Regarding the dismissal of a managerone should distinguish between two different legal relationships. The manager is appointed by decision of the company‘s shareholders. In addition to the above, the relationship of the managerwith the company can be described as his/her employment. Both of these legal relationships must be terminated separately. Most company statutes contain a provision that the dismissal is only possible in case of a reasonable ground. These can be, in particular, gross negligence and inability to manage the company. In addition, the termination of the employment contract between the manager and the company is also necessary. The dismissal of a manageroften results in disputes. It can be prevented by specific provisions in the statute. A lawyer experienced in the corporate law can advise you in the course of preparation of the statute. Likewise, in case of a dismissal of a managerit should be necessary to get a qualified legal advice as soon as possible in order to make eventual claims.
A corporation is in principle liable with its company assets. The company director is therefore not liable with his private assets. Nonetheless, there are exceptions, namely if he breaches his duties. In these cases, the director can also be held liable vis-à-vis third parties, shareholders (external liability) or the company itself (internal liability). In the worst case scenario, he may be faced with imprisonment due to breach of duty.
What constitutes a director’s duties and thus also breaches of duty is regulated by many different laws, such as the German Private Limited Liability Company Act (GmbHG), the German Stock Corporation Act (AktG), the Germany Insolvency Code (InsO), the German Civil Code (BGB), the German Commercial Code (HGB) or even the German Criminal Code. For non-lawyers it is almost impossible to stay on top of things in light of the plethora of laws. There are also frequently further provisions on liability found in the employment contract and additional agreements.
Essentially, the director is obligated to properly manage the company, i.e. he must, according to sec. 43 para. 1 GmbHG, provide the level of care due from a prudent businessman regarding the company’s affairs. This includes, among other things, the strict economic and financial control of the company. Breach of this duty can result in (internal) liability towards the company. A condition of liability is always fault based on a wilful or negligent act. This does not encompass a business decision that has no commercial success.
In the case of imminent insolvency of the company, the director must file for insolvency on time. If this takes place late, the director may be obligated to pay damages to the shareholders and creditors (external liability). Internal liability is possible if the director is still rendering payments after insolvency has occurred.
Additionally, the director is personally liable to an unlimited extent if social security contributions are culpably not paid (sec. 823 para. 2 BGB in conjunction with sec. 266a para. 1 StGB) or tax obligations are not complied with.
This is merely a small number of the duties faced by a company director and the consequences of them being breached. Directors carry not only a huge responsibility but also a risk. GRP Rainer Lawyers possesses in-depth knowledge in the field of directors’ liability and supports you from the formation of the contract to a case of liability.