GmbH and S.r.l.: Differences and similarities of directors' liability in Italy and Germany

Directors operating in cross-border areas should keep an eye on the differences between the various legal systems and promptly seek information on the liability risks that may arise from working for a company governed by a legal system other than their own.

This article illustrates the differences between Italian law provisions governing S.r.l. companies and German law provisions governing GmbH companies with regard to the liability of directors towards the company, with particular emphasis on the fundamental differences between the laws of the two countries in terms of the statute of limitations for company claims against directors.

The Italian Civil Code governs the liability of the director of an Italian limited liability company.

Pursuant to Art. 2380-bis of the Italian Civil Code, the directors of an S.r.l. have sole responsibility for the management of the company.

Pursuant to Art. 2475-bis of the Italian Civil Code, the directors have the general representation of the company. Any limitations on their powers are not enforceable against third parties, even if published (unless it is proven that the third parties acted wilfully to the detriment of the company).

In fulfilling the obligations relating to their duties, imposed by the rules and bylaws, directors must act with appropriate diligence (Art. 1176 of the Italian Civil Code), i.e. with care adequate to the nature of the office.

As a rule, the management actions of directors or members of the board of directors are not subject to subsequent review (so-called Business Judgement Rule applies). A company director cannot be held liable for business decisions that later prove to be economically inadequate. This is because the prior assessment of the appropriateness of the decision is the result of a business judgement and, although it may lead to the dismissal of the director, it cannot, in principle, give rise to contractual liability towards the company.

However, the principle of the incontestability of management decisions is not absolute and its effectiveness is subject to limits. 

Art. 2381 para. 6 of the Italian Civil Code – a provision governing joint-stock companies which also applies to limited liability companies – states that directors are obliged to act in an informed manner.

Furthermore, pursuant to Art. 2476 para. 1 of the Italian Civil Code, the directors are required to fulfil the duties imposed on them by law and by the bylaws for the management of the company and are jointly and severally liable for damages resulting therefrom.

The breach of statutory or contractual obligations provided for the exercise of management functions, as well as proven mismanagement of the company by the directors, may trigger various types of civil liability of the management body. The directors of an S.r.l. may be held liable towards the company (Article 2392 of the Italian Civil Code), to the company's creditors (Articles 2394 and 2394-bis of the Italian Civil Code), to the shareholders or to third parties (Art. 2395 of the Italian Civil Code).

The function, requirements, and legal nature of these different types of liability vary on the basis of the different interests they protect.

The following paragraph focuses on the statute of limitations of company claims against directors, as this is an area where the differences between Italian and German law are most pronounced.

Pursuant to Art. 2941  no. 7) in conjunction with Art. 2949 para. 1 of the Italian Civil Code, company actions against directors for breach of directors’ duties are subject to a five-year limitation period, which is suspended until the director ceases to hold office.

However, an important principle is provided for in Art. 2935 of the Italian Civil Code, according to which the limitation period for claims for compensation starts to run from the date on which the right can be exercised. This is a general principle that also applies to company actions against directors for breach of directors’ duties.

This means that the start of the limitation period, in the case of a company action against a director, depends not only on the date of the director's resignation from office, but also on the moment when the damage caused by the director's conduct became perceptible "externally" (i.e. in the company's assets) (see Court of Cassation, Civil Section I, judgment of December 4, 2015, no. 24715). If the damage becomes apparent to the company at a time subsequent to the end of the director's term of office, this will also be the starting moment of the limitation period for actions of the company against its former director.

In addition, there are special limitation rules, e.g. if the director has deliberately concealed the damage (in which case the limitation period is deemed to be suspended pursuant to Art. 2941, no. 8) of the Italian Civil Code, until the concealment is discovered - one of the most common cases occurs when the directors  have deliberately altered the company’s accounting records in order to conceal an embezzlement) or if the director's conduct is of criminal relevance (in which case, pursuant to Art. 2947 para. 3  sentence 1 of the Italian Civil Code, the possibly longer limitation period provided for the offence in question applies).

