A German GmbH with a Board of Directors?

A German GmbH or personnel company (Personengesellschaft) can also have a board, even if it does not correspond to a management board of US provenance.

German corporate law does not recognize a body similar to the U.S. board. Instead, it generally assumes a separation between management and supervision. Therefore, in German companies, the management board or managing directors manage the business of the company they lead. While the executive board of a stock corporation (AG) manages the business on its own responsibility, the managing director of a limited liability company (GmbH) is subject to the instructions of the shareholders. Depending on the structure of the power of representation, board members and managing directors represent the company alone or jointly with others. In any case, a supervisory board supervises them, if one exists in German companies.

If the management consists of more than one person, this management is often translated into English as "Management Board" or "Board of Directors". But this is an unfortunate translation. Of course, the Anglo-American language area is familiar with these terms, but it associates something quite different with "director" or "board of directors". Whereas in Germany a distinction is made between the management of the company (GmbH management or AG management board – „AG-Vorstand“) and supervision (supervisory board – „Aufsichtsrat“) the so-called dualistic system, US corporate law (regardless of the US state) is based on the so-called monistic system. According to this system, a company has a single body consisting of both non-executive (so-called directors) and executive members (so-called officers). The directors cannot make decisions independently, but only as a group ("board") and are usually not entrusted with the day-to-day business of the company. This task is rather incumbent on the officers (the well-known CEO, CFO, COO, etc.), who in turn are supervised by the directors, who also provide guidelines for business policy.

Growing interest in Germany as well

Despite this fundamental distinction, the influence of U.S. culture and contact with its business world often leads some entrepreneurs, especially young ones, to wish to install a U.S.-style board for their German company. In most cases, the lawyers and tax advisors advising them will respond to such a request with a dichotomy of "we've never done it that way before" and "anyone can come along".

However, this answer is only half the truth. Since the introduction of the European stock corporation (Societas Europaea – SE), German law has in principle also provided for the possibility of organizing according to the monistic system. In addition, there may be a need, particularly in family-owned companies with a view to experience transfer and succession planning, to have or create a body in which both the young, (now) managing members and the old, non-(no longer) managing (family) members are represented. However, it may also make sense in a group to have representatives of subsidiaries as non-executive members in a corporate body at the top of the group.

It is not possible to implement a board exclusively in a German company in complete isolation from the statutory requirements. Nevertheless, under certain conditions, a board consisting of executive and non-executive members can also be created as an optional (additional) body in a German GmbH or partnership in addition to the management.

However, since, as far as can be seen, no domestic court has yet dealt with a board in a German company, it is not advisable for founders or entrepreneurs to implement such a body in their company at short notice without the assistance of a lawyer and out of admiration for the US business world. Rather, the establishment of this additional body should be preceded by consultation and consideration of the advantages and disadvantages.

We are your contact

SKW Schwarz's Corporate Team will be happy to assist you with any questions you may have in connection with the establishment of a board or, more generally, with the formation and legal structuring of your company.