date | theme

23. February 2019 | Found GmbH in Germany: costs; steps; advantages; capital; Duration

27. October 2019 | Kaufmann according to HGB: Legal differences to private individuals

5 December 2019 | The merchant in the Commercial Code (e.K.; GmbH; oHG; KG; AG)

20. October 2020 | GbR – civil law company: advantages and disadvantages

21. March 2022 | Incorrect company: Requirements for recognition and legal consequences (this contribution)

When setting up a company, errors can occur, in particular when creating the social contract. But even in the course of the existing society such can arise. Then there is a faulty society. Nevertheless, this is also recognized as a society under certain conditions. We explain when and what legal consequences are linked to it.

The social contract is not only a contract that establishes mutual rights and obligations, but also the basis of a legally competent organization. This can conclude contracts, justify claims and obligations. The difference with a natural person, however, is that the flawedness of the social contract would deprive society of its basis. This error would therefore be contrary to the continued functioning of society. Then a flawed society emerges.

The problem of a faulty society arises in every form of society. In the case of capital companies, however, it has been legally resolved. Accordingly, §§ 75-77 GmbHG apply for a GmbH and §§ 275-277 AktG for an AG. With regard to partnerships alone, there are no legal regulations. Therefore, the defective company becomes especially important at a GbR, OHG, KG or even a GmbH & Co. KG.

In principle, errors would have the consequence that the articles of association are null and void and should therefore be withdrawn in accordance with §§ 812 et seq. In addition, the question arises with contractual partners whether the company exists at all. Otherwise, the contractually established claim against the company would become void. In order for this not to happen, the social contract must be assigned a higher durability than a conventional debt contract due to its overriding importance.

The social contract can have various defects in the form of founding defects, entry defects, exit defects or contract modification defects. In addition, the effectiveness can also be countered by lack of will on the part of the shareholders. Accordingly, the contract may be contestable for error, deception or threat.

Both shareholders and third parties cannot be expected to retroactively consider a defective company as legal nullum and to rewind it. In particular, the interests of the company’s creditors must be considered during the reversal. But the shareholders are also interested in an orderly reversal internally. Especially with long-term companies, it is actually hardly possible to reverse all business.

To prevent these problems, a coherent and dogmatic concept is needed. The general principles of legal liability would only help in external relations with third parties. Internally, however, enrichment-related processing would still be necessary. In addition, the general legal liability requires imputability and good faith of the respective business partner. Therefore, the company would only be considered to exist relative to certain business partners. In relation to other bad faith business partners, however, not.

The social contract has a double nature. Sometimes it is regarded as a debt to the other but also as the basis of the organization. As a result of the consolidation of the social organization in the social contract, the shareholders lose their unlimited power of disposition over their relations based on the external relationship. Therefore, they must in principle allow the defective society against them until the effective assertion of the defect. Therefore, the defective company also receives a legal validity that goes beyond the contractual basis.

For a faulty society to be recognized, three requirements must be met. For now, it is necessary to establish a social contract. Therefore, the social contract must at least be covered by the actual will of the contracting parties, whether it contains errors is in this respect insignificant. Therefore, the faulty company is not recognized if the contracting parties could not recognize that they had concluded a social contract. Even a mere factual cooperation or the action of a non-representative representative for one of the possible shareholders is not sufficient. However, the prerequisite for the existence of a social contract does not have to be too high demands.

Furthermore, the faulty company must be executed. Only in this way will the organisational structures be created which justify a breach of the consequences of nullity. In addition, only then do the delimitation difficulties between the internal ratio and the external ratio arise. Enforcement occurs at the latest when the company establishes legal relations with third parties. If this is lacking, it is sufficient in principle if a common property has already been formed in the internal relationship. It should then be necessary, however, that the recovery under enrichment law is at best more difficult.

In internal relations, the defective company put into effect is considered to be continuing. The poorly declared or formed will is therefore in this respect insignificant. Consequently, such a will can at best be the reason for a future dissolution of society. This is an orderly winding-up procedure tailored to the partnership. It is initiated by the termination of a shareholder. In the case of a GbR founded indefinitely, this is possible at any time. In the case of a temporary company, termination requires a weighty reason. This then lies in the original defect.

Until a possible dissolution, the company is fully effective. Therefore, the contractual arrangements or the relevant provisions apply in the relationship between the members. Only the clause on which the defectiveness is based cannot be applied. Therefore, the disposition of a property cannot be demanded if the articles of association are incorrect in this respect according to § 311b BGB. In addition, a distribution of profits that is immoral within the meaning of § 138 BGB cannot be carried out or demanded. The agreements not applicable in this respect must be replaced by the legal regulations.

The external relationship concerns the relationship of the faulty company to other third parties. In this respect, the defective society is to be regarded as fully effective. Therefore, despite the faulty social contract, third parties can rely on the existence of the company. Claims against the faulty society therefore remain.

Exceptions are necessary, since the maintenance of the faulty society must not be contrary to the interests of the general public or individuals. Otherwise, the legal system would contradict itself. This argument can be opposed to any recognition of a faulty society. In cases of recognition of a faulty company, however, the interest of creditors and traffic protection generally outweigh the specific protection concerns of the law. Therefore, only if the shortcomings of the social contract are too serious can this balancing no longer apply. In addition, the law should not facilitate such drastic violations of the law.

The defect is then too weighty if the purpose of the company in itself violates a legal prohibition or is immoral according to § 138 BGB. In addition, faulty companies cannot be recognized if the shareholders have to meet certain conditions for the establishment but do not have them. But even if the company is not recognized, the business partners are not worthy of protection. In such cases, therefore, general legal liability applies in external relations.

Sometimes a shareholder can also be a minor. However, this requires the approval of its legal representative in accordance with § 107, § 108 BGB and the approval of the family court in accordance with §§ 1643 (1), 1822 no. 3 BGB to conclude a company agreement. The faulty society must therefore not lead to the disadvantage of the minor. Consequently, the protection of minors must be regarded as a higher interest than traffic protection. The minor cannot therefore become a partner. Nevertheless, between the other shareholders the company is considered to be continuing. Only if without the minor there are no longer two partners necessary for the existence of a company, the defective company does not continue.

A shareholder may have been deceived or threatened by the other shareholders to conclude the social contract. The decisive factor is whether the interest of the shareholder or traffic protection is given priority. It must be acknowledged that in this case, too, the shareholder still contributed in an imputable manner to the creation of the company. Something else can only be accepted with vis absoluta, if he has no other choice left. In addition, the deceived person can continue to demand the dissolution of the company and therefore assert contractual or tortious claims. In this respect, therefore, it is not worthy of protection. Therefore, the faulty company cannot be recognized in this case either.