One-person company to avoid social security obligations?

In principle, it is of course possible to provide services to third parties as a shareholder of a UG without this activity being subject to social security contributions. Of course, corporations in the legal form of a UG can also use their own employees to provide services for third parties. For example, an advertising agency in the legal form of a UG can process advertising orders for customers with the employees it employs.

However, it becomes critical if the corporation exists as a one-person company, does not employ its own staff subject to social insurance contributions and provides services for clients that are originally subject to the client's business area.

Decisions of the Federal Social Court from 20.07.2023

On 20.07.2023, the Federal Social Court had to decide in a total of three proceedings (Ref. B 12 BA 1/23 R, Ref. B 12 R 15/21 R and Ref. B 12 BA 4/22 R) on the social security status of shareholder-managers in one-person companies. Two of the cases concerned the sole shareholder-managing director of a UG, while case B 12 R 15/21 R concerned the sole shareholder-managing director of a GmbH.

In all three cases, the Federal Social Court affirmed the fundamental possibility of employment subject to social security contributions despite contractual relationships between the corporations and the contracting company, but referred proceedings B 12 BA 1/23 R and B 12 R 15/21 R back to the respective state social courts for further clarification of the facts. In case B 12 BA 4/22 R, in which the shareholder-managing director supported the client company with strategy development issues and sales planning, the Federal Social Court found that the shareholder-managing director was employed by the client company and subject to social security contributions.

The type of employment is decisive

Section 7 (1) SGB IV is decisive for the assessment of the employment status under social security law. This states that "employment is non-self-employed work, in particular in an employment relationship. Indications of employment are work in accordance with instructions and integration into the work organization of the employer. "

In essence, the Federal Social Court stated in the three rulings of 20.07.2023 that a sole shareholder who leaves work to himself and who fulfills the contractual obligation entered into by his corporation with and for a client is subject to the same social security law rules for determining an employment relationship as a natural person who enters into a freelance employee relationship.

It is therefore solely a question of whether the shareholder of a one-person company is a natural person and whether his activity in the contracting company presents itself as dependent employment according to the actual overall picture, i.e. whether the shareholder-managing director is integrated into the contracting company, does not bear any economic risk of his own in relation to this activity and, on closer inspection, actually performs an activity subject to instructions. There is a very high risk of such an assessment if the shareholder-managing director performs activities that are also carried out by salaried employees in the contracting company.

Establishment of corporations not a "panacea" against social security obligations

The Federal Social Court has once again put a stop to the creative possibility of establishing oneself on the service market with self-employed activities outside of an employment relationship subject to social security contributions. However, it is significant that the Federal Social Court has not generally deemed the establishment of a corporation as a one-person company to be an abuse of rights, but that it still depends on the individual case. It is therefore still possible in many areas, particularly in the consulting sector, to work without social security contributions and thus avoid being integrated into the client's business and thus being bound by instructions.