Personal liability of a representative of a German limited company

If a German limited company (Unternehmergesellschaft - "UG") acts towards third parties without indicating the legal form and the addition of the limitation of liability, the acting representative is personally liable. This was recently clarified by the German Federal Court of Justice ("BGH").

Background

The decision of the BGH is based on the following case: The defendant was initially an authorized signatory (Prokurist) and later the sole shareholder and managing director of V UG. V UG is active in the field of investment consulting and financial brokerage. The plaintiff invested in a high-risk investment after several advisory meetings with V UG, which the defendant conducted for V UG. Although it is undisputed that the defendant acted on behalf of V UG during the consultation, the legally required addition "haftungsbeschränkt" was missing in each case. And even the addition "UG" was also only partially used by the defendant. The plaintiff is now claiming damages for faulty investment advice against the defendant personally.

The judgment of the Federal Court of Justice of 13.01.2022, Ref. III ZR 210/20

The lower courts had dismissed the claim. The BGH ultimately upheld the plaintiff's claim and ruled that the defendant could be held personally liable on the basis of so-called liability on legal semblance (Rechtsscheinhaftung). If a representative of a UG acts towards third parties without the addition "haftungsbeschränkt" (limited liability), he creates the impression that at least one natural person is liable without limitation and thus also with his or her private assets. This applies above all to the legal form of the "Unternehmergesellschaft", which – unlike the German “GmbH” – does not contain any reference to its limited liability without the addition. Therefore, the legal requirement had to be complied with exactly and to the letter.

As the facts of the case required further clarification, the BGH referred the matter back to the lower court for a decision.

Comment

With this decision, the BGH again clarifies that the statutory company name including the legal form supplement must be strictly observed in business interactions. Because if the legal form supplement, which refers to the limited liability of a company, is omitted or even inadmissibly abbreviated, a personal liability of the acting person can be caused. This liability risk does not only apply to the management, but also to any other representative acting on behalf of the company towards third parties.

In the case of the German “Gesellschaft mit beschränkter Haftung”, it is sufficient by law to use a "generally understandable abbreviation"; this includes in particular the abbreviation "GmbH". A liability on legal semblance (Rechtsscheinhaftung) for the representative of a GmbH therefore usually only comes into consideration if the legal form supplement is not used at all. This is different for the “Unternehmergesellschaft” (UG). Here, the law stipulates that towards third parties either the term "Unternehmergesellschaft (haftungsbeschränkt)" or "UG (haftungsbeschränkt)" must be used (§ 5a of the Limited Liability Companies Act (GmbHG)); an abbreviation is not permitted. This is also due to the fact that the UG does not have a minimum share capital. A UG could therefore already be founded with a share capital of EUR 1. To ensure that this limited liability - and thus a possibly higher risk of default – is sufficiently evident in business interactions, the statutory addition may not be omitted or even abbreviated.