§ 46 Duties of shareholders

10§ 46 GmbHG is one of the key competence regulations of the GmbHG. It assigns certain issues and transactions to the responsibility of the shareholders’ assembly and thus withdraws it from the managing directors’ responsibility. However, the list of responsibilities contained in § 46 GmbHG is neither complete nor exhaustive.

a) Adoption of the annual financial statements and profit appropriation (No. 1)

15Pursuant to the law, one has to distinguish between drawing up and adopting the annual financial statements. § 46 No. 1 GmbHG provides that the adoption of the financial statements as well as the decision on profit appropriation is the shareholders’ responsibility whereas pursuant to § 263 subs. I clause 3 HGB (German Commercial Code) drawing up the financial statements is the managing directors’ responsibility.

16Drawing up the financial statements is part of the accountability obligation incumbent on the managing directors whereby the managing directors seek formal approval of their actions by the shareholders’ assembly.Winnefeld, Bilanz-Handbuch, 5th ed. (2015), chapter H, para. 5. The shareholders’ assembly, by adopting the financial statements, acknowledges that the financial statements are correct and at the same time finally decides on any existing options and financial reporting margins. The adoption of the financial statements also creates the basis for profit appropriation.Winnefeld, Bilanz-Handbuch, 5th ed. (2015), chapter H, para. 110 et seqq. This is in line with the allocation of roles intended by the legislator between the management on the one hand and the shareholders’ assembly as the controlling and instructing body on the other hand.

aa) Adoption of the annual financial statements

17The annual financial statements (§ 264 HGB) include the balance sheet, the income statement (§ 242 subs. III HGB) as well as the notes (§ 264 subs. I HGB). The management report is not part of the annual financial statements (§ 289 HGB) which consequently need not be formally adopted by the shareholders. Nonetheless, the shareholders are free to resolve on the management report, too. The authority to do so derives from the shareholders’ right which is based on § 37 subs. I GmbHG to give instructions to the management. Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 2; Roth in: Roth/Altmeppen, GmbHG, 7th ed. (2012), § 46 para. 2,3; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 7, 8.

18§ 46 No. 1 GmbHG applies mutatis mutandis to interim financial statements/ balance sheets as well as to liquidation balance sheets (§ 71 subs. II GmbHG), provided the drawing up of these documents is required by law. However, the opening balance sheet (§ 242 subs. I HGB) need not be formally adopted.

19After the annual financial statements have been drawn up, the managing directors are obliged under § 42a subs. I GmbHG to present to the shareholders, without undue delay (“unverzüglich”) and in due time before the resolution, the financial statements and the management report for adoption of the financial statements. The shareholders, as a rule, may request to be provided with the financial statements no later than one month before the relevant shareholders’ meeting.LG (Regional Court) Saarbrücken, judgement of 18/11/2009 – 7 KFH O 67/09, GmbHR 2010, 762 (764); Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), § 46 para. 16. If the annual financial statements are to be audited, the managing directors are obliged to present the financial statements, the management report and the auditor’s report to the shareholders without undue delay (“unverzüglich”) after receipt of the auditor’s report (§ 42a subs. I clause 2 GmbHG). If the company has a supervisory board, also the supervisory board’s report is to be presented to the shareholders without undue delay (“unverzüglich”) (§ 42a subs. I clause 3 GmbHG).

20Upon adoption of the annual financial statements, they become binding and constitute both the basis for the resolution on profit appropriation to be adopted by the shareholders’ assembly and the opening balance sheet of the company for the fiscal year to come. However, subsequent corrections of the financial statements after they have been adopted are nonetheless possible.Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), § 46 para. 23.

bb) Profit appropriation

21In addition to the adoption of the annual financial statements, a separate resolution is passed on profit appropriation. In practice, both resolutions are often passed in one and the same shareholders’ meeting.

22The purpose of the resolution on profit appropriation is to decide how to use the annual surplus of the company. The profit appropriation resolution thus requires a valid adoption of the financial statements by the shareholders. If the resolution for adoption of the financial statements is void, this causes the profit appropriation resolution which is based thereon to be void, too.

cc) Time limit

23Pursuant to § 42a subs. II GmbHG, both the resolution for adoption of the financial statements and the resolution on profit appropriation need to be passed no later than within eight months or, in the case of small companies in terms of § 267 subs. I HGB, within eleven months from the end of the fiscal year. However, non-compliance with this time limit entails neither voidness nor voidability of the resolutions.

dd) Non-mandatory provision

24§ 46 No. 1 GmbHG is a non-mandatory provision which can be varied by agreement between the parties. It is the prevailing view that the authority to resolve on the adoption of the annual financial statements as well as on profit appropriation can be vested in other executive bodies of the company including the management by virtue of the articles of association.H. M., cf. Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), § 46 para. 46.

