Obligation to pay contributions to the compulsory social insurance fund for a managing shareholder

In principle, if a shareholder of a GmbH (German limited liability company) also acts as the managing director of the GmbH, then he or she is deemed to be in an employment relationship that entails mandatory social insurance contributions.

However, if the shareholder is able to exert a decisive influence on the decisions taken by the GmbH, then there will be no obligation to pay in social insurance contributions for that shareholder. Such decisive influence will automatically be deemed given if the shareholder holds at least 50 percent of the GmbH’s shares or is otherwise able to exert a decisive influence on the company’s course. In the case at the hand, the relevant contractual relationships – as evidenced by the shareholders’ agreement, an agreement binding the shareholder to exercise the voting rights in a prescribed manner, and an employment contract with the managing director – left no doubt as to the fact that the managing shareholder played a key role in taking entrepreneurial decisions.

Source: Ruling of the Landessozialgericht (LSG, Higher Court for Social Security and Related Matters) of the Rhineland-Palatinate dated November 12th, 2014, L 4 R 556/13