Resolutions in the Absence of Voting Rights and the Initiation of Legal Action in a Two-Member LLC
A limited liability company (GmbH) with two shareholders is a common form of organization among small and medium-sized businesses and therefore accounts for a significant portion of our practice in shareholder disputes. In this context, we are often asked how a minority shareholder can enforce the company’s claims against the other shareholder or against managing directors aligned with that shareholder within the GmbH. In a recent ruling, the Federal Court of Justice has made it easier for the shareholders of a two-member GmbH to enforce the GmbH’s claims against their own managing directors (ruling of November 5, 2024, Case No. II ZR 85/23). Legal Background.
Pursuant to Section 46(8), Alternative 1 of the German Limited Liability Companies Act (GmbHG), a shareholders’ resolution must be adopted prior to filing a lawsuit regarding existing or alleged claims for damages against shareholders and managing directors (so-called “enforcement resolution”). If the claim for damages is to be asserted against the managing director, a so-called “special representative” is appointed at the same time. This representative acts on behalf of the company against the managing director in the event of a dispute, as the company cannot represent itself against the managing director. If no such resolution exists, the action is dismissed.
Facts
The minority shareholder (49%) of a GmbH believed that the company was entitled to claims for damages against its external managing directors. However, the managing directors were also managing directors of the majority shareholder (51%). Acting in their own self-interest, they voted against asserting claims for damages at the shareholders’ meeting, even though they were subject to a voting prohibition under § 47(4) GmbHG in their own interest. Nevertheless, the managing directors refused to confirm the resolution to assert the claims. The minority shareholder filed a claim for damages against the managing directors in her own name for payment to the company (“actio pro socio”).
Legal Issues
It was necessary to clarify whether, in such a scenario, a prior resolution pursuant to § 46 No. 8 GmbHG is required and whether (contrary to previous case law) the shareholder’s action, rather than that of the company, is exceptionally admissible.
Decision
The Federal Court of Justice (BGH) clarified that a managing director against whom legal proceedings are to be initiated may not exercise a shareholder’s voting right in resolutions regarding the initiation of such proceedings and the appointment of legal counsel. In a two-member GmbH, where only the vote of the shareholder pursuing the claim for compensation counts, a resolution is not required. It is a superfluous formality. Under these circumstances, therefore, no resolution is required regarding the appointment of legal counsel, as the shareholder’s intent to represent the company as an organ is unequivocally documented by his or her appearance as legal counsel or by the appointment of legal counsel. The shareholder’s lawsuit is also generally inadmissible in this scenario, as the company can pursue the claim for reimbursement itself through legal action.
Assessment
The decision contributes to clarity regarding the necessity of a resolution in a two-member GmbH in situations involving conflicts of interest. Previously, it was not legally certain whether a resolution was required for the practically relevant question of appointing a special representative.
The Federal Court of Justice (BGH) strengthens the company’s position to enforce claims for compensation. Furthermore, it appears equitable to allow only the company’s action, as this indirectly imposes the cost risk of the action on the co-shareholder represented by the self-serving managing director on a pro rata basis.
A limited liability company (GmbH) with two shareholders is a common form of organization among small and medium-sized businesses and therefore accounts for a significant portion of our practice in shareholder disputes. In this context, we are often asked how a minority shareholder can enforce the company’s claims against the other shareholder or against managing directors aligned with that shareholder within the GmbH. In a recent ruling, the Federal Court of Justice made it easier for the shareholders of a two-member GmbH to enforce the GmbH’s claims against their own managing directors (ruling of November 5, 2024, Case No. II ZR 85/23).