What's new about the social security obligation for managing partners?

In 2012, the German Federal Social Court (“Bundessozialgericht“) introduced a ground-breaking change to its case law on the social insurance obligation of employee shareholders and managing directors. Until then, it had been administrative practice and established case law for decades that a de facto freedom to issue instructions, e.g. due to family ties, led to exemption from social insurance contributions. The Federal Social Court changed this case law in 2012 and has since developed it further. According to this, only a limited possibility to prevent unwelcome instructions from the shareholders’ meeting (so-called limited blocking minority), which does not relate to all matters of the company, leads to a dependent employment relationship subject to social security contributions. Following the change in jurisdiction in 2012, shareholder-managing directors with at least 50 % share capital and voting rights and shareholder-managing directors with less than 50 % with the ability to prevent all resolutions of the other shareholders under the articles of association were generally not employed and therefore exempt from social security contributions.

A ruling by the Federal Social Court dated 13 December 2022 – B 12 Kr 16/20 -, which was issued regarding the employment of a shareholder who was not also appointed as a managing director, could usher in a change in the case law on shareholder managing directors. The Federal Social Court states in the judgement – which is not new in this respect – that shareholders who hold a maximum voting share of 50% are subject to social security contributions even if they have a comprehensive blocking minority. The Federal Social Court initially justified this by stating that the status classification of managing partners is not only dependent on their freedom to issue instructions. Rather, a non-employee managing partner must be in a position to exert a comprehensive influence on the direction of the company’s business activities and thus be able to steer the entrepreneurial fortunes of the GmbH as a whole like a company owner. In order to do so, it is necessary to have the power to organise the entire business activity. Otherwise, the shareholder-managing director is not active in his “own” company, but is integrated into the GmbH as his employer in a functionally serving manner. In principle, this also applies to shareholders working in the management area of a GmbH who are not appointed as managing directors.

Furthermore, the Federal Social Court states, in accordance with its now established case law, that his position as a contributing shareholder does not correspond to that of a shareholder-managing director who, according to the case law of the Senate, is deemed not to be employed because he holds at least 50 % of the shares in the share capital or, as a minority shareholder-managing director, has a blocking minority covering all company activities. This is because the shareholder, despite his half share and the possibility of preventing any (individual) instructions within the framework of the right of direction transferred to the shareholders’ meeting, lacks the management function of the managing director to have a significant influence on the fate of the company. And now comes the further justification, which contains explosive force: It is precisely the ordinary management as the managing director’s main field of activity that must be covered by the blocking minority in order to exclude his dependent employment. The transfer of part of the entrepreneurial activity, e.g. for purchasing and logistics, is not sufficient for this. He does not have the overall legal power under company law to prevent the managing director from setting the decisive framework conditions into which the performance of his work is integrated.

But what does this mean for managing directors who have a comprehensive blocking minority but only a minority shareholding? Will the Federal Social Court still grant them the ability to determine the fate of the GmbH in future? This seems particularly questionable if the minority shareholder managing director is only assigned individual areas of activity. It cannot be inferred from the judgement of 13 December 2022 that the Federal Social Court is also considering a change in jurisdiction for shareholder managing directors. However, it cannot be ruled out that the Federal Social Court will continue to develop its case law and that all shareholder managing directors with a minority shareholding will also be classified as subject to social security contributions in the future despite a blocking minority.

If you wish to counter such risks, it is recommended that shareholder-managing directors initiate a status determination procedure with the German Pension Insurance now, as according to the current directive situation and case law, the blocking minority is still sufficient for shareholder-managing directors, even if they have a minority shareholding, only. A corresponding decision would also provide protection under social security law in the event of a later development of case law until a corresponding decision is cancelled. A status determination procedure is therefore strongly recommended as the safest route.

LinkedIn News Contact