GmbH Dictionary Definitions Part VI

Income tax and social security – duties of an employer

The managing director of a GmbH has a number of duties. This includes both tax and social security obligations. For example, the managing director must ensure that wage tax is always correctly paid for all possible employees in the GmbH. If he does not do this, this represents gross negligence for which he will be held personally liable. The same applies to the timely and correct payment of employee contributions to social security. Here, too, the managing director of the GmbH is personally liable if he does not properly fulfill this obligation.

Distribution of profits

The annual surplus results from the annual financial statements under commercial law . This is the profit that can be distributed to the shareholders or reinvested, i.e. retained. Annual deficits, i.e. losses, are either carried forward or offset by reserves . The shareholders’ meeting decides how the annual result is used, unless the articles of association stipulate otherwise.

According to POLYHOBBIES, the distribution of profits takes place in accordance with the statutory provisions in accordance with the shares held. A partner who holds 25 percent of the capital is therefore also entitled to 25 percent of the distributed profit. However, deviating regulations can also be made in the articles of association. In contrast to the stock corporation, the shareholders of a GmbH are very free here and are simply not allowed to make any immoral agreements.

Dissolution of a GmbH

The GmbH does not always have to be dissolved of its own free will . There are quite even compelling reasons for it. A GmbH is dissolved for the following reasons, for example.

  • Expiry of the time specified in the partnership agreement
  • Dissolution through bankruptcy proceedings
  • Dissolution by a court judgment
  • Inadequate social contract
  • Dissolution due to personal reasons (e.g. death of a partner)

When dissolving a GmbH, however, you have to adhere to certain guidelines and time frames. Before the dissolution, there is an important process, which consists of the three steps of dissolution, liquidation and deletion. In the first step, the resolution to dissolve must first be made. This resolution must be passed by all shareholders and must be passed with at least a 3/4 majority . In addition, the resolution must contain the following points.

  • Specific time of the dissolution
  • Dismissal of the management
  • Appointment of a liquidator and his remuneration

The decision taken must be certified by a notary and must then be submitted to the competent register court of the commercial register.

Liquidation of a GmbH

A GmbH cannot be canceled as easily as a GbR . The termination of the legal existence of a corporation involves a large number of formalities and takes place in three steps:

  • Dissolution (cessation of advertising activity)
  • Liquidation (processing of ongoing business, settlement of debts, distribution of the remaining assets to the shareholders)
  • Deletion (legal “death” by entering the deletion in the commercial register)

Shareholders of a GmbH must note that a so-called blocking year applies for reasons of creditor protection. During this period, distributions of profits to the shareholders or the reimbursement of contributions are prohibited. It therefore makes sense to distribute the profits and possibly reduce the capital before a decision is made to liquidate the company. However, these measures must not result in society being unable to pay its debts.

Advantages and disadvantages of a GmbH

A GmbH or its little sister, the UG (limited liability), enables the entrepreneur to strictly separate business and private assets. Private assets are protected even in a crisis and even in bankruptcy, as long as the statutory duties of care are observed. For this great advantage, however, more bureaucracy and, as a result, higher costs have to be accepted. This applies to the establishment as well as to the ongoing management and liquidation of the company.

Advantages Disadvantage
  • Limited Liability: Liability is limited to the company’s assets. Since it has its own legal capacity.
  • High minimum capital / share capital: The minimum capital for founding a GmbH is 25,000 euros, at least half of which must be paid in.
  • Tax advantages: Corporate income tax is applied, which is usually cheaper than income tax for a partnership.
  • Risk of personal liability: the privilege of liability only comes into force once the company has been entered in the commercial register. In an emergency, the shareholders are liable with their private assets in this phase
  • High flexibility: changing shareholders is uncomplicated.
  • Strict separation between shareholder and company assets: There must be a strict separation between the assets of the shareholders and the GmbH, otherwise there is a risk of sanctions due to hidden profit distributions.
  • Contribution in kind as share capital possible: When the company is founded, contributions in kind can also be made in the share capital.
  • Only poor creditworthiness: banks often demand absolute guarantees from the shareholders, which in many cases cancels the exemption from liability.

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