Managing director

What it means

The managing director is the statutory body of a limited liability company: they act for it externally, sign contracts and answer for the keeping of the books, the filings and the running of the business. They are entered in the commercial register along with how they may act.

This is not the same as a member. A member owns a share and votes at the general meeting, the director runs the company - one person can be both, but the rights and duties do not overlap.

A company may have several managing directors, and the articles of association set whether each acts alone or they act jointly. Internal limits, such as requiring the general meeting’s consent for contracts above a certain amount, do not bind third parties. A contract signed in breach of them generally still binds the company, and the director answers to the company for the breach.

How it works in practice

The director’s relationship with the company is commercial-law; remuneration and terms are set in a contract for the performance of office approved by the general meeting. The tax and contribution treatment of that remuneration is assessed separately and differs from a profit share.

Much of the administration is passed to the accounting firm by power of attorney, but responsibility for filing on time and for the content stays with the director - that is the core of compliance in a small company.

When the director changes, we deal with more than the register entry. The new director needs access to the company’s electronic mailbox, possibly a qualified electronic signature, new specimen signatures at the bank, and a review of whether powers of attorney and authorisations match the new situation. Without this the company spends weeks with nobody able to file or sign.

What to watch out for

The director is liable for damage caused by breaching their duties, and in insolvency has specific obligations including filing for bankruptcy in time. Resignation is notified to the company and entered in the register - until that entry, the duties do not end.

Deals between the company and the director personally are risky: a loan from the company, selling a car to the director, or paying their private expenses. For some of these the law requires the general meeting’s prior consent and terms usual in business dealings. Breaching that is a frequent basis for director’s liability and for tax adjustments.