the perspective of suppliers, customers, creditors and debtors
If a GmbH has several managing directors, they must act jointly by law. Because this not infrequently poses problems in actual practice, for instance when one of the managing directors is prevented from acting for some reason, it is often stipulated in the articles of association that for example merely two managing directors can represent the company or that individual powers of representation can be assigned. Individual power (including “power to represent the company acting alone”) or joint representation powers are recorded in the Commercial Register,Zöllner/Noack, in: Baumbach/Hueck, GmbHG, 20 Aufl. (2013), section 35 Rn. 115 which means that business partners are informed of this.vgl. section 8 Abs. 4 Nr. 2 GmbHG
Powers of representation – including the power to manage the company – can be limited with regard to its scope through the articles of association or by resolution of the partners (section 37 (1) GmbHG). Such a restriction only applies in terms of internal relationships, however (for instance towards the enterprise, etc.), while the limitation does not have any effect on external relationships (towards suppliers, contractual partners, etc.) (see section 37 (1) (2) GmbHG), which stipulates the scope of powers of representation.Altmeppen, in: Roth/Altmeppen, GmbHG, 7. Aufl. (2012), section 35 Rn. 4 This relieves business partners of the GmbH (e.g. suppliers) from having to deal with details involving the organisational constitution of the GmbH, which could also scarcely be expected of them. The borderline, however, is formed by the evident abuse of powers of representation, i.e. if a third party was able to recognise the limit on powers of representation applying to internal relationships.BGH, Beschluss vom 19.06.2006 – II ZR 337/05-, DB 2006, 1722 = ZIP 2006, 1391= Bb 2006, 1587 = WM 2006, 1524
d) The background to section 35 GmbHG
Section 35 GmbHG is the first provision in section 3 “representation and management” of the Limited Liability Companies Act (GmbHG) in the version announced on 20 April 1898,RGBl. S. 846; BGBl. III/FNA 4123-1 most recently amended by Art. 15 G of law from 24 April 2015,BGBl. I S. 642 which first of all lays down the representation and secondly the management of the company. This section provides the most significant foundation for the constitution of the GmbH.Paefgen, in: Ulmer/Habersack/Winter, GmbHG, Großkommentar, Band II, sections 29 – 52, (2006), section 35 Rn. 1; Wisskirchen/Kuhn, in: Ziemons/Jaeger, Beck’scher Online-Kommentar GmbHG, 22. Edition (Stand 15.03.2015), section 35 Rn. 1
9Section 35 GmbHG is the basic provision governing representation of the company by the managing directors.Altmeppen, in: Roth/Altmeppen, GmbHG, 7. Aufl. (2012), section 35 Rn. 4 It has been amended several times, most recently by the Act on the Modernisation of Limited Liability Companies Law and Combating Abuse (MoMiG) from 23 October 2008.BGBl. I S. 2026 In addition to protection of creditors, the objectives of the MoMiG are above all also to facilitate and expedite foundings of companies in order to compensate for the competitive disadvantage of the German GmbH compared to foreign legal forms in this respect,BT-Drs. 16/6140, S. 1; BT-Drs. 16/9737, S. 1 in particular compared to the English private company limited by shares (in the following: Limited; short form Ltd.) which also enjoyed temporary popularity in Germany as well as a result of case law handed down by the European Court of Justice following the ruling handed down on 30 September 2003 – case C-167/01 (“Inspire Art”).vgl. Servatius, in: Henssler/Strohn, Gesellschaftsrecht, 2. Aufl. (2014), Internationales Gesellschaftsrecht, B. I. 1 Rn. 41 ff., 43
In particular, MoMiG amended section 35 (1) GmbHG with arrangements for when a company has no management through the addition of section 35 (1) (2) GmbHG and lays down new provisions in section 35 (2) GmbHG. Lawmakers therewith reacted to the fraudulent practices of so-called “company gravediggers” (Firmenbestatter), who in the past dismissed managing directors of a GmbH, causing the GmbH to not have any management as a result. Creditors thus did not have any addressee to serve notice to in order to pursue their claims. section 35 GmbHG was amended by section 35 (1) (2) GmbHG in the new version, which provides for a subsidiary responsibility for being served notice in the event a company is without management. section 35 (2) (3) moreover stipulates that service can be carried out at the business address stated in the Commercial Register. See the Expert Notes for a discussion of the additional changes.
