Liability of a Ltd. Director

German legal professionals are having a hard time with the basic rights of European corporate law; i.e., how to integrate foreign legal institutes into the German legal system. This is especially true of Limited Liability Companies following the English Companies Act of 1985. The problem is not the concept of the Ltd., since Germany has its equivalent in the GmbH, but rather the extremely differing rules on founding and running such a company here in Germany. Normally, Germany would not allow a Ltd. to “unofficially” only operate from abroad, but being a member of EU, Germany must and therefore does allow such companies.



The Federal Court of Justice recently ruled (judgment of 14.03.2005, re II ZR 5/03) on whether Directors of a Ltd. can be held liable if the company does not enroll itself in the German commercial registry. In this case, a director acted on behalf of the company while engaging in several different commitments, which were not met.


The company itself was not registered in the commercial registry even though it had its actual administrative site in Germany. The plaintiff argued that since the company was not registered here, it had no legal existence in Germany. Thus the director can be held liable as a falsus procurator. People acting as somebody else’s agent without being entitled can be held liable (§179 BGB).


The court dismissed this idea. Art. 43, 48 Treaty on European Union prohibits the obligation for European companies to register again in Germany. Once legally founded in the country of their origin, they have the right to do business wherever and with whomever they wish. Thus a director having power of agency cannot be held personally liable when he operates on behalf his unregistered company. N.B. This applies only to registration in Germany. The rules of piercing the veil of corporation otherwise remain valid.

Published on the old CMS: 2006/7/26
Read on the old CMS till November 2008: 4,549 reads

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