25This standpoint is not convincing. Indeed, the authority to adopt the annual financial statements can be vested in a supervisory board or a corporate committee. It is however impermissible to vest this authority in the managing directors. The adoption of the financial statements is (among other things) meant to supervise and approve of the corporate governance of the GmbH by the managing directors. The adoption of the annual financial statements thus proves to be one of the most important periodically recurring procedures to control the managing directors. Vesting this authority in the managing directors would lead to the managing directors controlling themselves, which in actual fact is contrary to the purpose underlying the adoption of the annual financial statements. This is not rebutted by the fact that in a GmbH managing directors often are shareholders of the company at the same time. The abstract separation between the shareholders’ assembly as the decision-making body and the management as the corporate governance body is not impaired or hindered thereby.

26Supervision of the management is one of the responsibilities assigned to the shareholders’ assembly by virtue of law. If the shareholders’ assembly delegates certain individual supervising tasks, it is at the same time obliged to ensure that this delegation does not cause the control mechanisms provided for by law to be undermined. It is thus impermissible to vest the said authority in the management for “self-control”.

b) Decision on the publication of individual financial statements and approval of the financial statements drawn up by the managing directors (No. 1a)

27§ 46 No. 1a GmbHG further provides that the shareholders’ assembly is responsible for deciding whether or not individual financial statements drawn up in accordance with international financial reporting standards are to be published. This is however only important for medium and large-scale corporations in terms of § 267 subs. III HGB because, according to § 352 subs. II a HGB, only these companies may publish, instead of the annual financial statements which still are to be drawn up in accordance with the requirements of the HGB (German Commercial Code), individual financial statements which have been prepared in conformity with international financial reporting standards.Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 22; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 52.

28Pursuant to § 325 subs. I and subs. II HGB, the legal representatives of corporations are obliged to file the annual financial statements of the company with the operator of the Bundesanzeiger (German Federal Gazette) and have them published there. § 325 subs. IIa HGB opens up an option to medium and large-scale corporations (§ 267 subs. III HGB) to file, in place of the annual financial statements, individual financial statements drawn up in accordance with the international financial reporting standards (IFRS) referred to in § 315a subs. I HGB. Pursuant to § 46 No. 1a GmbHG, the decision on the publication of individual financial statements lies with the shareholders.

29If the shareholders have resolved to publish such individual financial statements, the management is obliged to draw up these individual financial statements according to the regulations governing the presentation and adoption of the annual financial statements in terms of the HGB (cf. § 42a subs. I – III GmbHG) and then present them to the shareholders for approval by resolution according to § 46 No. 1a GmbHG (§ 42a subs. IV GmbHG).Mollenkopf in: Henssler/Strohn, Gesellschaftsrecht, 2nd ed. (2014), § 46 GmbHG para. 7; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 47a.

30§ 46 No. 1a GmbHG is a non-mandatory provision which can be varied by agreement between the parties. The authority to publish and approve of the individual financial statements which have been prepared in conformity with international financial reporting standards can be vested in other executive bodies of the company such as the management.Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 47a; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 56.

c) Approval of consolidated financial statements drawn up by the managing directors (No. 1b)

31§ 46 No. 1b GmbHG further provides that the shareholders’ assembly is responsible for approving of consolidated financial statements in the case that the company is obliged to draw up consolidated financial statements (cf. § 290 HGB). Pursuant to § 42a subs. IV GmbHG, the provisions governing the presentation of the annual financial statements apply mutatis mutandis to the consolidated financial statements.

32Also the shareholders’ assembly’s authority to approve of consolidated financial statements can be vested in other executive bodies of the company by virtue of the articles of association.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 57; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 47b.

d) Calling for contributions (No. 2)

33If an application is filed for registration in the Commercial Register of the incorporation of a GmbH (cf. § 7 subs. II GmbHG) or an increase in capital (cf. § 57 subs. II GmbHG), the contributions need not be fully paid in immediately. § 46 No. 2 GmbH rather stipulates that the shareholders’ assembly is to decide by shareholders’ resolution when the outstanding contributions are to be paid by the shareholders. Of course, this only applies if and to the extent that the shareholders did not include in the articles of association specific provisions regarding the due date for the outstanding contributions. So, the assignment of responsibility in § 46 No. 2 GmbHG only refers to that part of the contribution which is not declared by the articles of association or by law to be due immediately.