Just like the English Limited, the GmbH is a legal entity and requires institutional representatives to perform legal transactions.Altmeppen, in: Roth/Altmeppen, GmbHG, 7. Aufl. (2012), section 35 Rn. 7 These institutions have the power to act that legal entities lack. Their action is ascribed to the legal entity.Altmeppen, in: Roth/Altmeppen, GmbHG, 7. Aufl. (2012), section 35 Rn. 7
10The company (GmbH) is required to have two institutions in a GmbH which does not have any co-determination arrangements: the Shareholders’ Meeting in its capacity as the entire group of shareholders (section 48 GmbHG)vgl. zur Organstellung der Gesellschafterversammlung Schindler, in: Ziemons/Jaeger, Beck’scher Online-Kommentar zum GmbHG, 22. Edition (Stand: 01.12.2014), section 48 Rn. 7 m. w. N., § 45 Rn. 30 f. m.w.N. as well as one or more managing directors who have been assigned institutional power of representation under section 35 (1) (1) GmbHG.Altmeppen, in: Roth/Altmeppen, GmbHG, 7. Aufl. (2012), section 35 Rn. 7
11The company can also have a supervisory board ("Aufsichtsrat") merely as an optional institution (section 52 GmbHG). If the scope of one of the laws pertaining to company co-determination is affected, however – for example, the Act on Employees Having One-Third of the Members on the Supervisory Board (DrittelbG) from 18 May 2004,BGBl. I S. 974 most recently amended by Article 8 of the Act from 24 April 2015,BGBl. I. S. 642 the Act on Co-Determination of Employees (MitbestG) from 4 May 1976,BGBl. I S. 1153 most recently amended by Article 7 of the Act from 24 April 2015,BGBl. I S. 642 the Act on the Co-Determination of Employees on Supervisory Boards and Boards of Management of Companies in the Mining and Iron and Steel Industries (MontanMitbestG) from 21 May 1951,BGBl. I. S. 347 most recently amended by Art. 5 G of the Act from 24 April 2015BGBl. I. S. 642 or the Act Amending the Act on Co-Determination of Employees on Supervisory Boards and Boards of Management of Companies in the Mining and Iron and Steel Industries (MitbestErgG) from 7 August 1956,BGBl. I S. 707 most recently amended by Article 6 of the Act from 24 April 2015,BGBl. I. S. 642 the formation of a supervisory board is mandatory.vgl. Jaeger, in: Ziemons/Jaeger, Beck’scher Online-Kommentar GmbHG, 22. Edition (Stand 15.03.2015), section 52 Rn. 18 ff. und 26 ff.
Information for legal professionals
12a) The director as a governing institution of the company
The governing institutions of the company that are needed are the shareholder meeting (“Gesellschafterversammlung”)cf. Stephan/Tieves, Münchener Kommentar zum GmbHG, 1st edition. (2012), section 35, margin no. 13; Hüffer, in: Ulmer/Habersack/Löbbe, Großkommentar, GmbHG, 2nd edition (2014), volume II, sections 29 - 52, section 48, margin no.
Neither section 35 of the GmbH Act nor any other article in it contains a stipulation of a coherent arrangement regarding corporation and law-of-obligations aspects of acquiring the position of director.Kroppensteiner/Grube, in: Rowedder/Schmidt-Leithoff, GmbHG, 5th edition (2013), section 35, margin no. 5 Commentary is thus limited to the subjects addressed directly in section 35 of the GmbH Act, thereby following the outline of the law.
3) Differentiation, casuistics
34a) The one-man GmbH
The GmbH Act assumes that companies founded under it will consist of several persons (“Mehrpersonen-Gründung”).Jaeger, in: Ziemons/Jaeger, Beck’scher Online-Kommentar GmbHG, 23rd edition (15 June 2015), section 1, margin no. 18 The GmbH may be set up with at least one natural person or legal entity, howevercf. Schäfer, in: Henssler/Strohn, Gesellschaftsrecht, 2nd edition (2014), section 1, margin no.
4) Summary of the jurisdiction
Federal Supreme Court, ruling handed down on 6 October 1960 – II ZR 215/58https://www.jurion.de/Urteile/BGH/1960-10-06/II-ZR-215_58-, Federal Supreme Court Z 33, 189, 192 = NJW 1960, 2285, 2286
Federal Supreme Court, 4 November 1968 – II ZR 63/67https://www.jurion.de/Urteile/BGH/1968-11-04/II-ZR-63_67-, NJW 1969, 131
Federal Supreme Court, ruling handed down on 4 October 1973 – II ZR 31/71http://dejure.
