The managing director employment contract of the managing director of a GmbH (limited liability company).

He serves as the key link between the company and its employees, suppliers, customers, and other business partners. In this role, he is primarily responsible for the company’s economic success.

The Managing Director Contract: An Essential Document

A well-structured managing director contract is indispensable. Although it does not need to be notarized, it is recommended to be documented in writing to clearly define mutual rights and obligations. The contract is entered into between the company and the managing director, laying the foundation for a transparent and trustworthy collaboration.

Contract Clauses: What Should Be Regulated?

The contract establishes the framework under which the managing director performs his duties for the company. Common provisions include:

• • • Management and oversight of the company: The managing director is obligated to conduct the company’s business as a prudent businessman and fulfill his duties according to the law, the articles of association, and internal rules.The managing director is obliged to conduct the company's business in the spirit of a prudent businessman and to fulfil his duties in accordance with the law, the articles of association and the rules of procedure.
    • Preparation of the annual financial statementsPreparation of the annual financial statement: As per the requirements of the GmbH Act, it is the managing director’s responsibility to prepare the annual financial statement and present it to the shareholders‘ meeting.

Rights and Duties of the Managing Director

The managing director contract supplements the regulations of the GmbH Act. The company is generally represented by the shareholders‘ meeting. Both the shareholders and the managing director sign the contract. It is also possible for a shareholder to be authorized by resolution to sign the contract.

Managing Director’s Remuneration

A key aspect of the managing director contract is the regulation of remuneration. Typically, a fixed monthly salary is agreed upon, which is negotiable. If the managing director has a stake in the company, the remuneration should not be unreasonably high to avoid tax consequences.

In addition to the base salary, variable compensation elements, such as profit-sharing, can also be agreed upon. This is based on the company’s success and should be carefully reviewed for tax purposes to minimize risks during audits.

Additional Contractual Benefits

Additional benefits, such as bonuses, travel expenses, or pension schemes, can also be regulated in the contract. It is often stated that all claims of the managing director are settled with the agreed remuneration.

Vacation Entitlement and Continued Payment of Wages

Although the managing director is not considered an employee, contractual provisions regarding vacation entitlement and continued payment in the event of illness should be included. Typically, 25 to 30 vacation days per year are granted. A provision for continued payment during illness should also be established.

Use of a Company Car

If the managing director is allowed to use a company car privately, the extent of private use should be clearly regulated in the contract. This may include details such as the type of vehicle, private use by family members, and taxation of the monetary benefit.

Liability Limitations for the Managing Director

Managing directors bear great responsibility and can cause significant damages through breaches of duty. Therefore, liability limitations in the managing director contract are crucial. However, legal requirements, especially regarding the GmbH Act and insolvency law, must not be disregarded. It is possible to shorten the limitation period for claims for damages or limit liability to gross negligence.

Non-Compete Clause and Post-Contractual Provisions

A non-compete clause is often included in managing director contracts. This prohibition applies during the contract term due to the managing director’s duty of loyalty. A post-contractual non-compete clause must, however, be explicitly regulated in the contract. This must not unduly restrict the managing director’s economic freedom, as it could otherwise be considered immoral. A non-compete clause is often limited to a maximum of two years.

Linking Removal and Termination

There is a separation between the managing director’s position as an officer and his employment relationship. This means that removal as managing director does not automatically terminate the service relationship. To avoid this, coupling clauses should be included in the contract to ensure that the service agreement ends with the removal.

Transactions Requiring Approval

To prevent poor decisions, particularly expensive or risky transactions should require shareholder approval. This often applies to real estate transactions or loan agreements.

Conclusion: Careful Contract Design Pays Off

The drafting of a managing director contract requires special attention and expertise to avoid legal and tax complications later on. Professional advice helps ensure that the contract is optimally structured from both a legal and economic perspective.

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