34In this context, § 46 No. 2 GmbHG applies to both capital contributions and the monetary part of mixed contributions as well as to share premiums, if any.BGH (German Federal Supreme Court), judgement of 15/10/2007 – II ZR 216/06 = NZG 2008, 73. However, § 46 No. 2 GmbHG does not apply to contributions in kind (§ 7 subs. III GmbHG) because, pursuant to § 7 subs. III GmbHG, contributions in kind are to be provided in full already before the application for registration of the company in the Commercial Register is filed.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 65; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 51. § 46 No. 2 GmbHG does not either apply to payments based on the liability for existing balance in the case of overvalued contributions in kind according to § 9 GmbHG, prohibited repayments under § 31 GmbHGBGH (German Federal Supreme Court), judgement of 08/12/1986 – II ZR 55/86 = NJW 1987, 779. or the liability for existing adverse balance.Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 51.

35The resolution on calling for contributions is subject to the general provisions of §§ 47 et seqq. GmbHG.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 67. All shareholders are entitled to vote in this resolution, even shareholders who are still liable to make outstanding residual contributions. In this context, the voting ban under § 47 subs. IV GmbHG does not apply.H. M., cf. BGH (German Federal Supreme Court), judgement of 09/07/1990 – II ZR 9/90 = NJW 1991, 172, 173 f.; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 68; Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 para. 13; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 55.

36For the shareholders present at the resolution, the claim to contribution payment becomes due and enforceable upon passing of the resolution. As to the shareholders not present at the resolution, the prevailing view is that an additional request by the managing directors for payment of the contribution arrears is required.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 72; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 49.

37The responsibility for asserting the company’s claim against the shareholders concerned for payment of the contributions lies with the managing directors. If however the managing directors, by intentional or negligent conduct, fail to comply with their obligation to claim payment of the contributions, the shareholders themselves may assert the claim for contribution payment against the liable shareholder in the name and on behalf of the company by way of a so-called actio pro socio.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 71; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 58.

38§ 46 No. 2 GmbHG is a non-mandatory provision which can be varied by agreement between the parties. The shareholders may also vest the authority to call for payment of the contributions in the management or another executive body of the company. It is also possible to include in the articles of association regulations for the maturity and terms of payment of the contribution claims.Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 para. 11; Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 25.

e) Repayment of additional contributions (No. 3)

39§ 26 GmbHG stipulates that the shareholders may agree in the articles of association upon the shareholders’ obligation under certain circumstances to make additional payments – so-called additional contributions – in addition to the nominal amounts of their shares. Pursuant to § 26 subs. I GmbHG, it is in every case the shareholders’ responsibility to resolve on the calling for additional contributions.

40The assignment of responsibility in § 46 No. 3 GmbHG only refers to the repayment of the aforesaid additional contributions. Pursuant to § 30 subs. II GmbHG, additional contributions may only be repaid if and to the extent that they are not required for compensating a share capital loss, and repayment is not allowed to be made before the expiry of three months from the announcement of the repayment resolution.

41The resolution is adopted in accordance with the general provisions (§§ 47 et seqq. GmbHG). All shareholders are entitled to vote in the resolution.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 78. In this context, the voting ban under § 47 subs. IV GmbHG does not apply.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 79; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 62.

42Unlike the shareholders’ responsibility to call for additional contributions under § 26 subs. I GmbHG, their responsibility to resolve on the reclaiming of additional contributions according to § 46 No. 3 GmbHG is not mandatory and can be vested in another executive body of the company by virtue of the articles of association.Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 30; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 80. However, for reasons of capital maintenance and creditor protection, § 30 subs. II GmbHG is mandatory and cannot be varied which means that the conditions for repayment of additional contributions cannot be eased by the articles of association but only rendered stricter.Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 61.

f) Splitting, consolidation and redemption of shares (No. 4)

43Pursuant to § 46 No. 4 GmbHG, the splitting, consolidation and redemption of shares requires consent by the shareholders’ assembly.

aa) Splitting and consolidation of shares

44When splitting a share, it is split into two or more separate independent shares. When consolidating shares, several independent shares are consolidated into one single share. Splitting or consolidating shares may for instance be necessary if some part of a share is intended for sale or to adjust the shareholding in a GmbH.

45When splitting shares, the specifications in § 5 subs. II GmbHG are to be observed which requires the nominal amount of each single share to be a full EURO amount. When splitting a share, the membership rights and duties associated with the share are transferred on a pro-rata basis to the new separated shares if and to the extent the rights in question are separable, which especially applies in the case of outstanding contribution claims.Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 para. 17a. Inseparable membership rights (e.g. the right to information and inspection according to § 51a subs. I GmbHG) can be exercised for each single share.Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 para. 17c.

46When consolidating shares, it is important to ensure that none of the contributions or additional contributions for the shares in question are outstanding and that the shares are not encumbered with or subject to third-party rights.Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 32; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 89; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 66.

