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GRP Rainer LLP

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GRP Rainer Rechtsanwälte: Experience dealing with liability claims against GmbH managing directors

February 2017

The managing director of a GmbH, a type of German private limited company, is exposed to considerable liability risks. Legal advice ought to be urgently sought to minimize these risks as well as in the event of something happening that raises the issue of liability.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: One of the reasons businessmen frequently opt for the GmbH as their chosen corporate form is the comparatively low risk of liability associated with it. Notwithstanding this, GmbH managing directors are faced with significant personal liability risks. The law firm GRP Rainer Rechtsanwälte has a great deal of experience in the field of company law in addition to related legal fields, and can utilize its expires to minimize a GmbH managing director’s risk of liability.

GmbH managing directors can be faced with liability claims from two sides. On the one hand, they may be liable to the company itself (internal liability). On the other hand, third parties may bring claims against them (external liability).

A managing directors is essentially obligated to manage the company properly, i.e. he must exercise the care of a prudent businessman. If he violates his duties, this may give rise to liability claims against him brought by the company. Breach of duty entails culpability, whether this involves an intentional or standard violation of duty. Poor business decisions do not constitute a breach of duty.

The managing director’s duties also include ensuring that taxes and social security contributions are properly paid and timely filing for insolvency in the event that the company is faced with the imminent prospect of insolvency or over-indebtedness. If he breaches these duties, this may give rise to third-party liability claims.

It is possible to take various different preventative measures to minimize these private liability risks. Particular attention ought to be paid here to the way in which agreements are drafted. Moreover, it is advisable to take out a D&O insurance policy with sufficient coverage. The insurance policy should be tailored to the specific liability risks in question.

With its experience and high level of expertise, GRP Rechtsanwälte can advise on drafting agreements and concluding liability insurance for managers and thus exclude or at least minimize major liability risks. If, however, the worst does come to pass and claims are asserted against the managing director, it is also possible to assess whether the managing director violated one of his duties in the first place and ideally fend of the claims or reach an out-of-court settlement between the parties.

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