Corporate Law, Law of Associations and Foundations
The most common legal form of entrepreneurial activity in Germany is the sole entrepreneur (2018: 2.146.043 Einzelunternehmer). However, as soon as an entrepreneur joins forces with others for the joint pursuit of a business purpose, he must deal with company law. This is all the more true when he seeks to limit the personal economic risk.
In the Statistics capital companies (e.g. GmbH, AG) are in second place with 736,279, partnerships (e.g. OHG, KG) are in third place with 395,415 companies, while other legal forms are used by 205,954 enterprises. However, the number of employees that each entity employs reflects its actual macroeconomic significance. Here, capital companies are far ahead, followed by partnerships, other legal forms and, finally, sole entrepreneurs. It follows from this:
Corporate law is the basis of almost all relevant entrepreneurial activities.
The most important corporate forms commonly used in Germany are the stock corporation (AG), the limited liability company (GmbH) and the limited partnership (KG). In fact, however, there are at least 27 different corporate/partnership forms. Which corporate form is the right one for you can only be determined by a detailed consultation with a lawyer, in which the business model pursued and the associated economic risk, the short-, medium- and long-term intended shareholder structure, the intended capital investment, the cost/benefit ratio and many other factors play a role. For this reason, we will only briefly describe the conceivable options below.
What and how many corporate/partnership forms are there anyway?
German law alone knows (at least) 28 different corporate bodies including their variants and combinations, namely
- the German Civil Code (BGB) partnership according to §§ 705 ff. BGB,
- the EEIG (European Economic Interest Grouping)
- the KG (limited partnership)
- the oHG (general partnership)
- Partenreederei
- PartG (Partnership),
- PartG mbB (limited liability partnership)
- Stille Gesellschaft (“Silent society”)
- the unregistered association
- the registered association according to § 21 BGB
- the economic association according to § 22 BGB
- the foundation with legal capacity
- AG Stock Corporation
- eG registered cooperative
- Ltd. limited liability company,
- UG (limited liability) entrepreneurial company
- KGaA Partnership limited by shares
- REIT-AG Stock corporation, exclusive activity in the real estate sector
- SCE European Cooperative
- SE European Stock Corporation
- AG & Co. KG
- AG & Co. KGaA
- AG & Co. OHG
- GmbH & Co.
- GmbH & Co. KG
- GmbH & Co. KGaA
- GmbH & Co. OHG
- Stiftung & Co. KG
Partnerships
The basic form of societies per se is defined in § 705 BGB (German Cicvil Code). A so-called BGB partnership exists if several persons (the partners) mutually undertake to promote the achievement of a common purpose in the manner determined by a contract, in particular to make the agreed contributions. The BGB partnership is the mother of all so-called partnerships. Accordingly, the statutes stipulating the OHG and KG (German Commercial Code HGB) as well as the statute on Partnership Societes refer to a considerable extend back to the regulations of the BGB.
The liability of the individual partner is in principle unlimited in the case of a partnership under the German Civil Code (BGB) as well as in the case of a general partnership (OHG). The general partners of a KG also bear unlimited liability, whereas the liability of the limited partners is limited to their so called liable capital contribution. If the general partner is a GmbH (limited liability company), this constiutes a GmbH & Co. KG. In a GmbH & Co. KG the liability of the partners is limited to the sum of their respective liable capital contribution and their share in the share capital of the GmbH, which in turn caries the burden of unlimited liability. If all contributions have been paid in and also not granted back, the individual partner is no longer liable at all for liabilities incurred by the GmbH & Co. KG, but only has to cope with the loss of the contributions made if the company becomes insolvent.
In the case of partnerships registered under the “Statute on Partnerships of Members of Independent Professions“, all partners are liable for the partnership’s liabilities (§ 8 Abs. 1 PartGG) with the exception of claims for incorrect professional practice, i.e. malpractise; for these, in addition to the assets of the partnership, only that partner is liable who is responsible for the malpractise, § 8 Abs. 2 PartGG. However, if the partnership maintains a professional liability insurance for this purpose as prescribed by law, this liability can also be excluded. To achieve this, the partnership has to take out the liability insurance as prescribd in the statute and then has to add to its name the wording Partnerschaft mit beschräkter Berufshaftung (partnership company with limited professional liability), abbreviated as PartG mbB, § 8 Abs. 4 PartGG.
