A GmbH or a UG has two mandatory corporate bodies: (i) the shareholders' meeting (Gesellschafterversammlung) and (ii) the management board (Geschäftsführung). In case of startups with institutional investors, there is usually also a third voluntary corporate body called "advisory board" (Beirat) to which certain rights of the shareholders' meeting, in particular control rights, are transferred. In most startups the founders are appointed as managing directors.
The managing director(s) (together) form(s) the management board and are responsible for the management of the day-to-day business operations of the GmbH on behalf and for the benefit of the shareholders. The managing directors are obliged vis-à-vis the GmbH to comply with the restrictions of the GmbH's articles of association, the instructions of the shareholders' meeting and applicable law. However, it must be noted that any restrictions of power, maybe coming from rules of procedures or other governance regulations, have no external effect. This means that a managing director can, for example, conclude any contract on behalf of the GmbH with a third party that is binding on the GmbH, even though the shareholders' meeting has expressly rejected such contract or the conclusion of such contract would have required the prior consent by the shareholders’ meeting (i.e., the "ability" in the external relationship is not necessarily congruent with the "permission" in the internal relationship).
Whilst the business of the GmbH is handled by the managing directors of the GmbH, major decisions and transactions that affect the structure of the GmbH (e.g., amending the articles of association, increase of registered share capital, changes to the corporate purpose of the GmbH, etc.) need to be taken by the shareholders' meeting. Shareholder's decision making is prescribed in the German Limited Liability Companies Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung – GmbHG) and the articles of association of the GmbH. Shareholders exercise their power through voting by written shareholders' resolutions or at shareholders' meetings of a company. However, the shareholders' meeting is generally not responsible for the operational business and the representation of the GmbH vis-à-vis third parties. For this purpose, the shareholders' meeting appoints and dismisses one or more managing directors. Additional rights of the shareholders' meeting, such as veto rights with respect to individual management measures and actions, may be set out in a shareholders' agreement, which is usually introduced as part of the GmbH's first financing round backed by institutional investors.