47The splitting or consolidation of shares does not constitute a change to the articles of association so that the special requirements of § 53 GmbHG do not apply. The resolutions are rather adopted in accordance with the general rules (§§ 47 et seqq. GmbHG).Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 85; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 65. Unless the articles of association provide otherwise, the resolution is adopted by the simple majority of the votes cast. All shareholders are entitled to vote in the resolution. This is not prevented by § 47 subs. IV GmbHG.Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 65; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 85. Consent by the shareholder concerned by the splitting is not necessary.Zöllner in: Baumbach/Hueck, GmbHG, 20th ed. (2013), § 46 para. 31a. In contrast, the consolidation of shares requires consent by the shareholder concerned.Zöllner in: Baumbach/Hueck, GmbHG, 20th ed. (2013), § 46 para. 32a.

48§ 46 No. 4 GmbHG is a non-mandatory provision which can be varied by agreement between the parties. The authority to resolve on the splitting or consolidation of shares can be vested in other executive bodies of the company by virtue of the articles of association.Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 64; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 95.

49Following the consolidation or splitting of shares, the company’s managing director is obliged to file a new adjusted list of shareholders for registration by the Commercial Register (§ 40 subs. I GmbHG).

bb) Redemption

50Pursuant to § 34 subs. I GmbHG, shares may only be redeemed if redemption is permitted under the articles of association.For the legitimacy of redemption see the comments on § 34 GmbHG.

51Also resolutions on redemption are adopted in accordance with the general provisions (§ 47 et seqq. GmbHG) and thus, as a rule, require the simple majority of the votes cast unless provided otherwise by the articles of association. If shares are redeemed for good cause, the shareholder concerned is barred from voting according to § 47 subs. IV GmbHG.Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 67; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 93. In the case of voluntary redemption of a share, however, the prevailing view is that the shareholder concerned is not barred from voting.

52Pursuant to the majority view, § 46 No. 4 GmbHG is optional, i.e. not mandatory - also as regards the redemption.Mollenkopf in: Henssler/Strohn, Gesellschaftsrecht, 2nd ed. (2014), § 46 GmbHG para. 19; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 95. The majority view however acknowledges that any redemption that leads to the termination of the shareholders’ assembly constitutes a serious interference. Therefore it is postulated that the regulations in the articles of association need to be sufficiently clear and exhaustive to the effect that virtually there is no decision-making leeway left. Since however in every case, it needs to be decided – provided the relevant conditions are fulfilled – whether the shares should actually be redeemed, such a case is hardly ever thinkable in practice. Given the considerable consequences of the redemption on the shareholders’ level (change of the shareholding structure, financing of the company etc.), the decision on redemption should be exclusively assigned to the shareholders’ assembly, especially because the process of redemption is close to a change to the articles of association. In addition, the separation between the company level and the shareholders level is maintained.

53To render the resolution for redemption valid, the redemption needs to be advised to the shareholder concerned. Payment of compensation is however not necessary to render the resolution for redemption valid unless this is required by the articles of association.BGH (German Federal Supreme Court), judgement of 24/01/2012 – II ZR 109/11 = NZG 2012, 259; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 92.

g) Appointment and dismissal of managing directors and formal approval of their action (No. 5)

54The authority assigned to the shareholders’ assembly in § 46 No. 5 GmbHG to appoint and dismiss managing directors and formally approve of the managing directors’ action, along with the authority to control and supervise the management (§ 46 No. 6 GmbHG), is one of the key responsibilities of the shareholders’ assemblyZöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 34; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 97. and reflects the outstanding position of the shareholders’ assembly in a GmbH.

aa) Appointment and dismissal of managing directors

55As a rule, § 46 No. 5 GmbHG assigns the authority to appoint and dismiss managing directors and formally approve of their action to the shareholders’ assembly.

56The managing director, when appointed in terms of corporate law, becomes an executive body of the company. Dismissal of a managing director is the reverse of his appointment.

57An exemption from this assignment of responsibility in § 46 No. 5 GmbHG applies however in the case of companies which are subject to employees’ co-determination in terms of the “Mitbestimmungsgesetz” (German Co-determination Act - “MitbestG”) and the “Gesetz über die Mitbestimmung der Arbeitnehmer in den Aufsichtsräten und Vorständen der Unternehmen des Bergbaus und der Eisen und Stahle erzeugenden Industrie” (German Act on Employees’ Co-determination in Supervisory Boards and Boards of Directors of Mining Companies and Iron and Steelmaking Companies - “MontanMitbestG”). In these cases, appointment and dismissal of the managing directors are mandatorily assigned to the obligatory supervisory board (cf. § 31 subs. I MitbestG resp. § 12 MontanMitbestG).Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 69; Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 34. N-US;mso-fareast-language:DE;mso-bidi-language:AR-SA'>. If however the supervisory board is established voluntarily or is to be established under the “Drittelbeteiligungsgesetz” (German One-Third Participation Act), the authority to appoint and dismiss the managing directors under § 46 No. 5 GmbHG remains with the shareholders’ assembly unless otherwise provided for by the articles of association.Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 69; Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 34a.

