BSG on mandatory social security contributions for managing directors

BSG on mandatory social security contributions for managing directors

BSG on mandatory social security contributions for managing directors

Mandatory social security contributions for managing directors are a controversial subject. The Bundessozialgericht (BSG), Germany“s federal supreme court in relation to social security matters, recently ruled that managing directors shall, as a rule, be deemed to be employees of a GmbH.

The issue of mandatory social security contributions for managing directors can sometimes give rise to significant supplementary contributions. In its judgments from March 14, 2018 (Az.: B 12 KR 13/17 R and B 12 R 5/16 R), the BSG held that managing directors of a GmbH, a type of German private limited company, shall, as a rule, be deemed to be employees of the GmbH and thus subject to mandatory social security contributions. The Court set forth strict requirements for a managing director to be classified as self-employed. In particular, we at the commercial law firm GRP Rainer Rechtsanwälte note that it is essential that the managing director has sufficient legal scope for action for the purpose of determining the fate of the company.

In the first case, the managing director bringing the legal action owned a 45.6 per cent interest in the registered share capital. Additionally, there was a so-called „Stimmbindungsabrede“, i.e. a voting commitment, with the GmbH“s second shareholder. In the other case, the managing director held only 12 per cent of the registered share capital. In both cases, the BSG ruled that the managing directors were to be deemed to be employees of the respective GmbHs and thus subject to mandatory social security contributions.

In its reasoning, the BSG noted that shareholder-managing directors of a GmbH shall only not be classified as employees if they have the legal authority to determine the fate of the company by exerting influence on the general meeting of the shareholders. This was said to be generally possible if the managing director holds more than 50 per cent of the registered share capital and is thus the majority shareholder. The Court went on to say that if the managing director holds only 50 per cent of the shares in the registered share capital or less, an employee relationship can then only be ruled out if the managing director has a full blocking minority stake as per express provisions in the articles of association and he or she is therefore able to prevent instructions being issued by the general meeting of the shareholders.

The BSG also stressed that it is not a matter of which powers the managing director has with respect to the GmbH“s external relations or how much latitude he or she has in carrying out their activities, e.g. with regard to working hours; the decisive factor is that the managing director has sufficient legal authority.

Lawyers who are experienced in the field of company law can advise managing directors and shareholders in relation to mandatory social security contributions.

https://www.grprainer.com/en/legal-advice/company-law.html

GRP Rainer LLP www.grprainer.com/en/ is an international firm of lawyers and tax advisors who are specialists in commercial law. The firm counsels commercial and industrial companies and corporations, as well as associations, small- and mid-sized businesses, self-employed freelancers and private individuals worldwide from offices Cologne, Berlin, Bonn, Dusseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London UK.

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