Civil Law Partnership (BGB-Gesellschaft)

The reform of partnership law came into force on January 1, 2024. The reform is based on the Personengesellschaftsrechtsmodernisierungsgesetz (MoPeG). This has resulted in many new regulations, particularly with regard to the GbR, as the GbR has been fundamentally redesigned. The current regulations, which apply to all existing companies without a transitional period, are presented below.

A BGB company or GbR exists when at least two persons agree to co-operate for a common purpose and to promote this purpose. The legal basis can be found in the German Civil Code (BGB).

No written contract is required to establish the company; a verbal agreement is sufficient. Nevertheless, it is strongly recommended that the key points of association are set out in writing, particularly in the event that ambiguities or differences of opinion arise at a later date.

The GbR is an association of persons based on a partnership agreement for the support of a purpose jointly pursued by the partners. After the reform, it can be structured with or without legal capacity.

In contrast to a GbR without legal capacity, a GbR with legal capacity actively participates in legal transactions and can establish its own rights and obligations. In particular also enter into company commitments. It can also have company assets and be entered in the company register.

The internal company without legal capacity, on the other hand, is primarily used to organise purely internal legal relationships between the partners.

A GbR with legal capacity exists if the company is to participate in legal transactions according to the will of all partners. If this common will is lacking, the GbR does not have legal capacity. It is advisable to expressly express the common will through corresponding agreements in the partnership agreement - the common will to participate in legal transactions is also legally presumed if the object of the GbR is the operation of a company under a joint name.

The GbR is regulated in §§ 705-740 BGB.

I. B. Key features

Corporate form

The GbR is the basic form of all partnerships. It can be formed, for example, by at least two small traders who join together to carry on a business.

Capital

The assets are allocated to the GbR with legal capacity as the legal entity. The assets dedicated to the common purpose, as well as the assets acquired in the fulfilment of the purpose, therefore do not belong to the partners jointly (jointly and severally), but to the company itself. Only the company itself can therefore dispose of the company assets via the partners authorised to represent it.

A GbR without legal capacity, on the other hand, has no assets

Constitution, executive organs

Unlike a GmbH or AG, for example, a GbR has no legal personality. It is therefore not itself the bearer of rights and obligations. Instead, the individual partners are personally responsible for the rights and obligations. However, according to the latest case law of the BGH, legal personality is partially assumed. According to the BGH, this should be the case if the GbR has become externally active in business.

In this respect, such an external company is therefore equivalent to other forms of company under German law, i.e. it can be the legal owner itself and can be sued.

The partners exercise the management of the company jointly.

The GbR is governed by the principle of self-organisation. This means that the partners jointly represent the company externally, which is due to the fact that the partners themselves are personally liable for the company's liabilities to third parties, not just any company assets.

Legal relationships of the partners, liability

The GbR is formed by a partnership agreement between at least two partners. Partners can be natural persons and legal entities, including foreign ones. Commercial partnerships may also participate as partners.

A change of partners is only possible with the consent of all partners, unless otherwise stipulated in the contract.

The death or termination of a partner's membership only leads to the partner's departure and not to the dissolution of the company.

Partners are not normally subject to social security contributions (pension insurance, health insurance, social long-term care insurance and unemployment insurance). Voluntary continued insurance in the statutory health insurance scheme is possible for former employees. It is also possible to apply for compulsory or voluntary insurance in the statutory pension insurance scheme. In some sectors, entrepreneurs are also required to take out statutory accident insurance (employers' liability insurance associations) if they do not have any employees.

All partners are personally and unlimitedly liable for company debts with their private assets as joint and several debtors for the full amount of the company's liabilities. The GbR itself is also liable for the company liabilities of a GbR with legal capacity with the company assets.

A limitation of liability of the partners towards third parties is not possible and is ineffective.

The personal liability of the partners towards third parties cannot be limited by agreement between the partners in the partnership agreement, even if the third party is aware of this.

However, an individual agreement between the individual shareholder or the company and a specific company creditor is possible. In case of doubt, it must be assumed that such an agreement is not permissible within the framework of general terms and conditions.

