Piercing the Corporate Veil in Germany

German courts will only pierce the corporate veil in exceptional cases where a shareholder abuses the company’s legal structure. Over time, case law has developed specific categories in which personal liability may be imposed, despite the company's formal separation from its owners. The principal scenarios are as follows:

Commingling of assets (Vermögensvermischung): If a shareholder fails to maintain a clear separation between personal and corporate assets—such as using the company account to pay private expenses without proper documentation—a court may find that the shareholder and company are economically indistinguishable. In such cases, creditors may be granted access to the shareholder’s assets to the extent necessary to satisfy corporate debts.

Qualified undercapitalisation: While low capitalisation is not unlawful—particularly given that a UG can be established with as little as €1—courts may intervene where a company is deliberately set up or maintained with grossly inadequate capital in order to defraud creditors. This ground is narrowly applied and requires evidence of intentional abuse.

Abuse of the corporate form (Rechtsformmissbrauch): If a company is used as a shell or vehicle to evade legal obligations—for example, to defraud creditors or obscure control through straw men—courts may disregard the company’s legal personality. In such cases, the true actor behind the company may be held personally liable.

Existence-destroying interference (existenzvernichtender Eingriff): This occurs when a shareholder removes key assets from the company, causing it to become insolvent. If this conduct violates public policy (§ 826 BGB), the shareholder may be held personally liable to the company for the resulting damage. The Federal Court of Justice (BGH) has confirmed such liability where a shareholder deliberately destroys the company’s financial foundation. Because the claim for damages belongs to the company, it forms part of the insolvency estate and may be asserted by the insolvency administrator for the benefit of the creditors.

Blurring of personal and corporate spheres (Sphärenvermischung): This concept refers to situations in which the distinction between company and shareholder is so unclear—e.g., shared offices, identical names, or joint management structures—that third parties are misled. While not sufficient on its own to establish liability, such blurring may support other grounds for veil piercing when combined with abusive conduct.

Piercing the corporate veil under German law is reserved for serious misconduct that undermines the foundational separation between company and shareholder. Ordinary business failures or poor management are insufficient. Courts apply this remedy with caution, and only in clear cases of abuse.

German law imposes strict formal requirements for the valid formation of a GmbH or UG (haftungsbeschränkt). These include notarisation of the articles of association and registration with the commercial register. Compliance with these formalities is a prerequisite for the company’s legal existence—not merely a procedural formality. Failure to meet them means the company does not come into being as a separate legal entity, and those acting on its behalf may be personally liable for any obligations incurred in its name.

For example, until a GmbH or UG is formally registered, it exists only as a company "in formation" (GmbH in Gründung). Under Section 11(2) GmbHG, any person who acts on behalf of such a pre-registered entity assumes personal liability. This means that entering into a contract on behalf of an unregistered company carries the risk of direct personal liability if the company is not properly incorporated.

Beyond formation, disclosure obligations play a key role in ensuring transparency. While non-compliance with these requirements does not invalidate the company, it may trigger personal liability or administrative sanctions. A prominent example is the UG (haftungsbeschränkt): under German law, every business communication must include the full legal name, including the designation "haftungsbeschränkt." Failure to do so can mislead third parties into believing there is no limitation of liability. In such cases, the individual responsible may be held personally liable, as established by the Federal Court of Justice (BGH).

Administrative penalties may also apply, including fines of up to €5,000 for repeated violations. Competitors may issue potentially expensive legal warnings (Abmahnungen) for improper use of the company name, creating further legal exposure.

Yes. German law recognises that the privilege of limited liability is not without boundaries. While there is no codified provision explicitly titled "abuse of legal personality," the principle is firmly rooted in case law and general legal doctrine under terms such as Missbrauch der juristischen Person or Rechtsformmissbrauch. The guiding idea is that legal personality cannot be used as a shield to circumvent legal obligations or commit injustice.

If a shareholder instrumentalises the company to avoid debts, mislead creditors, or otherwise act in bad faith, German courts may intervene. In such cases, the corporate form may be set aside to prevent abuse. Courts have held that where the company is used in a manner contrary to the purpose of the legal order, the separation between company and shareholder can be disregarded. The legal and financial consequences of the company's actions may then be attributed directly to the controlling individual.

This mechanism is applied cautiously and only where a shareholder’s conduct clearly violates the principles of good faith or creditor protection. Typical indicators of abuse include operating the company as a mere vehicle for personal transactions, commingling assets, undercapitalising the company to frustrate claims, or using the corporate structure to engage in fraud.

