Legal Form: GbR = Gesellschaft bürgerlichen Rechts = BGB-Gesellschaft = Private Partnership
What is the difference between a collaboration / cooperation and a GbR?
That is pretty easy to explain. A GbR is sort of like marrying a business partner – for good and for bad. Cooperation means that two or more businesspersons are working together – legally independent from another. Therefore, collaboration is more like just living together – without a marriage certificate. If you do not make any profit there is only one boss to blame – yourself.
After working loosely together with some colleagues for some time, we decided to formalize our collaboration. What is required to start a GbR?
Basically just start working together with a joint letterhead and “Bingo” you have a GbR. This form has a great flexibility to have either a lean and mean or a very complex legal structure. The structure depends on how much you want to differ the stipulations in your association from the statutory rules. First of all, keep on reading!
That’s cool. We don’t need company’s statutes or court registration. It is really cheap! What are the implications of not having company’s rules? Are we then in a legal vacuum without company’s rules?
Yes, this legal form is very cheap to found. No, you are not in a legal vacuum when you do not have any articles of association – as we lawyers word “company’s rules”. Your collaboration is governed by company law in the Civil Code (§§705 et. seq. BGB). That is how this legal structure got its name. These rules automatically govern the company – if you do not explicitly agree upon something else. For the sake of clarity, it is strongly recommended to write down the company’s statutes...
Aha. So if we don’t set up our own rules, our company will be governed by company law. What are the basic rules of company law?
The basic rules are:
- representation is exclusively jointly, §709 I BGB,
- decisions are made by majority of heads, §709 II BGB,
- profit and loss are divided by heads, §722 I BGB.
Now that we are a company, do we correctly presume that our personal assets do not stand for the company’s debts?
Nope. You are absolutely wrong. Everybody’s assets will answer for company’s debts. There is no separation between personal and company liability. Your personal debts are however not liabilities of the company. German law talks here of “Gesamtschuldnerschaft” or “gesamtschuldnerische Haftung” (§421 BGB) – joint liability. This simply means your debtor has the right to choose from whom of you or your partners he wants to (forcefully) collect and you have no legal right to influence his decision.
That’s cruel that I have to pay alone, while our company’s creditor picked me to pay and my companions get away free. Since it’s a company debt, I don’t see why I should pay this all alone.
Relax. You do not have to pay it all by yourself – at least not in the end. Law also constitutes an internal settlement (§426 BGB). In other words, you can demand refunding from your partner(s). Now, do not believe you will get it all back. You will not have your share of the company’s liability refunded. An example: You are four partners having no special agreement on company’s debts. This means that all four have to pay 25%. A creditor collected exclusively from you € 10,000 a debt. You are personally liable only for € 2,500; this means you have the right to be repaid with € 7,500. And if a partner falls out then his share will be distributed among the others.
Checklist for Internal Structure Among Partners
This checklist is to help you make some vital decisions on the internal structure of your partnership. Any partnership will only function if everybody clearly knows his or her exact function, responsibilities, and rights. There are two general ways of making a corporate decision: either unanimously or by majority. Deciding by majorities brings up the question:
1.) By which majority shall be decision be made? By heads? Shares?
2.) How is the decision making suppose to take place in general and in special matter?
3.) Who will represent the company towards the public?
- only one person, if so who?
- more than one person, if so who?
- only all together?
4.) Where is the business to be located?
5.) What kind of infrastructure is needed?
- technical device,
- Who has connections to a supplier?
6.) When shall business commence?
- after signing the rules?
- before or after setting everything up?
- after grand opening?
7.) Who is responsible for what in the company?
8.) What is the fee/price structure to be?
9.) How is correspondence going to take place? (snail mail, eMail, phone calls, which letterhead, kind of paper, etc. etc.)
10.) Are general working place descriptions for any personnel to be drafted? And who will do that and be responsible for it?