58Another exemption from the assignment of responsibility in § 46 No. 5 GmbH pertains to the case of an interim managing director who is judicially appointed for reasons of urgency (“Notgeschäftsführer”, cf. § 29 BGB – German Civil Code). Such an interim managing director appointed by the court can only be dismissed by the appointing court unless he withdraws from his office voluntarily.OLG München (Higher Regional Court of Munich), judgement of 30/06/1993 – 7 U 6945/92 = GmbHR 1994, 259; Mollenkopf in: Henssler/Strohn, Gesellschaftsrecht, 3rd ed. (2016), § 46 GmbHG para. 21; Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 34. However, the shareholders’ assembly may terminate the interim management by appointing a new managing director to take over the position of the missing one because thereby the reason for the appointment of the interim managing director is vitiated, and thereafter the shareholders’ assembly may request the local court to dismiss the interim managing director. The appointment of a managing director needs to be distinguished from the employment of the managing director by virtue of an employment contract under the law of obligations. However, the shareholders’ assembly’s responsibility under § 46 No. 5 GmbHG also comprises – as sort of “satellite responsibility” (“Annexkompetenz”) in addition to the appointment and dismissal of managing directors – the conclusion, change and termination of the managing director’s employment contract.Mollenkopf in: Henssler/Strohn, Gesellschaftsrecht, 3rd ed. (2016), § 46 GmbHG para. 23; Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 para. 27 et seq.; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 124. If and to the extent that the MitbestG and the MontanMitbestG apply, this satellite responsibility falls within the responsibility of the supervisory board.

59Resolutions on the appointment and dismissal of managing directors are adopted in accordance with the general rules stipulated in §§ 47 et seqq. GmbHG. So, as a rule, the simple majority of the votes cast is sufficient. If however a shareholder is intended to be appointed managing director or dismissed from his office as managing director, the shareholder concerned is entitled to vote, too, unless the shareholder appointed managing director is to be dismissed for good cause. In this case, the shareholder is barred from voting according to § 47 subs. IV GmbHG because of the nemo iudex in sua causa principle.BGH (German Federal Supreme Court), judgement of 29/09/1955 – II ZR 225/54 = NJW 1955, 1716; Mollenkopf in: Henssler/Strohn, Gesellschafts­recht, 3rd ed. (2016), § 46 GmbHG para. 22; Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 GmbHG para. 20.

60In a so-called Einmann-GmbH (one-man GmbH), the shareholder himself can appoint himself managing director, thereby observing the provisions of § 48 subs. III GmbHG. § 181 BGB (German Civil Code) does not prevent such an appointment.

61To render the appointment or dismissal of a managing director valid, the shareholders’ resolution still needs to be implemented by the shareholders’ assembly giving notice of the appointment or dismissal to the managing director concerned. This notification is of course dispensable if the managing director to be appointed was present at the resolution. The appointment further requires acceptance of the appointment by the managing director concerned. If the managing director accepts the appointment, he is deemed appointed managing director and may then represent the company in accordance with regulations contained in the articles of association.

62The application for registration and registration of the managing director in the Commercial Register required under § 39 subs. I GmbHG have a mere declaratory function and thus do not influence the validity of the appointment. A managing director who has been appointed managing director by resolution of the shareholders’ assembly may - without further ado based on his power of representation - himself apply for registration of his appointment as managing director. If the appointment of a managing director is invalid, any third party may however invoke the principle stipulated by § 15 subs. III HGB (German Commercial Code) postulating reliance on the existence of a published fact which is entered in the Commercial Registered (“Publizitätswirkung”), provided the appointment as managing director was entered in the Commercial Register.

63The regulation in § 46 No. 5 GmbH assigning the authority to appoint and dismiss managing directors is non-mandatory and can be varied by agreement between the parties; by virtue of the articles of association, it can be vested in other executive bodies of the company but not in other managing directors. It is also possible to grant to certain individual shareholders a delegation right or the right to be managing directors themselves.Mollenkopf in: Henssler/Strohn, Gesellschaftsrecht, 3rd ed. (2016), § 46 GmbHG para. 20; Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 GmbHG para. 19.

bb) Formal approval of managing directors’ action

64§ 46 No. 5 GmbHG also stipulates the shareholders’ assembly’s responsibility for formally approving of the managing directors’ action. The shareholders’ assembly, by formally approving of the managing directors’ action, approves either of a specific measure taken by the management or the entire management action during a certain period and expresses its confidence in the managing directors for the future.