With the filing of a lawsuit against the director, the limitation period for the action is interrupted and remains suspended until the final judgement that settles the dispute is reached (see Art. 2943, para.1-2 in conjunction with Art. 2945, para. 2 of the Italian Civil Code).

Unlike Italian law, the general liability of the director of a German GmbH towards the company is not governed by the Bürgerliches Gesetzbuch or BGB (the German equivalent of the Italian Civil Code), but by a regulation contained in the “Gesetz betreffend die Gesellschaften mit beschränkter Haftung or GmbHG” (German law on limited liability companies).

Section 43(2) GmbHG regulates the company's claim for compensation against a director who breaches his/her duties through negligence (internal liability). "Directors who breach their duties" are therefore jointly and severally liable to the company for the damage suffered. Section 43 (2) GmbHG refers to the standard of care for directors generally defined in Section 43(1) GmbHG. 

However, if the director does not act with the required diligence and prudence in the conduct of the company's business, in violation of Section 43(1) GmbHG, he or she may be held liable to the company for the resulting damages. German law grants the directors a wide margin of discretion, provided that, at the time of the decision, they were within their rights to reasonably assume that they were acting on the basis of adequate information and in the best interests of the company (the so-called Business Judgement Rule). However, if a director exceeds this limit, e.g. by taking negligent decisions based on insufficient information or by violating mandatory legal requirements (principle of legality), he or she may be held personally liable through his/her assets for any claims brought against him/her by the company.

In addition to the general rule for claims for damages under Section 43(2) GmbHG, the director's liability towards the company may also arise in specific cases from other provisions of the GmbHG (e.g. in the case of violation of the capital preservation regulations) and from claims for compensation of a non-contractual nature, in which case intentional damage contrary to public policy provided for in Section 826 BGB and, in cases of criminal liability for breach of fiduciary duty, civil liability pursuant to Section 823(2) BGB in conjunction with Section 266 StGB (the German criminal law) are particularly relevant.

While under Italian law, the limitation period for director's liability is generally suspended until the director leaves the company and therefore begins to run effectively from that moment, German law on limitation periods has no such a provision. On the contrary, Section 43(4) GmbHG provides for a five-year limitation period for claims for compensation under Section 43(2), which begins with the 'arising of the claim' (see Section 200(1) BGB) (and not, as in the case of the standard limitation period under Section 199(1) BGB, at the end of the year in which the claim came into existence and the claimant became aware of the relevant circumstances giving rise to the claim and of the identity of the obligor, or should have become aware of them without gross negligence). 

According to the prevailing opinion, in this sense, the company's right to compensation from the director is considered to arise at the time the damage occurs. This means that the amount of the specific damage does not yet have to be quantifiable but could hypothetically be claimed through an action for a declaratory judgment. Pursuant to the German Civil Code, the limitation period referred to in the first sentence of Section 200, first sentence, also applies if the director deliberately fails to disclose the breach of his/her duties to the shareholders' meeting. 

However, it should be noted that Section 43(4) GmbHG does not apply to any non-contractual/tortious claims (see above). If, for example, the director is also criminally liable for a breach of fiduciary duty, any claim for compensation brought against him/her by the company - pursuant to Section 823(2) BGB in conjunction with Section 266 StGB - is subject to the ordinary limitation period of three years provided for in Sections 195 and 199(1) BGB. However, this period begins to run only from the time when knowledge is acquired or should have been acquired in the absence of gross negligence (see above), and in practice this often occurs at a later point in time.

Although in many areas, Italian and German company law are based on identical or comparable principles and overlap, there are still meaningful differences, that also affect sensitive areas such as the limitation period for company claims against directors for breach of directors’ duties. Directors operating in cross-border areas are encouraged to seek timely and comprehensive information on the respective differences between the legal systems with the help of legal advisors specialised in cross-border issues.​

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