Dismissal of the managing director

Who is authorised to remove a managing director, and what is the procedure?

The shareholders' meeting is responsible for the removal of a managing director. Section 46(5) of the German Limited Liability Companies Act (GmbHG) assigns the appointment and removal of managing directors to the shareholders. Dismissal takes place by way of a shareholders' resolution, which is generally passed by a simple majority of the votes cast (Section 47(1) of the German Limited Liability Companies Act (GmbHG)), unless the articles of association provide for a higher majority or specific conditions. A single shareholder or a co-managing director cannot therefore initiate a dismissal on their own. It is always a decision taken by the shareholders’ meeting.

The procedure follows a fixed sequence. First, the shareholders' meeting is convened, usually by the managing director (§ 49 GmbHG). If the management refuses to do so, the minority right to convene the meeting and amend the agenda under Section 50 of the GmbHG applies, meaning that shareholders may also convene the meeting. At the meeting, a vote is taken on the dismissal and the result is recorded. If the resolution is passed, the managing director’s position as a corporate body generally ceases immediately, without the need for entry in the commercial register. The dismissal must then be registered with the commercial register. The managing director’s employment contract must be terminated separately.

Anyone preparing for a dismissal should not dismiss these steps as mere formalities. Particularly in conflict-ridden situations, any error in the convening of the meeting, the agenda or the voting process will later become a point of contention. A properly documented procedure is the best safeguard against a subsequent challenge.

Does the removal of a managing director require good cause?

As a general rule under the law, no. Section 38(1) of the German Limited Liability Companies Act (GmbHG) permits the revocation of an appointment at any time and without giving reasons. This freedom to remove a managing director reflects the principle that the shareholders are free to decide who should lead their company. The managing director has no right to remain in office, and the shareholders are not required to prove that he has committed any fault.

The situation is different if the articles of association deviate from this basic rule. Pursuant to Section 38(2) of the German Limited Liability Companies Act (GmbHG), the articles of association may restrict dismissal to cases where there are good cause. Such clauses are frequently found where a founder or a family line is to be safeguarded in their role as a shareholder-managing director. If such a restriction has been agreed, dismissal will only take effect where there are serious grounds; and, in cases of doubt, the existence of such grounds will be contested in court. However, even a strict clause in the articles of association cannot preclude dismissal for good cause. The shareholders must always retain this right.

The law provides only examples of what constitutes ‘good cause’: gross breach of duty and inability to manage the business properly (Section 38(2), second sentence, of the German Limited Liability Companies Act (GmbHG)). In practice, this includes, for example, significant breaches of obligations under the articles of association, unauthorised transactions exceeding one’s own remit, breaches of the non-compete covenant, acts of breach of trust, or a permanently undermined basis of trust. The criterion is always whether, having weighed up all the circumstances, it can no longer be reasonably expected of the shareholders to retain the managing director. A mere difference of opinion regarding business policy is generally not sufficient for this purpose.

How must a shareholders' meeting be convened?

The formalities of the notice of meeting are more often decisive for the validity of a dismissal than the dispute over the grounds for it. Section 51 of the German Limited Liability Companies Act (GmbHG) requires notice to be given by registered post with at least one week’s notice. The notice period only begins once the notice has reached the recipient in accordance with normal postal delivery times, so a time buffer should be allowed for. If the articles of association provide for a different method, such as email, this is only valid if it is expressly permitted. Different (longer) notice periods may also be stipulated in the articles of association.  

Particular care must be taken with the agenda: the purpose of the meeting must be stated in such a way that every shareholder can prepare for the resolution. A general item such as ‘personnel matters’ is not sufficient for the dismissal of a managing director. The agenda must explicitly state the dismissal of the managing director, and as a general rule, this must include the name of the person concerned. In the absence of such notice, a valid resolution on the dismissal cannot be passed unless all shareholders are present and consent to the matter being discussed.

