Even stricter rules for shareholding managing directors with equal rights? – Social security payable where there is 50/50 participation in share capital
The assessment of the social security status of shareholding managing directors continues to occupy the social insurance institutions and the social courts.
This is fuelled by a decision by Neubrandenburg Social Court on 10 September 2024 (case S 7 BA 7/23), which (probably inadvertently) has reinterpreted the established supreme court case law. This reinterpretation would have far-reaching consequences for many shareholding managing directors. However, the opinion of Neubrandenburg Social Court is not persuasive. In this article, we explain how companies can nevertheless ensure that a shareholding managing director is classified as self-employed in a legally watertight manner.
I. Legal opinion to date
Shareholding managing directors who hold at least 50% (including exactly 50.0%) of the company’s share capital are generally considered to be self-employed under social security law and therefore do not pay social security contributions.
In those cases, case law has so far presumed that the managing director has the necessary legal power to exert a significant influence on the company’s fortunes. The managing director is therefore not a dependent employee. Conversely, a shareholding managing director is personally dependent and therefore an employee subject to social security contributions if he is unable to prevent every resolution he does not agree with.
The decisive factor here is not the participation in the share capital per se, but the associated legal power to influence the fortunes of the company (Federal Social Court (Bundessozialgericht) on 1 February 2022, case B 12 R 19/19 R). The Federal Social Court states that:
“A shareholding managing director is not self-employed per se by virtue of his shareholding, but must, in order not to be regarded as a dependent employee, have the legal power to determine the fate of the company by influencing the shareholders’ meeting in addition to his position as a shareholder. Such legal power is given in the case of a shareholder who holds at least 50% of the shares in the share capital.”
Shareholding managing directors with a stake of less than 50% can therefore also be considered self-employed if they are granted a comprehensive blocking minority by the articles of association. According to the case law of the Federal Social Court, the decisive factor is that the shareholding managing director can prevent all conceivable resolutions through his shareholding.
II. Outlier decision by Neubrandenburg Social Court
Neubrandenburg Social Court is now breaking new ground with its decision on 10 September 2024 (case no. S 7 BA 7/23) by ruling that shareholding managing directors who hold a 50% stake in the share capital and have equal voting rights must be subject to social security contributions.
The decision was based on the following case: A shareholding managing director held exactly 50% of the company shares. Due to the associated voting rights, this gave him the opportunity to block resolutions of the shareholders’ meeting that he did not agree with. In stalemate situations, no decision could be made against his will. According to established supreme court case law, the shareholding managing director would therefore not be subject to social security contributions.
By contrast, Neubrandenburg Social Court does not consider this blocking power, which has so far been regarded as sufficient in the case of shareholding managing directors, to be sufficient and demands a “comprehensive power to influence matters” that goes beyond the mere possibility of prevention. This is justified by the fact that it is not the blocking power that characterises the independence of the entrepreneur, but rather the ability to actively steer the fortunes of the company
In the opinion of Neubrandenburg Social Court, where the shareholding managing director holds half of the share capital, decisions can only be made against the will of the other shareholders if a casting vote in favour of the shareholding managing director is laid down in the articles of association
III. Critical analysis of the decision
This reinterpretation of supreme court case law is not persuasive. This is because Neubrandenburg Social Court confuses the requirements for the presumption of self-employment of shareholding managing directors with those for employed shareholding managing directors. It believes (probably inadvertently) that it is in line with the supreme court case law. According to the case law of the Federal Social Court, however, the following distinction must be made:
- As an executive body of the company, a shareholding managing director is generally in a position to freely steer the company’s fortunes as long as no other instructions are issued to him by the shareholders’ meeting. If he can prevent such instructions issued to him through his role as a shareholder, he is “self-employed” under social security law in his role as managing director.
- The situation is different for working shareholders, i.e. those employed as employees. This is because, unlike a shareholding managing director, they can at best prevent instructions issued to them on a selective basis by virtue of their shareholding. So they are only “self-employed” under social security law if they can steer the management of the company through shareholder instructions based on their shareholder role.
- Neubrandenburg Social Court fundamentally fails to recognise this difference.
IV. Practical implications and drafting options
The decision of Neubrandenburg Social Court is not persuasive and is very likely to be overturned on appeal.
However, the decision makes it clear that the issue of the social security liability of shareholding managing directors must be taken into account when drafting articles of association. To obtain social security exemption for shareholding managing directors, at least a blocking minority must be ensured. If social security exemption is considered particularly important, the company’s articles of association should be checked and, if necessary, amended retrospectively (but only with effect for the future) and published in the commercial register.
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