Disregarding Written Form of Partnership Agreements

The founding partners of a private partnership with limited liability (Kommanditgesellschaft) had a provision in the partnership agreement of August 22, 1931 that the profits in a partner's account were to receive 1% interest on that sum. However, after creation of this partnership nobody honored this provision. In this court case, the heir of one the founding partners sued the company for this interest for those years not time-barred. The LG Mainz decided on the merits of the case on October 10, 2005 (re 10 HK O 31/05).

However, the LG Mainz dismissed the case. Since it considered that all partners of the partnership waived their interest-clause right through a business practice custom (for over 45 years). So, they not only did not follow the rule, but actually changed it by their conduct. This practice was proven in court by several witnesses.

In deciding, the Regional Court Mainz followed a controlling ruling of the Federal Court of Justice (Bundesgerichtshof). A long-term deviation from the partnership agreement indicates an amicable change in the contract. It is irrelevant that a written document is lacking to prove the change. The requirement of written form could itself be changed by subsequent conforming conduct unless controlling company law determines otherwise. In so far as the interest on funds in the partner's profit account are concerned, the company agreement does not violates company law, nor is there a mandatory rule providing for interest in company law. Finally, the Federal Court of Justice (BGHZ 132, 263/271) ruled that there is a presumption that a company's agreement has been amicably altered where the partners have been acting contrary to the agreement for a long time.

Whenever starting a business, it is wise to draft a written company agreement (Gesellschaftsvertrag). Why? So, everybody will know the rules, and so that profit will be split as desired and not as the law regulates. To avoid troubles in the future, you should either stick to rules as made or change them - in writing.

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