65The company, once having approved of the managing directors’ action, forfeits the right to assert claims for damages or other claims against the management for reasons covered by the formal approval of the managing directors’ action.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 144; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 94a. Dismissal of a managing director for good cause can no longer be based on any of these reasons either.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 144; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 94a. However, the formal approval only comprises claims that were known to all shareholders or reasonably identifiable by the shareholders when carefully auditing the reports and documents presented by the managing directors.

66The managing directors are not entitled to formal approval of their action. If however the company purports to have specific claims against the managing director, the latter can file a complaint against the company for declaratory relief to the effect that the said claim does not exist.BGHZ 94, 324 = NJW 1986, 129.

67The resolution for formal approval of the managing directors’ action, as a rule, is adopted in accordance with the general rules contained in §§ 47 et seqq. GmbHG which means that a simple majority vote is sufficient. Pursuant to § 47 subs. IV GmbHG, shareholders who have taken over the position of managing directors and who are concerned by the resolution are barred from voting.Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 42; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 97.

68The authority to formally approve of the managing directors’ action can be vested in other executive bodies of the company by virtue of the articles of association, but not in the managing directors themselves.Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 48; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 187.

h) Control and supervision of the management (No. 6)

69The GmbHG refers to the shareholders’ assembly as the supreme control and supervision body of the company.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 189. This outstanding position of the shareholders’ assembly within the company is reflected by the shareholders’ right to give instructions to the management and the comprehensive authority to control and supervise under § 46 No. 6 GmbHG which is granted to the shareholders for joint exercise. In addition, each single shareholder is individually entitled to rights to information and rights of control such as the right to information and inspection under § 51a GmbHG.

70§ 46 No. 6 GmbHG stipulates for the shareholders the option to determine by resolution specific measures from time to time or generally applicable regulations to be included in internal rules of procedure, for the control and supervision of the management. So, for instance, the shareholders often declare transactions of a certain scale or type other than those listed in § 46 GmbHG to be subject to consent.

71The GmbHG does not provide a detailed definition of the scope of the permissible measures the determination of which, within extensive limits and only restricted by the principle of reasonableness, is left to the shareholders themselves.Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 50; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 197; Mollenkopf in: Henssler/Strohn, Gesellschaftsrecht, 3rd ed. (2016), § 46 GmbHG para. 31. In this context, it is however impermissible to exercise absolute control even over unimportant decisions taken from time to time and thus fully deprive the managing directors of their leeway in entrepreneurial decision-making because this would constitute degradation of the managing directors to mere auxiliary subordinates of the shareholders, which is not in line with the GmbHG.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 197.

72If a managing director holds that a shareholders’ resolution is impermissible, the prevailing view is that he cannot challenge the resolution on his own but he can file a complaint for declaratory relief to the effect that the resolved measure is unlawful.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 201; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 118.

73The resolution is adopted by the simple majority of the votes cast in accordance with the general rules (§ 47 et seqq. GmbHG), unless otherwise provided for by the articles of association. A shareholder may be excluded from the resolution under § 47 subs. IV GmbHG if he is a shareholder in the position of a managing director who is concerned by the measures determined in the resolution.Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 para. 45; Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 50.

74The shareholders’ authority stipulated in § 46 No. 6 GmbHG can be vested in other executive bodies of the company (supervisory board, advisory board).Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 51; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 202. �), § 46 para. 97. However, the shareholders’ authority to control the managing directors is not completely optional and can only be varied within certain limits because otherwise this would equal an impermissible abolition of the shareholders’ assembly as the supreme executive body of the company. So the ultimate responsibility for decisions in the case of any existing good cause should be left to the shareholders’ assembly.Disputed, cf. Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 para. 47, 48; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 203; Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 51.

i) Appointment of “Prokurist”

(holder of a “Prokura” which is a special authority granted under § 48 et seq. HGB (German Commercial Code) to act on behalf of the company in respect of all transactions in and out of court within the scope of mercantile trade) and “Handlungsbevollmächtigter” (other persons authorized to act on the company’s behalf according to §§ 54 et seqq. HGB (No. 7)

75Pursuant to § 13 subs. III GmbHG, the GmbH, by virtue of its legal form, is a “merchant” in terms of the HGB (German Commercial Code) and can thus grant a “Prokura” (§§ 48 et seqq. HGB) or “Handlungsvollmacht” (§ 54 HGB). § 46 No. 7 GmbHG provides that the decision on the appointment of a "Prokurist" is the responsibility of the shareholders.