Yes, although it is narrowly applied. German law recognises the concept of Durchgriffshaftung (piercing the corporate veil) as a legal remedy in exceptional cases where the company form is abused to the detriment of creditors or used to circumvent legal obligations. Unlike in some jurisdictions, veil piercing is not codified in a single statutory provision but has evolved through decades of case law. It is primarily based on general principles of tort law—especially § 826 BGB (intentional harm in violation of public policy)—and, in some cases, § 242 BGB (good faith), where equity considerations justify holding shareholders personally liable.

Veil piercing is not invoked lightly. It is considered a measure of last resort and applies only where conventional liability rules are inadequate to address clear misconduct. As outlined in Question 1, the doctrine is typically triggered in cases involving commingling of assets, the creation of sham companies to defraud creditors, existence-destroying interference by shareholders, or similar egregious conduct.

In applying this doctrine, German courts assess whether holding the company solely liable would be incompatible with justice, and whether the shareholder's conduct amounts to a misuse of the corporate form. Personal liability may then be imposed to reflect the economic reality behind the formal structure.

It is important to distinguish between true veil piercing (echter Durchgriff), which is imposed by law due to abuse, and voluntary assumption of liability (unechter Durchgriff), such as when a shareholder provides a personal guarantee. The focus here is on the former.

In principle, yes. The doctrine of limited liability is a core tenet of German company law. It ensures that shareholders of a GmbH or UG are not personally liable for the company's obligations beyond their agreed capital contributions. This protection is a defining feature of these corporate forms and underpins commercial certainty for entrepreneurs and creditors alike.

However, this protection is not absolute. As discussed in earlier sections, German courts may pierce the corporate veil in narrowly defined circumstances involving serious abuse. These include cases of commingled assets, fraudulent conduct, or existence-destroying interference. Such instances are rare and subject to strict judicial scrutiny.

Beyond these exceptional judicial doctrines, German law also contains specific statutory provisions that may result in shareholder liability. For example, shareholders must fully pay in their subscribed capital contributions. If they receive distributions that violate capital maintenance rules, they may be required to repay those amounts. Similarly, individuals acting on behalf of a company that has not yet been properly formed and registered may be held personally liable.

The protection of limited liability is not available where a company is used solely as a means to evade pre-existing personal obligations. While forming a GmbH or UG to limit liability for future business risks is legitimate and expected, using a company structure to shield oneself from debts or duties already incurred crosses the line into abuse.

German courts look closely at the substance of such arrangements. If a shareholder forms or uses a company to divert personal assets beyond the reach of creditors—for instance, by funnelling income or property through the company while claiming personal insolvency—courts may disregard the corporate form. In such scenarios, the individual may be held personally liable, particularly where the structure is used deceptively or in bad faith.

Case law confirms that concealment of control or the use of straw men to obscure the true beneficial owner may also constitute an abuse of legal personality. Where such conduct results in harm to creditors, the courts can pierce the veil and hold the individual responsible.

Controlling shareholders—especially those holding a majority or all of the shares in a GmbH or UG—have significant influence over the company. While German law permits shareholders to pursue their commercial interests through a corporate entity, this influence must be exercised within the boundaries of corporate law. A shareholder who treats the company as a personal asset risks losing the protection of limited liability.

Personal liability may arise where a controlling shareholder:

• Uses company assets for private purposes without proper accounting,
• Enters into self-dealing transactions that prejudice the company or its creditors,
• Ignores corporate formalities, or
• Creates a situation where third parties can no longer distinguish between the shareholder and the company.

Such conduct may result in asset commingling, improper value transfers, or a misleading appearance of solvency. If these actions cause harm to creditors or lead to insolvency, German courts may pierce the corporate veil and impose liability on the shareholder personally.

In addition to their responsibilities vis-à-vis the company and its creditors, controlling shareholders also owe a duty of loyalty (Treuepflicht) to minority shareholders. This duty arises from the principles of good faith (§ 242 BGB) and aims to prevent the abuse of majority power in a way that disproportionately harms minority interests.

Violations of this duty may occur, for example, when:

• Decisions are made solely to benefit the majority at the expense of the minority,
• Company resources are diverted for the controlling shareholder’s personal advantage,
• Minority shareholders are excluded from essential information or participation, or
• Structural measures (e.g. mergers, capital increases, squeeze-outs) are used oppressively.

German courts may invalidate shareholder resolutions or award damages where breaches of the Treuepflicht are found. While majority shareholders are not required to subordinate their interests, they must consider the legitimate expectations and rights of minority shareholders when exercising their control.

