Obligation to Pay Social Security Contributions for Managing Directors of German Limited Liability Companies (GmbH)

Social security contributions regularly have to be paid for managing directors of German limited liability companies (Gesellschaft mit beschränkter Haftung, GmbH). As an exception, managing directors are not subject to the German social system if they are also shareholders of the company and have the legal authority to control the fate of the company. This case law has been supported once more by the German Federal Social Court.

From a social security perspective, as a matter of principle, the managing director of a limited liability company is considered an employee. The company is obliged to pay social security contributions for this employment relationship, as is the case for any employee. This is not opposed by the fact that a managing director represents the company externally, has extensive powers, and performs the role of an employer. The personal dependency which results in the obligation to pay social security contributions follows from the fact that the managing director is bound by the instructions of the shareholders. Even board members of stock corporations, who are responsible for managing the company, generally are subject to the statutory health insurance and nursing care insurance.

As an exception, a managing director of a limited liability company is not subject to the German social system if he/she has the legal authority to prevent shareholders’ resolutions that he/she does not agree with. This is regularly the case if the managing director holds at least 50% of the company shares. If the managing director of the limited liability company is a minority shareholder, he/she has to hold a qualified blocking minority on the basis of provisions of the statute. Such blocking minority has to put the managing director in a position to prevent all undesirable shareholders’ resolutions. Share pooling agreements with other shareholders are not sufficient in this respect.

Practical Information

In order to assess the obligation to pay social security contributions for members of executive bodies of a company, the actual circumstances are not relevant; a “sunshine independence” does not suffice for an exemption from the compulsory insurance. Rather, the level of legally enforceable options to influence the shareholders’ resolutions are decisive. The managing directors of German limited liability companies are regularly responsible for the company paying social security contributions for them. Otherwise, following an audit, there is the risk of subsequent social security claims, late payment fines and also criminal investigations, as the case may be.

(Federal Social Court, judgments of 14 March 2018 – B 12 KR 13/17 R and B 12 R 5/16 R)

Karsten Kujath
Lawyer, Accredited Specialist in Employment
Frankfurt am Main