76However, the implementation of the resolution as well as the application for registration of the Prokura and its expiration is the responsibility of the managing director as the legal representative of the company (§ 78 GmbHG).Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 55; Mollenkopf in: Henssler/Strohn, Gesellschaftsrecht, 3rd ed. (2016), § 46 GmbHG para. 34 f.; Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 para. 49. Also the revocation of the “Prokura” or “Handlungsvollmacht” falls within the managing director’s responsibility because § 46 No. 7 provides that the revocation requires no shareholders’ resolution unless the shareholders have not agreed otherwise in the articles of association or by shareholders’ resolution.Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 53; Mollenkopf in: Henssler/Strohn, Gesellschaftsrecht, 3rd ed. (2016), § 46 GmbHG para. 34 et seq.; Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 para. 49.

77A managing director himself cannot be appointed “Prokurist”,Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 52; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 210; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 120. a shareholder however can.

78The resolution according to § 46 No. 7 GmbHG is passed in accordance with the general rules (§§ 47 et seqq. GmbHG). If a shareholder is intended to be appointed “Prokurist” or “Handlungsbevollmächtigter”, the shareholder concerned is not entitled to vote in this resolution (§ 47 subs. IV GmbHG).Disputed: Arguing for the voting ban: Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 52; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 221; Schindler in: Beck'scher Online-Kommentar GmbHG, Ziemons/Jaeger, 36th edition, as of: 01/02/2018, § 46 para. 87; Arguing against a voting ban: Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 para. 52; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 128.

79§ 46 No. 7 GmbHG is optional, i.e. non-mandatory and can be varied by agreement between the parties. The shareholders’ assembly may thus vest the authority to grant “Prokura” or “Handlungsvollmacht” in another executive body of the company and even in the managing directors themselves by shareholders’ resolution or an appropriate regulation in the articles of association.Schindler in: Beck'scher Online-Kommentar GmbHG, Ziemons/Jaeger, 36th edition, as of: 01/02/2018, § 46 para. 88; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 225.

j) Assertion of compensation claims against managing directors or shareholders to which the company is entitled in connection with the incorporation or management, and representation of the company in litigation against managing directors (No. 8)

80§ 46 No. 8 GmbHG provides that the assertion of compensation claims against managing directors or shareholders to which the company is entitled in connection with the incorporation or management of the company (case 1) as well as the representation of the company in litigation against managing directors (case 2) is subject to resolution by the shareholders’ assembly.

81Indeed, in actual fact, both cases are about internal legal disputes within the company. Nonetheless the purposes and intentions of the two regulations are quite different. Whereas the purpose of § 46 No. 8 case 1 GmbHG is to prevent arbitrary unauthorized decisions on compensation claims by the managing directors and, given the considerable strain put on the internal relations in connection with the assertion of such compensation claims, shift the authority to make such decisions to the shareholders’ assembly,Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 228. § 46 No. 8 case 2 basically intends to ensure and maintain the ability to act as well as proper representation of the company while the company is asserting claims against its own representation body.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 229.

aa) Assertion of compensation claims against managing directors or shareholders to which the company is entitled in connection with the incorporation or management of the company

82§ 46 No. 8 case 1 GmbHG provides that the shareholders’ assembly is responsible for deciding on the assertion of compensation claims against managing directors or shareholders to which the company is entitled in connection with the incorporation or management of the company.

83§ 46 No. case 1 GmbHG only applies to the company’s compensation claims against former or current managing directors or shareholders. The application of this provision is however extended, beyond its wording, to compensation claims of the company against other members of the executive bodies such as members of the supervisory board or an advisory board as well as liquidators.Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 59; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 146; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 243. The provision however only pertains to claims of the company; thus claims of the shareholders or third parties do not fall under § 46 No. 8 case 1 GmbHG.

84Moreover, § 46 No. 8 case 1 GmbHG only applies to compensation claims arising in connection with the incorporation or management of the company. However, the term “compensation claims” is to be understood in a broad sense which means that all claims that are based on a breach of duty committed by a managing director or shareholder in the context of the incorporation or management of the company are covered by the said provision including but not limited to claims for damages, cease and desist claims and claims for surrender as well as claims for information and accountability.Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 58; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 147; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 232 et seqq.

85Any kind of assertion – positive or negative – i.e. not only the assertion of claims or initiation of judicial proceedings but also any kind of settlement such as a remission, relief or waiver requires a shareholders’ resolution. If however claims are intended to be asserted by preliminary injunction proceedings, no prior shareholders’ resolution is required.Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 60; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 244.

86The shareholders’ resolution is a substantive requirement for the assertion of claims which means that any complaint filed without an appropriate shareholders’ resolution is to be dismissed on the merits for non-fulfilment of the substantive requirements.Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 142; Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 61; BGH (German Federal Supreme Court), judgement of 20/11/1958 – II ZR 17/57 = NJW 1959, 194.