The consequences of errors in convening the meeting are graded. A defect in the notice of the agenda generally renders the resolution voidable; the resolution remains valid until such time as it is successfully challenged. Serious defects, however, which are equivalent to a shareholder not being summoned, result in the resolution being void, in accordance with the legal principle set out in Section 241 of the German Stock Corporation Act (AktG). The notice of meeting should therefore be drafted in such a way that it can withstand subsequent judicial scrutiny.

Is a managing director who is also a shareholder entitled to vote on his own dismissal?

That depends on whether the dismissal is without cause or for good cause. In the case of dismissal without cause, the managing director in question may vote using their shares. The situation is different in the case of dismissal for good cause: here, pursuant to section 47(4) of the German Limited Liability Companies Act (GmbHG), they are subject to a voting ban, as no one should be a judge in their own case. Their votes are then not counted, meaning that a co-shareholder can push through the dismissal even against the will of the person concerned.

This distinction is the sticking point in many dismissals. The chair of the meeting must assess in advance whether there are serious grounds and then decide whether to count the votes of the person concerned. If the chair misjudges this, the outcome of the resolution is on shaky ground.

The Federal Court of Justice has mitigated this situation in its judgement of 4 April 2017 (II ZR 77/16). According to this judgement, the validity of the resolution ultimately depends on whether a valid reason actually existed at the time the resolution was passed. If the person concerned voted despite being barred from doing so, this alone does not render the resolution voidable. However, anyone invoking a valid reason must set it out and prove it.

In practice, this gives rise to two pieces of advice: the company’s management should carefully document the valid reason prior to the meeting, as they bear the burden of proof in the event of a dispute. The managing director concerned, for their part, should ensure that their vote is recorded in the minutes and should scrutinise the announcement of the result closely, as these are the points of departure for a subsequent challenge.

Does dismissal from office also terminate the employment contract?

No. The position as a director and the employment contract are legally separate, a principle therefore known as the ‘separation principle’. Dismissal from office terminates only the position as a director, i.e. the position as managing director under section 38 of the German Limited Liability Companies Act (GmbHG). The employment contract, which governs remuneration and the obligations under the contract of employment, remains unaffected by this for the time being and must be terminated separately. As long as there is no valid termination, the entitlement to remuneration continues, regardless of the reason for the removal from office.

To ensure consistency, many contracts contain a linkage clause which automatically terminates the employment contract upon dismissal. Such clauses are permissible, albeit with restrictions. The Federal Court of Justice (BGH) clarified at an early stage that automatic termination must not circumvent the mandatory minimum notice period set out in Section 622 of the German Civil Code (BGB). The contract therefore ends at the earliest on the next permissible date and not immediately upon the decision to remove the director from office.

If the clause is a pre-formulated one, it must also be assessed in accordance with the rules governing standard terms and conditions. In its judgement of 25 October 2016 (8 U 122/15), the Higher Regional Court of Karlsruhe held that a standard-form clause providing for immediate termination upon receipt of the resolution to remove the managing director was invalid, as it deviated from the statutory principle of separation and disregarded the minimum notice periods.

This development is not yet complete. In its judgement of 1 December 2025 (8 U 93/24), the Higher Regional Court of Hamm clarified, in relation to fixed-term managing director service agreements, the conditions under which a linkage clause would withstand scrutiny under the rules governing general terms and conditions: It must comply with the statutory notice periods, grant both parties an equal right to terminate the contract, be formulated transparently and provide the managing director with adequate financial protection. The court has granted leave to appeal, meaning that a ruling by the highest court is still pending. For the drafting of contracts, this means that every linkage clause must be assessed against these criteria. No one should rely on its validity without first verifying it.

When does the removal take effect, and does it have to be entered in the commercial register?

In principle, the removal takes effect immediately upon the resolution being passed and not only upon entry in the commercial register. In this respect, the entry in the register is merely declaratory; it simply reflects the legal situation that has already arisen. In the case of a resolution that is flawed but merely subject to challenge, the removal remains effective for the time being and is only retroactively set aside following a successful action to set it aside. This provisional effect allows the company’s side to act immediately, but shifts the dispute to subsequent court proceedings.

