Basic Information on Limited Liability Company
The Limited Liability Companies Act covers the activities of a limited liability company. The Limited liability companies Act came into force on 1st of September 2006. A limited liability company is a legal person distinct from its shareholders. In practice this means that a limited liability company can be subject to rights and obligations (legal capacity) and exercise control over such rights and obligations (legal competency). However, it is important to remember that the company is represented by natural persons, such as the Board of Directors or the Managing Director.
The advantage of a limited liability company, in comparison to other business forms, is that the shareholders’ liability for debts and other commitments is limited to their investment. Hence, they are not personally liable for the company’s commitments, and in turn the company is not liable for the shareholders’ commitments. In this regard, a limited liability company differs from a general partnership and a limited partnership, in which the partners are personally liable for the obligations of the partnership. However, in a limited partnership only the general (active) partners can be personally liable for the above mentioned obligations.
A limited liability company is established once it has been registered in the Trade Register. The establishment of a limited liability company is treated in detail in [1.1.2 Incorporation of the Company]. Before registration, a company cannot acquire rights or enter into obligations, nor can it appear as a party in court or in dealings with other authorities. The company shall be notified for registration within three months of the signing of the Memorandum of Association; failing this, the incorporation of the company shall lapse. Measures taken on the behalf of the company before registration shall be at the joint and several liability of the persons deciding on the measures and the persons participating in them. This liability shall be transferred to the company upon registration.
The purpose of a limited liability company is to generate profits for the shareholders, unless otherwise provided in the Articles of Association. This purpose to generate profits is usually exercised within the field of operation stipulated in the Articles of Association. In this respect it differs substantially e.g. from an association which can be established to support non-profit activity, or from a foundation, whose purpose is to possess and administer specific property.
The permanence of capital is also one of the distinct qualities of a limited liability company. Limited liability companies no longer have a minimum share capital requirement. However, the share capital of a public company must be at least EUR 80,000. The assets of a company may be distributed only as provided in the Limited Liability Companies Act. This is considered important considering that the shareholders have no personal liability for the company’s debts.
All shares carry the same rights in the company, unless it is otherwise provided in the Articles of Association. According to the principle of equality, the General Meeting, the Board of Directors, the Managing Director or the Supervisory Board shall not make decisions or take other measures that are conducive to conferring an undue benefit to a shareholder or another person at the expense of the company or another shareholder.
A share may be transferred and acquired without restrictions, unless otherwise provided in the Articles of Association. It is possible to limit the transferability of shares through a redemption clause or a consent clause. (see [184.108.40.206 Redemption Clause] and [220.127.116.11 Consent Clause]).
The mandatory administrative organs of a limited liability company are the shareholders’ meeting and the board of directors. At the shareholders’ meeting the shareholders decide on the most important matters regarding the company, such as amendments of the articles of association, an increase of the share capital and the approval of the financial statements. The board of directors looks after the proper organization of the company’s activities and represents the company. The board of directors may appoint a managing director who will be in charge of the company’s day-to-day administration. The management of the company shall act with due care and promote the interests of the company.