87The resolution is adopted in accordance with the general rules (§§ 47 et seqq. GmbHG). The shareholder concerned by the assertion is barred from voting according to § 47 subs. IV GmbHG.Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 62; Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 para. 65. Moreover, also all shareholders who have committed the breach of duty jointly with the directly concerned shareholder or have participated in the breach of duty are barred from voting, too.BGH (German Federal Supreme Court), judgement of 20/01/1986 – II ZR 73/85Z = NJW 1986, 2051.

bb) Representation of the company in litigation against managing directors

88§ 46 No. 8 case 2 GmbHG provides that the shareholders are also responsible for deciding on the representation of the company in litigation against managing directors.

89§ 46 No. 8 case 2 GmbHG does not apply to a GmbH that is subject to co-determination. In litigation against a managing director, the GmbH that is subject to co-determination is mandatorily represented by the obligatory supervisory board (cf. §§ 52 GmbHG, 112 AktG - German Stock Corporation Act). If the GmbH has a voluntary supervisory board, the latter also represents the GmbH in litigation against a managing director unless otherwise provided for by the articles of association.Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 69; Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 para. 56.
 

90§ 46 No. 8 case 2 GmbHG is independent of the authority in § 46 No. 8 case 1 GmbHG and thus does not only pertain to the compensation claims mentioned in § 46 No. 8 case 1 GmbHG but generally to all claims of the company against a managing director. § 46 No. 8 case 2 GmbHG further applies for all jurisdictions and types of proceedings and regardless of whether the parties involved take the role of plaintiff resp. applicant or defendant resp. respondent.

91§ 46 No. 8 case 2 GmbHG only applies to proceedings involving a managing director. It is disputed in case law and scholarship whether the provision also applies to managing directors who have withdrawn from the company, but the majority view supports this approach.BGH (German Federal Supreme Court), judgement of 20/11/1958 – II ZR 17/57 = NJW 1959, 194; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 270; Arguing to the contrary: OLG Brandenburg (Higher Regional Court of Brandenburg), judgement of 17/02/2010 – 7 U 82/09 = GmbHR 1998, 600; Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 67; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 167; Roth in: Roth/Altmeppen, GmbHG, 8th ed. (2015), § 46 para. 57. However, in any case, the authority to adopt resolutions under § 46 No. 8 case 2 GmbHG applies if the resolution is about the validity of the termination of a managing director’s office.

92As long as the shareholders’ assembly has not yet passed a resolution for the representation of the company, the managing directors that are not concerned by the litigation continue to be entitled to represent the company within the limits provided for by the articles of association.BGH (German Federal Supreme Court), judgement of 24/02/1992 – II ZR 79/91 = NJW-RR 1992, 993; Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 68; Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 164.

93The resolution is adopted in accordance with the general rules (§§ 47 et seqq. GmbHG). A shareholder who was appointed managing director and is intended to become a party to the litigation is barred from voting under § 47 subs. IV GmbHG. However, if a shareholder is intended to be appointed representative, such shareholder is entitled to take part in the vote.Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 273; Zöllner/Noack in: Baumbach/Hueck, GmbHG, 21st ed. (2017), § 46 para. 70.

cc) Non-mandatory provision

94§ 46 No. 8 GmbHG is non-mandatory and can be varied by agreement between the parties as regards both cases.Karsten Schmidt in: Scholz, GmbHG, 11th ed. (2014), vol. II, § 46 para. 143; Liebscher in: Münchener Kommentar zum GmbHG, vol. II, 2nd ed. (2016), § 46 para. 290 et seq. The authority stipulated therein can be vested in another executive body of the company by virtue of the articles of association. The requirement of passing a resolution can also be waived completely and immediate assertion of compensation claims without a prior shareholders’ resolution can be permitted.

k) Further responsibilities

95§ 46 GmbHG does not contain an exhaustive list of responsibilities of the shareholders’ assembly. The law rather assigns many additional responsibilities to the shareholders’ assembly, including especially the following:

 Decision on changes and amendments to the articles of association (§ 53 GmbHG) including all kinds of capital measures according to §§ 55 et seqq. GmbHG
 Instructions to the managing directors (§ 37 subs. I GmbHG)
 Liquidation of the company, continuation of the liquidated company (§§ 60 subs. I No. 2, 62 GmbHG)
 Appointment and dismissal of the liquidators and formal approval of the liquidators’ action (cf. §§ 66 subs. I and 71 subs. II GmbHG)
 Measures under the “Umwandlungsgesetz” (German Company Transformation Act – “UmwG”) including but not limited to mergers (§ 13 subs. I UmwG), change of the legal form (§ 193 subs. I UmwG), split-up/ split-off/ spin-off (§§ 125, 13 subs. I UmwG) and transfer of assets to public entities (§§ 176, 13 UmwG and §§ 177, 125, 13 UmwG),
 Conclusion, change and cancellation of control agreements and profit transfer agreements (§ 293 AktG - German Stock Corporation Act)