Founding a civil law company (GbR)

Founding a civil law company (GbR)


Our law firm advise you on these issues:

How is a GbR founded?
How is a GbR treated for tax purposes?
What is the advantage of a GbR?
What is the disadvantage of a GbR?

A company under civil law (GbR) is a partnership and is also called a BGB-Gesellschaft. The prerequisite for the foundation of the company is that at least two shareholders are involved in it. To do this, the partners must unite in the partnership agreement for a common purpose. The purpose does not necessarily have to be of an economic nature. An ideal purpose is sufficient, such as the establishment of a shared apartment. Every partner has a duty to promote the common purpose. However, the BGB company may not operate a trade according to the German Trade Code. If a trade is operated, this must take the form of an OHG.

Traditionally, freelancers such as doctors, lawyers, tax consultants and auditors come together in a GbR to work together.

With the founding of a GbR, there are, on the one hand, relationships between the partners (internal relationship). On the other hand, there are legal relationships in the external relationship, e.g. their business partners. A civil law company is a legal person. This means that it itself has rights and obligations.

The establishment of a GbR does not necessarily have to be in writing. This means that a GbR can be founded with the common purpose and the commencement of a common activity, such as a professional practice. In such a case, the legal regulations of the BGB apply. The regulations of the BGB are not numerous. The case law has established essential principles for the GbR. This can be particularly disadvantageous in the event of a shareholder dispute. For this reason, it is important to hire a lawyer specializing in company law to found it, who  will then design the social contract individually.

It is also not necessary, as with a GmbH, that the company has to raise a certain share capital. However, the shareholders have to make a contribution to the success of the GbR and then have to provide for it financially if necessary.

What is the disadvantage of a GbR?

One reason that speaks against a GbR is the liability of the shareholders. In the case of a GbR, each partner is liable with his private assets for the GbR’s liabilities. With increased liability risks, this can lead to undesirable consequences.

How is a GbR treated for tax purposes?

The GbR is tax transparent regarding income taxes. This means that the GbR does not pay corporation tax as with the GmbH, but the shareholders of the GbR have to pay income tax. The GbR’s annual result is then to be divided between the individual shares. Each partner then has to pay income tax on the profit of his share. In addition, the partner must pay a 5.5% percent Solidaritätszuschlag (solidarity surcharge) tax on the fixed income tax.

The following three advantages speak for the foundation of a GbR:

  1. Simple and quick foundation
  2. No special formalities to be observed
  3. No minimum capital provided.

The following three disadvantages speak against the establishment of a GbR:

  1. Inadequate legal regulations
  2. Personal liability of the partners
  3. Mainly interesting for smaller companies

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