Liability After Formation: Who Is Liable in a GmbH or UG
The company is registered. Yet for many founders a practical question remains: Are private savings now actually protected, and when can shareholders or managing directors still be personally liable? The answer depends above all on the role in which someone acts and the legal basis on which a claim arises.
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At a glance
With the entry of a GmbH or UG in the commercial register, the intended logic applies in principle: externally, the company is liable with its assets, not the private assets of the shareholders. That is the normal case and precisely the reason why many choose a corporation in the first place.
After registration, personal risks typically arise in three areas:
- Contributions / capital discipline (for example if contributions have not been paid in full or payments to shareholders are legally problematic)
- Management (duties, organisation, deadlines, duties of selection and supervision)
- Voluntary personal commitments (sureties, guarantees, private collateral)
Who is liable after registration?
The following overview sets out the three roles and their typical personal risks. It does not replace a case-by-case review, but it helps you place your own situation.
| Role | Principle | Typical personal risks |
|---|---|---|
| Company | It is liable for its obligations with the company’s assets. | The economic risk lies with the company. |
| Shareholders | They are not personally liable for company debts merely because of their shareholding. | Outstanding contributions, impermissible repayments, personal collateral or their own unlawful conduct |
| Managing directors | They are not automatically liable for every debt of the company. | Their own breaches of duty, in particular towards the company and in special tax, social security and insolvency cases |
Liability before registration: a brief look back
Many misunderstandings arise because the formation phases get mixed up. A brief look at the timeline helps you place your own risk.
Before notarisation
Before notarisation, the GmbH or UG does not yet exist as such. If several founders have already joined together through a partnership agreement to pursue the formation project jointly and take part in legal transactions together, a pre-formation company with legal capacity may come into existence, often in the form of a civil-law partnership (GbR). Its partners are generally personally liable for the company’s obligations as joint and several debtors.
After notarisation and before registration
After notarisation and before registration, the so-called pre-GmbH or pre-UG exists. Anyone acting in its name is generally personally and jointly and severally liable under Section 11 (2) GmbHG. Jointly and severally means that creditors can in principle demand the entire claim from each of the persons personally liable. Depending on how the formation proceeds, further claims relating to the raising of capital may also arise.
Contracts in this phase should be concluded clearly in the name of the pre-GmbH or pre-UG. Whether a condition precedent, a later start of the contract or another arrangement makes sense depends on the particular contract and the other party. A specific wording does not automatically remove personal liability risks.
From entry in the commercial register
With registration, the GmbH or UG comes into existence as such. In principle, its company assets are liable for its obligations.
How typical liability risks can be reduced
Clear responsibilities, complete records and an early look at liquidity problems can reduce typical liability risks. Three areas are particularly relevant here.
Defining responsibilities and documentation
After registration, it should be clear:
- Who decides what, i.e. the management or the shareholders’ meeting?
- Which transactions require prior approval under the law, the articles of association, rules of procedure or a shareholders’ resolution?
- Where resolutions, contracts and records are filed, i.e. findable and traceable?
Approval requirements generally take effect internally. If the management breaches them, this can have internal consequences; towards third parties, the transaction usually remains valid nonetheless. Under Section 37 (2) GmbHG, restrictions on the power of representation generally have no legal effect towards third parties.
Acting in the name of the company
Uncertainty often arises when a contract does not make clear which company is to become the contracting party. Therefore pay attention to:
- the full registered company name including “GmbH” or “UG (haftungsbeschränkt)”
- a clear designation of the company as the contracting party
- the legally required details on business letters and electronic business correspondence
- a functional title with the signature as an additional indication, not as the sole decisive criterion for liability
Paying contributions in full and documenting payments to shareholders traceably
After registration, shareholders are not liable for company debts merely because of their shareholding. However, contributions still outstanding remain owed and can continue to be claimed by the company, in an insolvency usually by the insolvency administrator. This does not turn the company’s debts into private debts of the shareholders across the board.
Distributions, remuneration, reimbursement of expenses, loan payments and other benefits to shareholders require a traceable legal basis. In addition, payments must not breach the statutory rules on maintaining the share capital. The assets required to maintain the share capital may generally not be paid out to shareholders. Payments that breach this must be repaid to the company under the conditions of Sections 30 and 31 GmbHG.
If, for example, the company pays a shareholder’s private invoice or money is transferred to a private account without a traceable purpose, repayment and tax questions can arise. Typical cases are:
- private expenses paid from the company account without a clear basis
- remuneration or bonuses without a valid agreement or without sufficient documentation
- distributions or repayments even though the capital maintenance requirements are not met
- shareholder loans whose terms and payment flows are not documented traceably
Certain benefits or payments can be classified for tax purposes as a hidden profit distribution. The tax consequences that follow should be reviewed with your tax adviser in the individual case.