Andres/Leithaus, Insolvenzordnung, 3rd edition (2014)
Beuthien, NJW 1999, 1142
Baumbach/Hueck, GmbHG 20th edition (2013)
Bork/Schäfer, GmbHG, 2nd edition (2012)
Braun, Insolvenzordnung, 6th edition (2014)
Fleischer/Goette, Münchener Kommentar zum GmbHG, 1st edition (2012) and 2nd edition (2015)
J. Grooterhorst, NZG 2007, 605
U. Grooterhorst, Vollmachten im Unternehmen, 6th edition (2014)
Gummert/Beuthien, Münchener Handbuch des Gesellschaftsrechts, volume III, GmbH, 4th edition (2012)
Heckschen/Heidinger, Die GmbHG in der Gestaltungs- und Beratungspraxis, 3rd edition (2013)
Heinz/Hartung, Die englische Limited, 2012
Henssler/Strohn, Gesellschaftsrecht, 2nd edition (2014)
Kirchhof/Stürner/Eidenmüller, Münchener Kommentar zur Insolvenzordnung, 3rd edition (2013)
Lohr, NZG 2000, 1204
Lorz/Pfisterer, Beck’sches Formularbuch GmbH-Recht, 1st edition (2010)
Lutter/Hommelhoff, GmbHG 18th edition (2012)
Michalski, GmbHG, 2nd edition (2010)
Müller/Winkeljohann, Beck’sches Handbuch der GmbH, 4th edition (2009)
Palandt, BGB, 74th edition (2015)
Roth/Altmeppen, GmbHG, 7th edition (2012)
Rowedder/Schmidt-Leihoff, GmbHG, 5th edition (2013)
Säcker/Rixecker, Münchener Kommentar zum BGB, volume I, general part, 6th edition (2012)
Saenger/Inhester, GmbHG, 2nd edition (2013)
Scholz, GmbHG, 10th edition (2010) and 11th edition (2014)
Stummel, Standardvertragsmuster zum Handels- und Gesellschaftsrecht, 5th edition (2015)
Triebel/Otte ZIP 2006, 1321
Ulmer/Habersack/Löbbe, Großkommentar GmbHG, volume II, sections 29 – 52, 2nd edition (2014).
Walz, Beck’sches Formularbuch Zivil-, Wirtschafts- und Unternehmensrecht, Deutsch – Englisch, 3rd edition (2014)
Wicke, GmbHG, 2nd edition (2011)
Ziemons/Jaeger, Beck’scher Online-Kommentar GmbHG, 22nd edition (as of 15 March 2015) and 23rd edition (as of 15 June 2015).
6) Frequently used (chains of) clauses
7) Procedural details
37In the event of a complaint challenging the effectiveness of the appointment or the dismissal of a director, that legal representative who would be considered such if the complaint were rejected represents the company (Federal Supreme Court, ruling handed down on 10 November 1980 – II ZR 51/80https://www.jurion.de/Urteile/BGH/1980-11-10/II-ZR-51_80-, NJW 1981, 1041; Cologne Superior Regional Court, decision rendered on 17 February 2003 – 18 W 6/03https://www.justiz.nrw.de/nrwe/olgs/koeln/j2003/18_W_6_03beschluss20030217.html –, NZG 2003, 395 = NJW-RR 2003, 758). In the opinion of the Federal Supreme Court a director with a large shareholding in the company can be authorised in his own name to press claims on the part of the company (Federal Supreme Court, ruling handed down on 2 June 1986 – II ZR 300/85https://www.jurion.de/Urteile/BGH/1986-06-02/II-ZR-300_85 -, NJW-RR 1987, 57; Munich Superior Regional Court, ruling handed down on 19 May 1982 – 7 U 4099/81 –, WM 1982, 1061). In a legal dispute involving a two-person GmbH, it is not the director but rather the minority partner who is authorised to represent the company.
38Section 35 of the GmbH Act is of tremendous importance to all stakeholders who come into contact with a GmbH. Section 35 of the GmbH Act and case law handed down pursuant hereto play a particularly important role in designing representation and management arrangements in the GmbH statutes to closely align with the actual field of practice. This is of considerable relevance both to the company and its partners – in particular the minority partner – but also the contractual partners of the company.