Paragraph 728b BGB limits the subsequent liability of shareholders who have already left the company. They are only liable for the company's liabilities established prior to their departure if they fall due within five years of their departure and the claim has been legally established, for example.

II. Most important requirements

Registered office of the company

A distinction is made between the administrative seat (the place where the business of the GbR is actually conducted) and the contractual seat (a different place in Germany agreed as the seat in the articles of association).

In the case of an unregistered GbR, the registered office of the company is always the administrative office. A different registered office cannot be determined by agreement in the articles of association.

In contrast, a GbR entered in the company register can exercise a right to choose the registered office, § 706 BGB. This enables the GbR to conduct business outside Germany via a formal contractual registered office in Germany and an administrative registered office abroad.

Capital

A minimum capital is not necessary.

Object

Any legally permitted purpose can be considered as a common purpose (e.g., also crafts or other services). In contrast to the oHG and KG, the GbR does not operate a commercial enterprise.

n terms of type and scope, the GbR operates a business that does not have to be run commercially if its business operations have only reached a small size. This is the case if the partners work alone or with few employees or do not work full-time, the turnover or borrowing is low, and the business transactions have not reached any particular dimension overall. To assess whether a company must be commercially managed, the annual turnover, type and scope of business transactions, borrowing, size of business premises, number of employees, type of accounting, etc. must be taken into account in particular. If a size that varies depending on the sector is exceeded (e.g., as a result of the business volume increasing over the years), the GbR automatically becomes an oHG, regardless of whether it is entered in the commercial register. The organisational provisions of the German Commercial Code (HGB) then also apply to it. It is obliged to be entered in the commercial ( Handelsregister) register.
This should not be confused with entry in the company register (Gesellschaftsregister). A GbR with legal capacity can also (voluntarily) be entered in the company register. The company register is only intended for the registration of GbRs. In contrast to entry in the commercial register, the GbR retains its legal form when entered in the company register and does not become a general partnership (oHG).

Name of the company

The GbR does not have a corporate name like other company forms but a name. Even after a GbR is entered in the company register, it does not have a corporate name, but only a name.

The letterheads are to contain the surnames and at least one complete first name of each of the partners and the address under which they can be summonsed (P.O. Box is not sufficient). Although there is no longer any central directive of trade law demanding these statements on letterheads due to the abolition of § 15 b Trades Regulation Order (GewO), the necessity of providing these statements on letterheads can however result - depending on the individual case - from competitive law (misleading business situation, § 5 sub-section 1 sentence 2 no. 3 Unfair Competition Act - UWG -) and corporate law directives (§§ 18, 37 HGB). In the use of business documents and invoices, this follows from fiscal directives, § 14 sub-section 4 in combination with § 14 a sub-section 5 UStG (German Turnover Tax Act).

Additions in the form of a logo or an establishment designation are admissible as long as they do not arouse the impression that it is a question of a company entered in the Register of Commerce.

A registered GbR is free to choose its name as long as the applicable principles of company truth (§ 18 HGB) and company clarity (§ 30 HGB) are observed, § 707b No. 1 BGB.

Upon registration, the GbR is obliged to bear the addition "eingetragene Gesellschaft bürgerlichen Rechts" or "eGbR". If no natural person is liable as a partner in the registered GbR, the name must also contain a designation that indicates the limitation of liability, e.g. GmbH & Co. eGbR.

When choosing a name, it should also be noted that omitting the name affix is not sufficient to distinguish between a registered and a non-registered GbR. For example, a registered GbR could take action against a non-registered GbR with the same name but without the name affix in accordance with Section 12 BGB for the unauthorized use of its name.

Partnership agreement

No form has been prescribed for the conclusion of the partnership agreement. It is not even necessary for a written agreement to be concluded. However, this is to be recommended for reasons of legal security.

The partnership agreement should regulate the following: object, joint intention to participate in legal transactions, type and scope of the partners' contributions, management and representation powers, distribution of profits and losses, termination of the company and withdrawal of partners, in the case of a registered GbR also the registered office of the company

> Sample agreement for a GbR

Appointment of executive organs

Alongside the partners, no specific management organs exist.

