Social security for managing partners

Germany: Managing partners of a GmbH with a blocking minority can also be employees and so covered by the social security system.

No legal provisions regulate when a member of board who is also a shareholder must be covered by the social security system. The key factor is the overall estimation of the individual’s working duties. The decisive criterion is the size of the individual’s overall shareholding. 

According to court rulings and Germany’s statutory pension insurance scheme, managing partners of a GmbH who hold at least 50 % overall of the shares are to be recognized as independent or self-employed, so that they are not subject to the public social security system. The reason for this interpretation of the rules is that these members of board are not subject to other shareholders, so that their decisions are independent. 

The situation is more complicated if a particular board member holds less than 50 % of the shares in the company. Whether in that case the individual is subject to the public social security system depends on how far that board member is bound by shareholders’ orders and organizational workflow in the company. The deciding factor here is whether that board member receives flexible remuneration for their work and independently sets their working hours plus the place and extent of their work. If so, then it supports recognition of their work as independent and thus not subject to the public social security system. The same would apply if company rules do not ensure continued payment of salary during illness, holiday entitlement or reimbursement of expenses for that board member. 

According to court rulings the essential criterion is whether a blocking minority exists that allows preventing a shareholders’ resolution. The right of a board member is insufficient if it just prevents only fundamental decisions by shareholders, especially those that may only be made by a required minority, such as amending the articles of association. Furthermore, court rulings require that a blocking minority must be extensive and that the board member must be able to prevent their own dismissal or termination of their contract. Inability to do so suggests dependent, subordinate employment.

Note: it is not enough to formulate a contract according to the above mentioned criteria. The decisive factor is the actual situation of the board member in the company.






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