The upcoming revision of German law on non-commercial partnerships

Thursday 31 March 2022

Hubertus Leo

Leo Schmidt-Hollburg Witte & Frank, Hamburg

David John

Leo Schmidt-Hollburg Witte & Frank, Hamburg​​​​​​​

This article deals with German ‘non-commercial’ partnerships (Gesellschaften bürgerlichen Rechts or GbR), also referred to as ‘civil-law partnerships’ or ‘non-trading partnerships’. Similar concepts exist in France (Société civile), Italy (Società semplice), and Spain (Sociedad Civil).

On 1 January 2024, the German Act to Modernise the Law on Partnerships (MoPeG)[i] will introduce a new legal regime for German partnerships, including GbRs. To a certain extent, the MoPeG has adapted existing principles established in German case law and legal practice, but also introduces fundamentally new rules for GbRs. As a consequence, the partners of existing GbRs must review and adjust their partnership agreements: on the one hand to avoid legal frictions, uncertainties, and potential disputes among the partners; on the other hand to keep the GbR fully operational after 1 January 2024.

A brief characterisation of a GbR under current law

The GbR is a basic type of German partnership. The German Civil Code (Bürgerliches Gesetzbuch or BGB) contains the legal framework applicable to the GbR.[ii]

Two or more partners pursuing a common ‘non-commercial’ goal can establish a GbR. If the common goal is the operation of a commercial business (generally defined as a market-oriented enterprise that requires a commercially organised operation), the partnership automatically qualifies as general partnership (Offene Handelsgesellschaft or OHG) and the provisions of the German Commercial Code (Handelsgesetzbuch or HGB) apply in addition.

As a general principle under existing law, each GbR partner has equal rights and obligations, regardless of the partner’s contributions, and the partners are jointly authorised to represent the GbR. These principles are, to a large extent, subject to the provisions of the individual partnership agreement, which almost always contains more practical provisions on voting rights, the participation in profits and losses, and the management and representation. An important feature of a GbR that can hardly be avoided is the full personal liability of each partner for all liabilities of the GbR.

The GbR does not require a written – let alone a notarised – partnership agreement, although a written agreement is advisable to avoid uncertainty and may even be required under tax laws. A partner may sell an interest in a GbR without a notarised agreement even if the GbR owns real estate or shares in a German limited liability companies (Gesellschaft mit beschränkter Haftung or GmbH).

Unlike corporations, German partnerships such as GbRs, OHGs and KGs (Kommanditgesellschaft, a commercial limited partnership) cannot be managed solely from abroad because their statutory seat must correspond with their administrative seat – ie the place of actual management.

The GbR itself cannot be registered with the Commercial Register (Handelsregister). This lack of transparency is viewed as an advantage by some and as a disadvantage by others.

Under German tax law, a GbR is typically considered a transparent, ‘look-through’ entity which itself is not subject to taxation.

Purposes for which a GbR is typically used in Germany

The legal form of a GbR is in Germany often used for the following purposes:

  • real estate holding companies;
  • family holding companies;
  • joint bids for construction work;
  • joint real estate developments;
  • professional firms;
  • joint ventures; and
  • credit or security syndications.

Sometimes the parties pursuing a specific common objective are not even aware that, depending on the circumstances, the underlying collaboration agreement must be construed as a GbR under German law. This may be the case for written or oral cooperation agreements, pooling agreements, and shareholder agreements.

Key changes as of 1 January 2024

Introduction of the Company Register

The most significant amendment of the current legal regime applicable to a GbR is the introduction of a new public register named the Company Register (Gesellschaftsregister). The Company Register will show the company name, the registered office, and the power of representation of the partners of the GbR.[iii]​​​​​​​

In principle, registration will not be mandatory for a GbR. A GbR will retain legal capacity – ie, may generally still be part of legal transactions – without being registered, and a new GbR will have the option to remain unregistered. However, there may be compelling practical reasons to register, because registration will be a prerequisite for certain transactions carried out on or after 1 January 2024. After this date, only a registered GbR may:

  • be registered with the Company Register as partner of a registered GbR;
  • be registered with the Commercial Register as partner of an OHG or KG;
  • be registered as shareholder in the list of shareholders of a GmbH or be deregistered from the list of shareholders of a GmbH after having transferred its shares in the GmbH;
  • be registered with or de-registered from the share register as the owner of registered shares (Namensaktien) of a stock corporation (Aktiengesellschaft or AG);
  • be registered, whether as owner or beneficiary of a lien, with the Land Register (Grundbuch) or be de-registered from the Land Register after having transferred ownership or other registered rights.

These seemingly formal aspects may become highly relevant for the entire transaction. In practice, the most important examples are:

Transfer of shares in a corporation (AG or GmbH)

If an unregistered GbR has transferred shares, the respective register will not be amended to show the new owner. Consequently, the new owner cannot exercise its shareholder rights (see below) and for practical reasons may be unable to sell the shares to another buyer.

