If a GmbH, a type of German private limited company, wishes to part company with a manging director, simply dismissing him won’t cut it. The managing director also needs to be removed from his post.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: The managing director of a GmbH is not comparable with a “normal” employee. From a legal perspective, he fulfils a dual function. This dual function also needs to be borne in mind for the purposes of dismissal.

The GmbH managing director represents an executive body of the company and has corresponding rights and duties. He is appointed to and dismissed from his post by the shareholders, or rather the general meeting of the shareholders. The managing director’s appointment can be revoked at any time. By removing him from his post, the managing director’s status as an executive body is brought to an end. However, this alone does not complete the managing director’s disassociation.

This is because the managing director also has an employment relationship. His duties and responsibilities are normally laid out in the management agreement. This agreement needs to be terminated by issuing ordinary or exceptional notice as well for the reciprocal contractual claims to lapse. As in the case of removing a managing director from his post, the shareholders, or rather the general meeting of the shareholders, are entitled to dismiss him.

In the case of exceptional notice of dismissal with immediate effect, there needs to be good cause for notice to be effectively issued. There may be good cause, e.g. if the managing director regularly disregards the shareholders’ instructions, it is possible to prove that he committed criminal conduct, or a serious breach of trust was committed in some other manner. Ultimately, there needs to be good cause rendering it impossible for the company to continue to work together with the managing director until expiry of the notice period for dismissal.

The notice periods for dismissal are generally relatively short, but they can vary. This is particularly true if the managing director is not one of the shareholders. In that case, the statutory notice periods for dismissal need to be observed. Notwithstanding this, notice periods for dismissal can also be agreed to in the management agreement.

To ensure that the parting of ways between the GmbH and the managing director goes smoothly and is in the interests of both parties, important points ought to be regulated in the management agreement. Lawyers who are versed in the field of company law can advise shareholders and managing directors.

https://www.grprainer.com/en/legal-advice/company-law/managing-director.html