Private limited – a form of company

A private limited liability company is a form of corporation that can be formed as a single-member company or as a company with several shareholders. One or more shareholders can act as managing director; however, an employed third-party managing director can also be appointed.

The shareholders of a GmbH must pay a defined amount of share capital into their company, which is made available for creditor protection. The required amount is depending on the national legal requirements.

The limited company is managed by the management, which in turn receives its instructions from the shareholders’ meeting and is controlled by the shareholders’ meeting. Here, the formal separation between the management and the capital becomes apparent. The management can appoint an advisory board, which should support the management with professional competence and through its relationships, but should not intervene in the operational business.

One disadvantage of private limired companies compared to stock corporations is that rights to company shares are not as fungible as shares. In the context of private limited companies, the transfer of shares to new shareholders must always be notarized.

The shareholders of a private limited company are only liable with the capital contributed, but are not personally liable for damages caused to the company or its business environment by wrong decisions. Only the managing director is personally liable, but only for grossly negligent and intentional breaches of the duty of care.


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