Managing Directors in Social Security

Due to dwindling trust in the statutory scheme of social security, it might be a good idea for a CEO to go “private” and be self-responsible for the full social security package. If you are not a major shareholding director then you will often hear conflicting information on your status.

What does your entry remark relate to? Why can I choose between the schemes?

All employed persons are subject to the statutory social security system (§§2 II, 7 I SGB IV) but not self-employed persons (in terms of social security law). Employment exists if the worker is necessarily integrated in another person’s company and is subject to the employer’s management powers regarding time, place and kind of performance. Either or scenario (employment vs. self-employment) can be legally constructed.

What is then self-employment when it comes to social security?

You have to

  • own entrepreneurial risk,
  • invest your own capital (for shareholders their participation in the company),
  • disposal of one’s working capacity,
  • possibility to determine place and time of work.
Heck, my accountant just told that being employed, my income is subject to payroll tax. That does not make sense to me as I am considered as self-employed inside social security. Now what's right?

It is correct that you are subject to payroll tax! Social security law has nothing to do with tax law and vice versa. Each branch of law can easily define things differently. 

Capital Share of Director Employment: Yes or no
100 % – sole share holding director
or major shareholder


Imaginable Exceptions: e.g. director holds shares in trust and due to this is not free to use shareholder rights

50% or less, with control stocks,
i.e. director can prevent decisions
to his personal disadvantage



  • Blocking minority only relates to corporate policy and has no right to change articles of association or similar
  • director holds shares in trust und due to this is not free to use his shareholder rights
50% or less without blocking rights


Exception: inside family-owned companies (see below)

no shares at all; a.k.a. external director


Exception: inside family-owned companies (see below)

Family-owned companies, director practically runs the company:

  • has more influence on the company than formally entitled to,
  • is related to the shareholder in direct line,
  • practically behaves like sole shareholder,
  • director's activities are characterized "in regards to the family",
  • the actual shareholder does not utilizes any of his rights.