Capital based Corporations
Capital based Corporations are legal entities. In the ocurse of the errection process, the founding shareholders make contributions which therupon belong to the legal entity which has exclusive and full right and titel in those contributions. It is important to internalize this asset allocation, because the taking away of assets by the shareholder not only triggers his liability, but may even result in criminal consequences.
Only the legal entity itself is liable for the liabilities of the legal entity; in principle, there is no recourse to its shareholders, but only in the case of very special circumstances. If the assets of the corporation are used up, i.e. if it can no longer meet its liabilities, its executive bodies are obliged to file for insolvency.
The most important corporations are
- the AG – joint stock company
- the eG – registered cooperative
- the GmbH – limited liability company, also in the form of the UG (haftungsbeschränkt) entrepreneurial company
- the KGaA – partnership limited by shares
- the REIT-AG – a joint-stock company, exclusive activity in the real estate sector
- the SCE – European Cooperative Society
- the SE – European Company
Not capital based associations - Foundations
The registered association (e. V.), the economic association and the foundation with legal capacity are also independent legal entities, but not corporations.
The association has members, but not necessarily assets.
As a so-called ideal (i.e. not for profit) association, the registered association does not, in principle, maintain any commercial business operations aimed at making a profit; however, it can develop entrepreneurial activities in order to achieve its ideal objectives, as long as these are subordinate to the non-economic main purpose of the association and are an aid to achieving it. It comes into existence upon entry in the register of associations at the local court at its registered office.
The purpose of an economic association, on the contrary, is directed towards economic business operations; in the absence of special federal regulations, it acquires legal capacity through state conferral. The state in whose territory the association has its registered office is entitled to confer this status. The economic association in accordance with § 22 BGB is to be understood as a fall-back structure; only if other legal forms provided by the legal system (e.g. AG, GmbH or eG) are not reasonable or not appropriate, should there be a claim to the conferral of legal capacity in accordance with § 22 BGB.
The foundation with legal capacity has assets permanently dedicated to the foundation’s purpose, but no members, partners or owners. The foundation and the association are only liable with their own assets to third parties for contractual obligations that their organs have established in their name, as well as for any damage that their organs cause to third parties. A liability recourse to the founders or association members is not possible.
Liability of the executive bodies towards the association is only conceivable under certain conditions. If the executive body acts free of charge or receives remuneration for its activities that does not exceed 720 euros per year, it shall only be liable to the association or the foundation for damage caused in the performance of its duties in the event of intent or gross negligence.
Statute on Measures .... to Combat the Effects of the COVID-19 Pandemic
The Statute on Measures in the Law of Companies, Cooperatives, Associations, Foundations and Condominiums to Combat the Effects of the COVID-19 Pandemic (GesRuaCOVBekG) provided for exceptions for meetings otherwise required by law or by the bylaws of corporations (general meetings, general assemblies). Thus, resolutions of GmbH shareholders may also be adopted in text form or by submitting votes in writing even without the consent of all shareholders, Sec. 2 GesRuaCOVBekG. Pursuant to § 5 GesRuaCOVBekG, associations and foundations may, even if this is not provided for in the Articles of Association, pass resolutions in writing or by means of electronic communication that would otherwise be reserved for general meetings held in person.
These regulations, originally set to expire Dec. 31, 2020, were extended to August 31, 2022 by the Regulation Extending Measures in the Law of Corporations, Cooperatives, Associations and Foundations to Combat the Effects of the COVID-19 Pandemic as amended on Sept. 19, 2021. It has not been prolonged thereafter.
Instead, the legislator has responded to the experience gained from holding virtual meetings by including provisions on the holding of virtual meetings in the relevant individual acts. § 118a AktG (German Stock Corporation Act), inserted by the Act of July 20, 2022 (BGBl. I p. 1166), permits the holding of virtual shareholders’ meetings. § 32 Sec. 2 BGB has been changed by resolution of the legislative on February 9. 2023 and thus reads as follows: “When convening the meeting, provision may be made for members to be able to participate in the meeting and exercise other membership rights by means of electronic communication without being present at the meeting venue (hybrid meeting). The members may decide that future meetings may also be convened as virtual meetings, in which members must participate by means of electronic communication without being present at the meeting venue and exercise their other membership rights. If a hybrid or virtual meeting is convened, the convocation must also specify how members can exercise their rights by means of electronic communication.“