A simple rule helps in everyday practice: every payment to shareholders should be clearly attributable to a permissible basis, such as an employment contract, an expense statement, a loan agreement or a distribution resolution. For remuneration and transactions with related parties, an additional tax review of appropriateness may be required.
When the management can be personally liable
Managing directors are not personally liable simply because the company cannot pay an invoice. If they breach their duties, however, they may be obliged to compensate the company for the resulting damage. Direct liability towards creditors, tax authorities or other bodies usually requires a special statutory basis or a contractual basis of their own.
- Internal liability towards the company: breach of duties of care, organisation or supervision, and disregard of valid shareholder instructions
- Tax obligations: possible personal liability in the event of an intentional or grossly negligent breach of duty
- Social security contributions: personal criminal and, where applicable, civil risks if contributions are withheld
- Insolvency: duty to file in time and restrictions on further payments
- Own commitments or own misconduct: for example a personally assumed guarantee or a tort of one’s own
Under Section 43 GmbHG, managing directors are in principle liable to the company for breaches of duty. For taxes, personal liability can arise under Sections 34 and 69 AO. Withholding social security contributions is governed by Section 266a StGB.
Depending on the size and risk profile of the company, D&O insurance for the management can be considered. Which claims are actually insured depends on the policy terms, exclusions and agreed deductibles. It does not prevent liability and does not replace proper processes.
Keeping an eye on taxes, social security and company crises
As legal representatives, managing directors must ensure that the company’s tax obligations are met. However, personal tax liability does not arise with every late or missed payment. It may come into consideration in particular if tax claims are not met, or not met in time, due to an intentional or grossly negligent breach of duty.
Separate rules apply to social security contributions. Withholding contributions that are owed can have criminal and other personal consequences. Therefore determine early on who keeps the ongoing accounts, who monitors tax deadlines and filings and who approves payments. Especially while the business is being built up, clear responsibility prevents important obligations from getting lost between sales, staff and bookkeeping.
If the company gets into a serious liquidity crisis, a general payment plan is no longer enough. The management must keep solvency and over-indebtedness under constant review and, at the first signs of insolvency, seek expert advice without delay. Once illiquidity or over-indebtedness has occurred, special rules apply to filing for insolvency and to further payments.
An insolvency petition must be filed without culpable delay, at the latest three weeks after the onset of illiquidity and six weeks after the onset of over-indebtedness. These periods are maximum periods, not a general waiting time. Once the company is insolvent, payments may only be made under the conditions of Section 15b InsO.
Personal collateral and own commitments
The company’s limited liability does not prevent shareholders or managing directors from assuming obligations in their own name or using assets as collateral. This includes in particular:
- a surety
- a personal guarantee
- collateral from private assets, such as a land charge on a privately held property or the pledging of private assets
A surety and a land charge have different effects. With a surety, a person assumes an obligation of their own for the debt of a third party. A land charge initially encumbers the property concerned. Whether personal liability exists in addition depends on the further agreements. Therefore check which claims the collateral covers, whether a limit in amount or time is provided for and when the collateral must be released.
More from the series: after formation
Arrange a notary appointment
We are happy to support you in preparing and carrying out your formation with legal certainty. Arrange a notary appointment early to clarify open questions and plan the process in a structured way.
Frequently asked questions about liability after formation
In principle, shareholders are not personally liable for the obligations of the GmbH or UG. However, outstanding contributions, impermissible repayments, own commitments such as sureties or own unlawful conduct can lead to personal claims.
The outstanding amount remains owed and can still be claimed. However, this does not mean that the shareholders are automatically personally liable for all of the company’s debts.
No. Unpaid invoices of the company do not become private debts of the management merely because of their position as a corporate body. Personal claims can arise, however, if they breach their own duties, for example towards the company or in special tax, social security and insolvency cases.
There is no statutory obligation to provide a personal surety. However, banks, landlords or other contracting parties can make it a condition of a contract. Anyone who provides a surety is personally bound to the agreed extent, regardless of the limited liability of the GmbH or UG.
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Limited liability in practice: structure as protection
The limited liability of a GmbH or UG works reliably in the normal case if the company is run properly. The biggest risks after registration rarely arise from “complicated special rules”, but from a lack of structure: unclear responsibilities, weak documentation, payments to shareholders without a clear basis or private collateral signed on the side.
Feel free to get in touch for individual advice.