Where a shareholder’s conduct causes harm to company creditors, German law offers mechanisms to impose personal liability. Two principal avenues are relevant:

• Existence-destroying intervention (existenzvernichtender Eingriff): If a shareholder extracts critical assets from the company—knowing it will render the company unable to meet its obligations—this conduct may constitute intentional harm under Section 826 of the German Civil Code (BGB). Courts have recognised that such asset-stripping, especially where done in bad faith, can justify holding the shareholder personally liable for resulting losses.
• Capital maintenance rules: German corporate law prohibits distributions to shareholders that would impair the company’s registered capital. Payments made in breach of these rules must be returned. For instance, an unrepaid shareholder loan taken during financial distress may be treated as an unlawful withdrawal, triggering a restitution claim in favour of the company or its insolvency estate.

In addition to civil liability, there may be regulatory or criminal consequences—particularly in insolvency scenarios. Insolvency administrators are empowered to challenge transactions that unfairly harm creditors, including transfers to shareholders that lack fair consideration or proper timing. Shareholders may also be liable to the company under general rules of civil law for negligent conduct that causes financial harm—especially where they exercise de facto control or interfere in management.

In essence, when a shareholder’s actions unfairly deplete the company’s assets to the detriment of creditors, German law permits both reversal of those actions and direct personal liability where warranted.

Yes. German law recognises that the person formally listed as shareholder or managing director may not always be the true decision-maker. The legal system is prepared to look beyond formal roles to identify de facto managers and beneficial owners, particularly in insolvency cases.

• De facto managers (faktische Geschäftsführer): These are individuals who, though not officially appointed, act as managing directors in practice. If a person exercises significant control over the company’s operations and decision-making, they may be treated as a director for legal purposes. This includes assuming liability for breaches of director duties—such as failing to file for insolvency in a timely manner. Courts and prosecutors do not require a formal appointment to impose liability on someone who effectively manages the company.
• Hidden shareholders / beneficial owners: Where shares are held in name only by figureheads or straw men (Strohmann), courts will examine who truly controls and benefits from the company. If it becomes clear that a person uses such arrangements to obscure their involvement—especially to commit fraud or avoid obligations—they may be held personally liable. Courts can pierce through the formal structure and treat the hidden controller as if they were the actual shareholder.

These doctrines ensure that individuals cannot evade responsibility simply by remaining in the background. In insolvency, administrators scrutinise such arrangements closely, and courts are willing to apply substance-over-form reasoning where there has been misuse of legal entities.

Yes—but only in exceptional cases of abuse. As a rule, each company within a corporate group—whether parent or subsidiary—is treated as a separate legal entity with its own rights and liabilities. A parent company, even if it owns 100% of a subsidiary, is not automatically liable for the subsidiary’s debts. This principle is central to the legal autonomy of group entities and is generally respected by German courts.

However, veil piercing may be permitted where the parent company misuses its control over the subsidiary in a way that harms creditors. Examples include:

• Statutory group liability under corporate law: In stock corporation (AG) groups, German law provides for formal control agreements (Beherrschungs- und Gewinnabführungsvertrag). Where such an agreement exists, the parent assumes liability for the subsidiary’s losses. This is not veil piercing in the strict sense, but a statutory regime tied to corporate group law (Konzernrecht).
• De facto domination and asset shifting: If a parent company exerts factual control and siphons assets or business opportunities from a subsidiary—effectively gutting the subsidiary to the detriment of its creditors—courts may intervene. This is typically framed as a form of existence-destroying intervention, with liability imposed on the parent for misuse of group structures.
• Blurring of group boundaries (Sphärenvermischung): In closely held groups, formal separations may be neglected—such as when the same individuals manage both parent and subsidiary, or business operations and branding are intertwined. While this is not automatically grounds for veil piercing, it may contribute to creditor confusion. If the parent company’s conduct creates a false impression that it stands behind the subsidiary, and creditors rely on that impression, liability may result.

The threshold remains high. German courts distinguish carefully between legitimate group management and abusive conduct. Veil piercing in a group context is only considered where the parent uses the group structure to subvert the subsidiary’s independence and prejudice creditors’ rights.

German law strikes a deliberate balance between protecting the principle of limited liability and preventing its misuse. The key takeaways for shareholders, directors, and third parties engaging with GmbH or UG companies are as follows:

• Respect the separation: Maintain clear distinctions between personal and company affairs. This includes separate accounts, proper documentation, and compliance with capital and disclosure obligations.
• Avoid misuse: Do not use the corporate structure to evade laws, mislead creditors, or extract value unlawfully. Courts are equipped to pierce the veil in cases of serious abuse.
• Understand the limits: While the corporate shield is robust, it is not absolute. The doctrine of Durchgriffshaftung ensures that those who act in bad faith cannot hide behind a company’s legal personality to escape liability.

Each case ultimately turns on its specific facts. For shareholders concerned about exposure or creditors seeking to enforce claims, early and informed legal advice is essential. A careful assessment of the legal structure, conduct, and available remedies can make the difference between enforceability and protection.