84	3  Limited Liability Company (GmbH)

loans will always rank last in priority in the event of an insolvency of the company.The insolvency administrator may set aside repayments made to such loans within one year prior to the insolvency application and demand that the funds be returned to the insolvency estate.

•Enabling the Relocation of the GmbH’s Seat: The MoMiG reform also provides for the relocation of the GmbH’s administrative seat (head office) to another jurisdiction different from that of its registered office. This allows for the GmbH to be used as a business vehicle in other countries while preserving corporate group consistency. To prevent misuse, a valid domestic business address has to be registered with the competent Commercial Register to which mail for the GmbH can be delivered at all times. If a delivery fails, service will be replaced by public notice.

•Increasing Protection against abusive Practices: In order to strengthen creditor protection, the MoMiG provides for a number of amendments aimed against abusive practices, in particular in connection with an insolvency of the GmbH: To prevent deliberate withdrawal of assets in the face of impending insolvency, managing directors can now be held liable for payments made to shareholders if such payments led to illiquidity of the company. Furthermore, the reasons for disqualifying managing directors have been extended, now also including a violation of the obligation to file for insolvency, a failure to ensure registrations and notifications in due form, as well as former convictions for fraud, including convictions in other jurisdictions. Finally, in the event of an illiquidity or over-in- debtedness of the GmbH, the managing director must immediately file an application for insolvency with the competent court. In order to avoid circumvention, this duty (as well as the resulting civil and criminal liability) passes over to any shareholder if the company at that time does not have/no longer has a managing director.

3.1.4  Advantages of the GmbH as a Business Vehicle

The GmbH combines the benefits of a flexible business vehicle suited for small and medium sized enterprises with the advantage of being a separate legal identity with limited liability of its shareholders.

In contrast to other forms of business organization (like sole proprietorship or a partnership) the GmbH has the advantage of limited liability of its founders and shareholders. Furthermore, a GmbH does not necessarily need to be represented by one of its members, but may be represented by external representatives (Fremdorganschaft).6 On the other hand, compared to the German AG, the shareholders of a GmbH have a much stronger impact on management. For example, the shareholders of a GmbH appoint the managing director, but may also remove her/

6  See Sec. 6 para 3 sentence 1 GmbHG.