Despite its declaratory effect, registration with the commercial register is mandatory and must be carried out as a matter of urgency. Under Section 39 of the German Limited Liability Companies Act (GmbHG), any change in the persons of the managing directors and the termination of their power of representation must be registered. The registration must be in public form, i.e. certified by a notary.

The reason for the urgency lies in Section 15 of the German Commercial Code (HGB): until the removal has been registered and published, third parties acting in good faith may rely on the former managing director continuing to represent the company. A managing director who has been removed but is still registered can therefore continue to bind the company in dealings with third parties.

The remaining or newly appointed managing directors, in a number sufficient to authorise representation, are authorised to make the notification. The dismissed managing director cannot himself notify his own dismissal, as he lacks the power of representation to do so.

What are the rules regarding dismissal in a two-person limited liability company (GmbH)?

A two-person limited liability company (GmbH) with two shareholder-managing directors, each holding a 50 per cent stake, is a very classic scenario for conflict. If each accuses the other of good cause and removes them from office, the voting ban under section 47(4) of the Limited Liability Companies Act (GmbHG) applies to both, meaning that each can apparently validly remove the other. If both resolutions were treated as taking immediate effect, the company would be left without a managing director and would be unable to act. Even the appointment of a new managing director would fail due to the deadlock.

Case law does not resolve this in a rigid, formulaic manner. Unlike under company law for public limited companies, where Section 84(4) of the Public Limited Companies Act (AktG) grants a resolution to remove a managing director provisional effect pending judicial clarification, this rule is not automatically extended to a two-person limited liability company (GmbH), as it would facilitate the misuse of the removal procedure. As long as the issue of just cause remains in dispute, the person concerned therefore retains their powers in principle until a court rules on the validity of the decision.

This is precisely why disputes in a two-person GmbH almost always shift to the realm of interim relief, whereby one party seeks to prevent the other from creating a fait accompli during the period of uncertainty. Anyone facing such a situation should, from the outset, combine the removal with a litigation strategy for the interim period, rather than relying solely on the formal resolution.

What legal protection do the company and the concerned managing directors have?

Legal protection works both ways, and in both cases it is often the interim proceedings that are decisive. The company seeks to prevent a dismissed managing director who continues to perform his duties from managing the business and to deny him access to business premises, documents and systems. Conversely, the managing director concerned seeks to ensure that he can continue to perform his duties or to challenge the dismissal.

On the part of the managing director concerned, the main course of action is an action against the resolution to remove them from office, either as an action to set aside the resolution or as an action for a declaratory judgement, depending on the defect in the resolution. There is no strict statutory time limit for bringing an action to set aside the resolution, as there is under company law; however, case law takes its cue from the one-month time limit set out in section 246 of the German Stock Corporation Act (AktG) and requires that proceedings be conducted with reasonable expedition. Anyone who waits too long therefore risks losing their right to challenge the resolution.

An interim injunction ensuring that the managing director may continue to perform his duties is only considered in very limited exceptional cases, as a specific ground for the injunction – that is, a genuine emergency or urgent situation – must be credibly demonstrated.

From the company’s perspective, interim legal protection against the dismissed managing director is the more powerful tool, as it often takes years to reach a final determination on the validity of the dismissal. The prerequisite is generally that, upon summary examination, the resolution to remove the managing director was formally valid, that the important ground has been substantiated, and that there is a particular urgency.

In the case of a two-person limited liability company (GmbH), the Munich Higher Regional Court has recognised that a shareholder may, by way of the so-called ‘actio pro socio’, obtain an interim injunction prohibiting the management of the company and access to its premises, provided that a valid reason has been substantiated and the resolution has been validly adopted. Other courts are more cautious. It therefore applies to both sides that substantive justification and procedural preparation must go hand in hand, as in summary proceedings what counts is what can be substantiated immediately.