Under German Law
|Legal form||Statute||Main Liability Rule|
|GmbH||GmbH-Gesetz (GmbHG)||§43(2) GmbHG|
|AG||Aktiengesetz (AktG)||§93(2) AktG|
|eG||Genossenschaftsgesetz (GenG)||§34(2) GenG|
|Sparkasse||Sparkassengesetze (SpkG) of the Bundesländer||§93(2) AktG analog|
Although the liability rules differ between these four legal forms, the main principles are exactly the same. That
is why the principles applicable for all legal forms will be introduced first, and after that, the particularities of
each legal form will be listed.
I. Principles of the Liability of Directors and Officers of GmbH, AG, eG and Sparkasse
1. Liability Based on Specific Liability Rules§43(2) GmbHG, §93(2) AktG and §34(2) GenG establish the same requirements for the liability of directors and officers towards the entity:
1. Neglect of duty
2. Damage of the entity
3. Causality between the neglect of duty and the damage
When those requirements are met, the responsible board member has to indemnify the entity for the damage caused. If there are several board members responsible, they are jointly and severally liable.
Before we examine closer these liability requirements, it is necessary to understand of what they mean. Their meaning is the same for every legal form with only a few exceptions.
a) Neglect of Duty
The duty of a director and an officer is to run the business with due diligence, that means like a proper businessperson (§43 (1) GmbHG, §93(1) AktG, §34 GenG). To fulfill this requirement directors and officers, among others, have to:
- Comply with all statutory provisions
- Comply with directives concerning the grant of credits
- Comply with the articles of the corporation and its by-laws
- Comply with their employment contract
- Cooperate in good faith with the supervisory board
- Organize the business properly
- Control the business organization
- Control the company's liquidity and financial status regularly
- Avoid inappropriate risks
- Be loyal, faithful and confidential
- Prepare entrepreneurial decisions carefully.
In addition to the behavior outlined above, directors and officers of the eG are also legally required to regard the members' interests and their promotion.
The directors and officers have a wide range of discretion for their entrepreneurial decisions as long as they have prepared their decisions carefully and as long as they have no personal interest at stake in the transaction.
b) Damage to the Entity
The director's or officer's neglect of duty must cause damage to the entity.
The last requirement for liability is that the director or officer has acted with default. Default means every form of negligence or intent.
The above mentioned liability limitation from employment law is not applicable.
The requirements of default within the liability of directors and officers of Sparkassen (saving banks) are controversial. But the predominant part of the literature applies the liability rules of the AG accordingly to the Sparkassen, so that directors and officers may be held responsible for all kinds of negligence and intent. This is an adequate solution due to the nearly identical structure of both legal forms.
The statute of limitations on claims is five years. This period begins with the neglect of duty.
e) Burden of Proof
In German law basically the plaintiff (here: the entity) has to prove that the requirements of the rule are met. The above mentioned rules contain a reversal of the burden of proof (§93 (2) (2) AktG, §34 (2) (2) GenG, for GmbH and Sparkasse: (§93 (2) (2) AktG, §34 (2) (2) GenG analog): The directors and officers have to proove that they have run their business with due diligence. The entity only needs to proove the damage and that the damage is caused by the conduct of the director.
f) Beginning and end of the Liability
The liability begins with the appointment and ends with the dismissal of the directors and officers. They can only
be held responsible for conduct of duty during their term in office.
2. Liability Based on General Rules
Furthermore, directors and officers can be held responsible based on general liability rules and other specific liability rules.
3. Liability Towards Shareholders and Third Parties
Directors and officers can also be liable towards the shareholders for spending the registered capital or for immoral damage, just to give two examples. These cases are rare.
D. Specifics of the Different Legal Forms
The liability of the GmbH and the eG directors can be excluded by contract with third parties. Their liability is also excluded when the director acts because of an instruction issued by the shareholder, and when the shareholders discharge the directors.
For AG the discharge of the shareholders does not exclude the officers' and directors' liability (§120(2) (2) AktG; §34(4)(1) GenG). It is only an endorsement for the future. This can be also transferred to the Sparkasse. Specifics can be determined in the Sparkassen-Statutes of the Bundesländer (states of Germany).
The AG through its supervisory board can only waive its claim after three years with the approval of the shareholders (§93(4)(3) AktG). Furthermore, directors and officers of the AG are not liable when they act based on a resolution of the shareholders meeting.