Liability trap for the entrepreneurial company

The Unternehmergesellschaft is a genuine corporation with limited liability. However, special attention must be paid to the correct company name in legal transactions in order to avoid personal liability. This is illustrated by the ruling of the Federal Court of Justice from January 13, 2022 (case no. III ZR 210/20), according to which the managing director of an entrepreneurial company can be personally liable if he only acts "as a representative of the UG" in legal transactions:

According to established case law of the BGH, the person acting on behalf of a limited liability company in business transactions - regardless of whether he is the managing director or another representative - is liable for a breach of Section 4 GmbHG in accordance with Section 179 BGB if he has caused the legitimate expectation of the other party to the transaction that at least one natural person is liable by signing the company name without a formal addendum. § In this respect, Section 179 BGB does not establish a general, conduct-oriented liability based on legal appearance, but rather a guarantee liability independent of fault, which is based solely on the fact that the person acting directly has created a situation of trust through the factually incorrect declaration made to the contractual partner that at least one (natural) person is liable to him without limitation with his private assets. Whether the representative has used documents that he himself has been provided with is irrelevant. Rather, it is his task to ensure that the company for which he is acting is correctly identified.

Nothing else applies if the represented company is an entrepreneurial company ("UG"): Pursuant to Section 5a (1) GmbHG, the entrepreneurial company must have the designation "Unternehmergesellschaft (haftungsbeschränkt)" or "UG (haftungsbeschränkt)" in its company name. Since the entrepreneurial company can have a very low share capital - significantly lower than that of a GmbH - there is a particular need for such a reference in legal transactions. This is because there is a risk that the opposing party will make decisions that they would have completely or at least partially avoided if they had known the true facts.

Liability based on trust therefore applies, among other things, if the mandatory addition - "Unternehmergesellschaft (haftungsbeschränkt)" or "UG (haftungsbeschränkt)" - is omitted or abbreviated inadmissibly in accordance with Section 5a (1) GmbHG. Since the legal requirement must be complied with exactly and to the letter, the legal liability also applies if the addition is incomplete, for example because the mandatory reference "haftungsbeschränkt" is missing. The mere reference to the legal form of the entrepreneurial company is therefore not sufficient as such, because - unlike the addition of the legal form "limited liability company" - the entrepreneurial company does not already have the limitation of liability in its name. If only this reference is omitted, the impression can be created that at least one natural person has unlimited liability for the entrepreneurial company.

PBC legal takeaways: Anyone acting as a representative of an entrepreneurial company should always ensure that the entrepreneurial company is designated exactly and literally either as "Unternehmergesellschaft (haftungsbeschränkt)" or as "UG (haftungsbeschränkt)" in all documents they use. This applies in particular to all contracts and (unilateral) declarations such as offers and order confirmations. However, it should also be observed in all legal transactions, including on business cards, advertising material, letterheads and e-mail signatures. And in the case of purely verbal negotiations or business transactions, a clear reference must be made and documented for evidence purposes. Otherwise, there is a risk of personal liability on the part of the person acting, at least if the entrepreneurial company cannot (or can no longer) meet its payment obligations.