Fulfilment of publication directives

The GbR can - but does not have to - be entered in the newly introduced company register. The company register is kept by the relevant local court and is used exclusively for the voluntary registration of GbRs. It is modeled on the commercial register and the partnership register and refers in principle to the provisions of the Commercial Register Ordinance.

Once the GbR has been registered, it is not possible for this GbR to return to a non-registered GbR - for example by simply deleting it from the company register. Deletion is only possible when the GbR ceases to exist. This usually takes place after liquidation has been completed. However, the GbR may take on a different legal form.

III. A. The Management of the GbR

Internal management

The management is carried out jointly (principle of self-organisation). However, the articles of association can also provide for other regulations and, for example, exclude individual partners from the management in whole or in part. It can also be stipulated that the managing directors are authorised to manage the company individually. In this case, however, the other managing directors authorised to manage the company have a right to object internally to the execution of the transaction, with the result that the transaction must not be carried out.

The joint management authorisation provided for by law only applies to transactions that the participation of this GbR in legal transactions usually entails. A shareholder resolution is required for unusual transactions.

Adoption of resolutions

In contrast to the management, the internal decision-making and decision-making of the GbR takes place by means of a resolution of the shareholders. The procedure is informal.

In principle, every shareholder has the right to vote regardless of the size of their shareholding. In individual cases, the exclusion of voting rights is regulated by law. This concerns serious conflicts of interest.

In Paragraph 714 BGB, the law stipulates a unanimous shareholder resolution as a rule, but a simple majority resolution can also be agreed in the articles of association. If necessary, this can also be done tacitly by constantly tolerating majority resolutions.

However, there are special provisions in some standards which stipulate that certain resolutions must be passed with a majority of at least three quarters of the votes cast, even if the articles of association stipulate that a simple majority of votes must be cast. This is usually the case for resolutions that are considered to be particularly important and require greater protection of the shareholders due to the significance of the resolution. Such a regulation can be found in the context of the dissolution resolution (Paragraph 732 BGB) or the continuation resolution (Paragraph 734 Section 2 BGB).

It should therefore be noted that shareholder resolutions must generally be passed unanimously, unless otherwise stipulated in the articles of association, whereby special statutory provisions regarding certain resolutions may then have to be observed.

It should also be noted that the newly introduced law on defective resolutions applies exclusively to commercial partnerships and therefore does not apply to GbRs. However, its application can be expressly agreed in the articles of association.

External representation

External representation vis-à-vis third parties is carried out by the shareholders. The scope of the power of representation corresponds to the agreements made. It can be restricted as desired. Possible restrictions to the power of representation must be recognisable to third parties. Unless otherwise agreed, there is also joint power of representation in accordance with joint management. Legal transactions are therefore only binding if they are concluded jointly by all shareholders. If the articles of association stipulate individual management, this can also mean individual power of representation.

III. B. Control and annual financial statements

Control by the shareholders

Each individual shareholder has an individual right to information from the company in accordance with Paragraph 717 Section 1 BGB. This means that non-managing shareholders also have the right to inspect company documents such as accounts and papers and to make extracts. If inspection of the company documents is not sufficient, the shareholder also has the right to be personally informed about the company's affairs.

In addition, the shareholders are also the addressees of the collective right to information under Paragraph 717 Section 2 BGB. This regulates the company's claim against the managing directors authorised to manage the company to receive information about the company's affairs.

Bookkeeping and annual financial statements

As a non-commercial company, the GbR is not obliged to keep commercial accounts. It can also document the business transactions (in particular for the tax office) in the form of a cash book or an income/surplus statement.

A GbR is a partnership. Partnerships themselves are not subject to income tax or corporation tax. Instead, the profits are established separately in a standardised way and directly ascribed to the partners. The partners’ shares of the profits are subject to income tax or also corporation tax, depending on their legal form.

Further information can be found in our brochure Accounting and Taxes – Information for People Setting Up a Business.