Voting and other rights in a corporation

With regard to GmbHs and AGs, the foregoing state of non-registration directly affects the rights of the GbR as a new shareholder or of a new shareholder that acquires shares from a GbR. Vis-à-vis the GmbH and AG, only shareholders that are documented in the list of shareholders or share register can assert their rights and may, for example, participate in shareholders’ meetings.

Voting and other rights in a partnership

As far as an OHG or KG is concerned, the unregistered GbR’s rights as a partner are not limited. However, the state of non-registration may lead to additional liability risks. Furthermore, the other partners will, most likely, refuse to participate in transactions with an unregistered GbR.

Transfer of real estate

Most importantly, an unregistered GbR will not be able to sell or buy real estate and similar rights.[iv] Under German real estate law, the registration of the new owner with the Land Register is an indispensable prerequisite for a valid transfer of ownership.

In sum, the unregistered GbR’s ability to participate in transactions will be severely limited after 31 December 2023. Therefore, the partners of existing and new GbRs need to decide whether to voluntarily register the GbR with the Company Register. The registration requires the consent of all partners, which must be given in writing with a notarial (or equivalent) certification. Partners residing outside Germany may need to have their consent certified by a German consulate or by a non-German notary with an additional Apostille or legalisation.

A partner may be bound by their general loyalty obligation vis-à-vis the other partners to consent to a registration if a GbR cannot economically ‘survive’ without its registration. Potential conflicts about a registration should, in any case, be anticipated and resolved before 1 January 2024.

Amendments to the standard GbR structure

The MoPeG also amends the standard provisions regarding the overall structure of the GbR for both registered and unregistered GbRs.

As opposed to the current regime, both the partners’ voting power and profit and loss participation will be based on quotas which, in turn, are determined by their respective contributions.

Furthermore, the external power of representation will no longer automatically correspond with the internal management authority. Instead, the internal authority and the external power of representation will be determined independently. As before, in the absence of specific clauses in the partnership agreement, the power of representation and management authority may only be exercised jointly by all partners.

Partners of German GbRs need to be aware that the general rules for internal and external competences and rights will change as of 1 January 2024. For existing GbRs, a review and most often modification of the partnership agreement is strongly advised.

Disclosure in the Transparency Register

Once a GbR has been registered, it will be obligated to make transparency register notifications regarding its beneficial owners.[v] Under the applicable German Money Laundering Act (Geldwäschegesetz or GwG), which is based on European anti-money laundering directives, most German companies must disclose all natural persons with substantial shareholdings, voting rights (generally greater than 25 per cent) or any equivalent direct or indirect influence. The Transparency Register already applies to German corporations and all registered partnerships such as KGs and OHGs.

As set out above, the Company Register will list all direct partners of a GbR. The Transparency Register will show the ‘ultimate beneficial owner(s)’ of the GbR and the type of such ownership. This can be a direct partner or an indirect holder of an interest in the partnership, eg a person investing through one or more layers of holding companies.

Right to choose registered office for registered GbRs

Unlike today, a GbR may choose its registered office if it has been registered. This allows partners to establish a German GbR anywhere in Germany even though they manage the business exclusively from a different location, subject to tax laws.

Participation in transformations by registered GbRs

Registered GbRs may in the future also participate in transformations, including mergers or change of legal forms, pursuant to the German Transformation Act (Umwandlungsgesetz or UmwG).

Summary and practical considerations

Partners of GbRs must be aware of the upcoming revision of the applicable legal regime coming into effect on 1 January 2024 and should start to review their options now.

In particular, the GbR registration as a prerequisite for many transactions, and the far-reaching obligations to disclose direct as well as indirect beneficial owners of registered GbRs to the Transparency Register, need to be observed.

A GbR established for the purpose of holding investments in other companies or real estate will most likely not be able to avoid the registration with the new Company Register and, consequently, the Transparency Register in order to remain operational.

Further aspects to take into consideration are the right of registered GbRs to choose a registered office that differs from the actual place of management (subject to tax law), the possibility for registered GbRs to participate in transformations, and the higher level of comfort that the disclosure of information in the Company Register and the Transparency Register may provide for potential business partners. The GbR partners must, therefore, decide whether they want or have to pursue registration.

Beyond this, GbR partners need to carefully examine existing partnership agreements and determine potential frictions with the new legal regime, in particular voting and profit participation rights, management authority, and the power of representation. The meaning of unspecific clauses and omissions in partnership agreements may shift and give rise to uncertainty and disputes among the partners. Of course, all new GbRs established under the current laws until 31 December 2023 should already take into account the new regime.

[i] Bundesgesetzblatt I 2021, p 3436.

[ii] S 705-740, BGB.

[iii] S 707, BGB in the version as of 1 January 2024.

[iv] Art 229 S 21(1), Introductory Act to the German Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch – EGBGB) as of 1 January 2024; s 873(1), BGB.

[v] s 20(1), GwG.