The GbR (= company civil law) represents the basis of all partnerships in the German legal system. As an association of at least two persons, the GbR can also be used for joint commercial activities of the shareholders. The choice of the legal form “GbR” entails various advantages and disadvantages. These should make prospective partners aware before starting a company.

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1. The basics of the GbR

1.1. The legal basis

The GbR is a partnership. As such, it must consist of an association of at least two persons. In addition to natural persons (= people), legal persons (e.g. corporations, associations etc.) are also considered as shareholders. The partial legal capacity of the GbR is now generally recognised. Therefore, the company itself can be the holder of rights and obligations, as well as sue and sue under its own name. The establishment of a GbR requires the conclusion of a social contract in this regard. However, the conclusion of the contract is not subject to formal requirements. Thus, the conclusion of a social contract is possible not only verbally, but in principle also tacitly on the basis of conclusive action. Nevertheless, a written company agreement is always recommended for reasons of legal certainty, in particular for commercial companies. Furthermore, the conclusion of the contract can be notarized in special exceptional cases. In practice, regularly occurring examples of this are the transfer of real estate or GmbH shares in the GbR.

1.2. The shareholders

As the only company regulated in the Civil Code (BGB) (§§ 705 ff. BGB), the GbR can be described without further ado as a “society for everyone”. Accordingly, the GbR shows as a strongly pronounced characteristic the special bond of the shareholders to each other and to the company. The contributions of the individual shareholders to the company may for the most part be freely determined by the shareholders. For example, the contribution of assets (e.g. real estate), monetary deposits, the contribution of intangibles (e.g. trademark rights, patents, know-how) or the provision of special services are possible. In addition, it will often be desirable for the shareholders to put all their workforce at the service of the GbR. However, a time limitation can be agreed individually.

According to the statutory regulation of the Commercial Code (§§ 105, 1 para 2 HGB), a GbR, which operates a commercial business that requires a commercially established business operation (= commercial trade, § 1 para 2 HGB), is an open commercial company (OHG) by law. The shareholders of a GbR must always be aware of this, since stricter legal regulations apply to the OHG than to the GbR (cf. 2.3.). If the commercial business of the GbR does not require a commercially established business operation due to lack of size, the shareholders can voluntarily decide to have the company registered as OHG in the commercial register, § 105 Abs. 2 S. 1 HGB.

2. The advantages of GbR

Due to its legal and factual characteristics, the GbR has various advantages over other types of companies. The GbR shares some advantages, in particular with the other partnerships (OHG, KG). This is due to the fact that the legal regulations for the GbR serve as the basis for the legal regulations of the commercial partnerships. The advantages of civil law companies include:

2.1 The Easy Handling

The shareholders of a GbR are very flexible in their decisions both during the foundation of the company and during the operation itself. In addition to the already mentioned conclusion of the contract, the transfer of the shares in a GbR is form-free possible. Furthermore, unlike the corporations (in particular: GmbH), the GbR is not subject to strict capital commitments. Therefore, the shareholders are much more free with regard to profit distributions, withdrawals from the company assets and subsequent deposits. In addition, it is not yet necessary to enter the GbR in a special register (as of May 2020). However, a legislative change is envisaged in this regard.

Due to the personal liability of all shareholders (cf. 3.1.) and the frequent close connection of the shareholders to the company, the GbR radiates an increased trustworthiness in business transactions. The creditors of a company under civil law do not have to expect that the company will be liable to you with a maximum share capital of EUR 25,000 (or less in the case of UG (limited liability)) for existing liabilities. In practice, this basis of trust often simplifies contract negotiations with business partners or Customers and improve credit score.

2.3. The strict regulations of the HGB do not apply

Since the GbR lacks the status as a commercial company, the strict legal standards of the HGB do not apply to merchants. Therefore, shareholders of a GbR do not have to deal, among other things, with the commercial confirmation letter (cf. § 346 BGB), stricter rules for contractual penalties (§ 348 HGB), the formal freedom of guarantees and promises of guilt (§ 350 BGB) or the obligation to investigate and reprimand material defects (§ 377 HGB). This simplifies the presence of GbR shareholders in business transactions and reduces the risk of nasty surprises due to unknown legislation. However, the shareholders must always pay attention to the scope of their business operations. The threshold becomes a commercial trade within the meaning of § 1 Abs. 2 HGB, the strict regulations of the HGB also apply without prior registration of the company (now: OHG) in the commercial register. Furthermore, the regulations of the HGB for small businesses already apply to the GbR. This applies in particular to regulations on commissioning, freight, forwarding and storage transactions.

2.4. No accounting requirement

In contrast to all other forms of company, the GbR is not per se subject to an accounting obligation. Therefore, GbR can determine its annual result in principle by revenue surplus (EÜR). This can save society a noticeable expenditure of time and (bureaucratic) resources. However, the GbR has an accounting obligation as soon as it achieves either an annual turnover of more than EUR 600,000 or an annual profit of more than EUR 60,000, cf. § 141 para. 1 AO, § 241a HGB.

3. Disadvantages of GbR

In addition to the advantages described above, GbR shareholders also have to accept some disadvantages of the corporate form. Some disadvantages correspond to properties of the GbR, which likewise ensure advantageous aspects. The disadvantages of GbR include in particular:

3.1. Personal liability of partners

The GbR partners are liable for all liabilities of the company with their private assets (e.g. claims for damages, warranty claims). Therefore, the creditors of the company can, without further ado, make private use of the shareholders and, where necessary, bring the fulfilment of the claim to court. Thus, the personal liability of the shareholders in commercial transactions constitutes an advantage of the GbR. However, in the case of high-risk operations or weak assets of the company, this leads to a considerable financial risk for the private assets of the shareholders. In particular, companies with high investment costs or uncertain financial success should therefore generally be implemented with a limitation of liability (especially: GmbH, GmbH & Co. KG).

3.2. The Principle of Self-Organization

As in all other partnerships, the principle of self-organization applies in the GbR. This legal principle prohibits non-partners from acting as managing directors of the GbR. This can severely restrict the choice of a suitable managing director, especially in a small private GbR or a family business.

3.3. The lack of register publicity

Again, it is both an advantage (registrations not necessary, simple start-up possibility) and a disadvantage. Because the essential information about the GbR (e.g. name, shareholdings, representation powers) is not entered in a publicly available register, they are therefore more difficult to verify in legal transactions. Contracts (especially real estate transactions) can be complicated by this. Required proofs are also difficult to provide before legal transactions (notarized certification is recommended) and now cause the increased effort saved during the founding process.