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February 1, 2021 | What is a GmbH & Co. KG and what advantages does it offer?

20. April 2021 | Foundations: Types and Requirements for Establishment

10. May 2021 | Registered association: advantages over non-registered associations

16. December 2021 | Setting up a foreign company – but which one? Company types and their founding requirements (USA; Malta; UAE; GB)

15. March 2022 | Fractional community: Delimitation to GbR – Liability – Sales tax and income tax valuation (this contribution)

Associations of persons can act both as a fractional community but also as a civil society, abbreviated GbR. But only the latter represents a partnership. The question then arises as to how the two legal forms differ and what liability consequences they entail for the parties involved. We clarify all these questions in our contribution.

The fractional community is regulated in §§ 741 ff. Such a community means the possession of a right by several legal entities to ideal fractions. The object itself is not shared. Nevertheless, the shareholders share the legal competence over the object. Therefore, each partner has an object, which is limited by the co-authority of the other and with this similar right in the whole undivided. However, unlike a partnership according to § 14 paragraph 2 BGB, the fractional community is not capable of being the bearer of rights and obligations and is therefore not legally competent. Consequently, it does not participate in the right-hand traffic either itself or through representatives. It is therefore a partnership.

Due in particular to the different legal consequences of the fractional community compared to the GbR, the question arises as to how the fractional community is to be distinguished from the GbR. Despite the far-reaching consequences of demarcation, the will of the party is decisive.

In the case of a fractional community, the common purpose is exhausted in the similar co-authorization of several persons in a particular object. Only this common justification connects them. In addition, however, there is no other, beyond-going purpose, such as a joint planning of joint events. Consequently, there is a fractional community when it is only a matter of holding and maintaining certain assets and the shareholders otherwise pursue completely different purposes. Therefore, § 1008 BGB also stipulates that in the case of joint ownership there is a fractional community.

On the other hand, according to §§ 705 ff. Accordingly, the parties must intend to use the jointly acquired object in order to jointly achieve a consistently defined objective. They therefore strive for something communal. It is then a community of purposes on a contractual basis. In the articles of association, the shareholders undertake to promote a common purpose. Therefore, the articles of association bind the partners to each other and provide the community with a legal salary. Consequently, in principle, an at least implied agreement of a GbR for the purpose of acquisition and maintenance is required. In the absence of such an agreement, the joint acquisition creates fractional ownership.

In addition, the activities of the shareholders benefit the others. The object belongs undivided to the company and not to the partners.

In summary: If he exhausts the common purpose in the mere acquisition and subsequent holding and administration of the object, the rather loose union of a fractional community is present. However, if the parties now want to use the object together and thus pursue a common purpose, a GbR exists.

The lack of common purpose in a fractional community means that the focus is not on common activity, but on the preservation and balancing of individual interests. The GbR, on the other hand, focuses on joint activity with the shareholders. Therefore, it depends largely on the personality of the other partners. This difference is therefore also important in the context of the legal consequences.

The different legal consequences of the Fraction and the GbR in the transfer of the shares in the common object are particularly apparent.

In the case of a fractional community, a transfer of the share is readily possible according to § 747 BGB. This is due to the fact that the share is only of such an ideal nature in the sense of a co-ownership share. Consequently, the merger is rather aimed at defining the mutual spheres of interest. Therefore, a fractional community comprises only a rather loose connection. Therefore, the company can also be dissolved at any time according to § 749 paragraph 1 BGB.

In a GbR, on the other hand, the individuality of the shareholders is particularly important due to the joint activity. Therefore, according to § 719 BGB, the shareholders have no right to a unilateral transfer of shares. In particular, the shareholders cannot dispose of the common object. Rather, this requires approval by the other shareholders. Legal changes can therefore only arise through the transfer of membership or through the entry or exit of shareholders. A GbR is a close connection in the sense of a partnership.

The fractional community and the GbR also differ in the design of liability. In the case of a fractional community, the contractual entitlement first exists. However, this was usually justified only with one of the entitled persons. Therefore, first of all, only he is obliged. Even the fractional community is not liable due to lack of legal capacity.

