rights and duties of company shareholders

Rights and Duties of Shareholders

What rights do I have as a shareholder ?

The most prominent right of a shareholder is his right of participation in the profit after taxes or – when the company is being dissolved – what remains after winding up. You have the right to participate in any and all shareholder assemblies. Your voting rights depend on the votes you are entitled to in accordance to the articles. In other words, read the articles of association.

Do I have any duties?

Sure, everybody has duties – more or less. The general concept of a shareholder is to let somebody work with your funds (on behalf of the company) and just watch him do so. There are no general management duties of the shareholder. The general duties are:

  • funding the company,
  • action in case of loss of director,
  • action in case of indebted or bankrupt company,
  • general duty of trust and loyalty.

What is so difficult about funding a company? Don’t I just put money into the account and that’s it?

You have the financial duty to make your contribution and “retain” it with the company. So your thoughts are generally correct. Of course you can use the funds but the company also has to be able to raise the statutory capital at all times (so called liability to cover losses and credits) during the period after visiting the notary and until entry into the commercial registry.

What do you mean with action in case of loss of director?

§6 I GmbHG provides that the company must have one or more managing directors. So if your one and only director quits for whatever reason, you as the sole shareholder have to quickly find a replacement!

Am I to become active if the company is about to bust? Isn’t the director responsible to file for bankruptcy? What do I have to do?

In the event where it seems impossible that the company cannot fulfill its commitments, you have three weeks time to apply for bankruptcy (§15a III InsO). Of course, this provides that the shareholder has a concrete knowledge of this situation. Non-compliance is subject to criminal prosecution (§15 Abs. 4 InsO). In this situation it is wise to contact your accountant and a bankruptcy lawyer to discuss your situation.

I’m supposed to remain loyal to the company. Your talk is as if I would purposely want to ruin my business. What are you actually hinting at?

It might be that you(!) take care of your company but not everybody has and does. This is something to discuss looking at the individual case. Okay, I understand your eyes are rolling. Let me describe it this way: Behave so your mother would not be disappointed in you! If such is the case, you are safe.

Some dork told me that shareholders do have liability for the debts of the company. This cannot be true because everyone knows that shareholders don’t participate in liability and aren’t you always preaching that the company is another legal person? Why should I pay for someone else’s debts?

Well. On the bottom line, you both are correct. On a day-to-day basis, shareholders are not responsible for the debts of the company that is true so far. As a rule of the thumb, the corporate veil will be pierced and personal liability exists (in German “Durchgriffshaftung”) if damages from misuse of the structure arise.

Can you give me an example? What kind of misuse are you referring to?

Sure. The most common case is to blur the financial situation of you personally and the company (in German: Vermögensverwischung). This is the case when based on the accounting it cannot be determined what belongs to whom. This situation can only arise in a 1-man-GmbH or with a dominant shareholder. Minor shareholders are typically not in the situation to “cook the books“. Another typical thing is the “existential interference” (BGH judgment of July 16, 2007, re II ZR 03/04). Such interference, that leads to the company’s bankruptcy or a comparable situation and so hinders the creditors of collecting their debts, will be considered as an “existential interference”. Ín other words, if the company’s creditors do not get their money because you wrongly lead the company in order to prevent their payment, the managing director respectively the shareholder will be the loser. They will be liable with their own funds and assets. If the company went bankrupt then this will not be an exemption for the malicious director because the bankruptcy manager will file a suit in court against the shareholder (§§30, 31 GmbHG).