3.3.2. Liability of other beneficiaries requires representation

But then the question arises as to whether the other entitled persons are also liable. Whether the agreement of the person entitled acts for and against the other persons entitled depends on whether the contracting party has effectively represented the others in the legal transaction according to §§ 164 ff. For this purpose, the contracting party would have to have in particular representative power.

In the context of administration, according to § 744, unanimity is generally required. In the case of conservation measures, however, according to § 744 paragraph 2 BGB everyone is empowered to act. Otherwise, a majority of votes according to § 745 paragraph 1 BGB is required. Therefore, at most § 744 paragraph 2 BGB can give rise to a representative authority.

Then the question arises whether this standard does not only regulate the management authority in the internal relationship between the shareholders. This is supported by the fact that the legislature does not use the term representative power at all, while the term is expressly mentioned for the GbR in § 714 BGB, for example. In addition, all shareholders without a corresponding decision would be presented with fait accompli. They would then only be entitled to compensation. Furthermore, a fractional community does not depend on the interaction of the participants. Rather, they separate their wealth spheres from each other.

Therefore, the fractional community does not grant the individual shareholders the right to represent the other shareholders. Consequently, everyone can only act on their own behalf. Thus, everyone has the right of disposition only with regard to his own share. On the other hand, according to § 747 BGB, the shareholders are entitled to the common object as such only together. For all, therefore, a single partner can only act and complain if he has the consent of the others. Only this consent then creates the representative power. However, according to § 744 paragraph 2 BGB, this consent is a enforceable claim. Consequently, only internally within the framework of the fractional community is there a right to consent. However, there is no liability of the other partners towards the contractual partner.

In the context of GbR’s liability, a distinction must be made between GbR’s liability per se and the individual shareholders. With the widely prevailing opinion today, a GbR is legally competent. For this reason, the company may also be liable contractually to the business partners. However, since the GbR itself cannot establish any contractual relations as a mere mental structure, it must be represented by the shareholders. However, in order for them to be able to represent the GbR effectively, they must have representation power. According to § 714 BGB, there is in principle only joint representation power. Thus, a shareholder alone is not authorised to represent. However, this regulation can be eliminated, which can also be done implicitly by a corresponding distribution of tasks.

In addition to the liability of GbR itself, the liability of the shareholders arises. According to the prevailing view, the GbR alone becomes a contracting party. Nevertheless, the shareholders of GbR are liable for the contractual liabilities in accordance with § 128 HGB, as are OHG shareholders.

Often doctors or lawyers join together to share the operating costs. Then it is about practice communities or office communities. However, so that no GbR arises, which would justify the liability of the other doctor or lawyer for the activity of the partner, it is necessary that they do not participate in the cases of the other and process and solve them together. It must also be possible to prove this in practice. Therefore, the fractional community proves to be difficult in professional practice. In particular, the possibility of being able to freely dispose of its share is problematic. In the context of leisure activities, however, fractional communities are regularly conceivable. So neighbors can buy together devices that everyone can use for their house on certain days.

Although § 15 (1) sentence 1 no. 2 speaks only of shareholders. This could suggest that only shareholders are co-entrepreneurs. However, the wording of the standard is incomplete. Participants of other economic communities in the form of a fractional community can therefore also be co-entrepreneurs. According to the Bundesfinanzhof, however, the participant must hold a position comparable to that of a shareholder. Then fractional communities are taxed according to a partnership. The mere office or practice community is not enough for this. Rather, the activity must to a certain extent go beyond the mere holding and administration of the common object. But then a GbR will be available on a regular basis. There are therefore only rare individual cases in which even a fractional community can be regarded as a co-entrepreneurship. You can therefore usually assume that you are a sole proprietor or self-employed person.

For a subject to owe sales tax, it must be an entrepreneur. Communities are considered entrepreneurs if they are self-employed as holders of assets. The legislature has also granted fractional communities, as can be seen from § 4 no. 14 letter d and § 10 paragraph 5 no. 1 UStG entrepreneurial ability. As a rule, however, entrepreneurial activity should be accepted in the event of a permanent purpose going beyond the mere joint holding of assets. In most cases, however, there is already a GbR without it. Therefore, in a fractional community, the VAT valuation is highly individual.