Will There Soon Be a New Legal Form for Start-ups?

In addition to the "classic" GmbH, the GbR (Gesellschaft bürgerlichen Rechts or BGB-Gesellschaft, [partnership under the German Civil Code]) which is not particularly popular and the somewhat younger UG (actually: Unternehmergesellschaft (haftungsbeschränkt), [entrepreneurial company with limited liability]), there might be another legal form in the future which could be suitable for young companies in their early stages: the GbR with legal capacity.

On 19 November 2020, the Federal Ministry of Justice and Consumer Protection (BMJV) published a draft law for a modernised partnership law. The draft law is intended to structure the partnership under German civil law as the basic form of all partnerships with legal capacity and, on this occasion, to adapt the law of the partnership as a whole, which in part dates back to the 19th century, to the needs of modern economic life.

The German Federal Minister of Justice commented: "The draft law for a modernised partnership law is the third major reform of corporate law since 1949. The partnership under German civil law will be oriented towards a new model and made fit for the 21st century: Away from the betting pool towards the start-up. Founders can start up in an uncomplicated and legally secure way and develop their company step by step with the new extended transformation options".

Up to now, the GbR has usually not been the legal form of choice for start-ups: On the one hand, the partners (i.e. the founders) are personally liable to creditors (for example: landlords, freelancers, etc.). On the other hand, in contrast to the GmbH or UG, due to the absence of a corresponding register, the GbR does not allow the contractual partners of the company to identify the participation regulations made internally.

The legal model of the GbR has so far been the occasional company (e.g. the Lotto betting pool) without legal capacity. However, in contrast to this, today a considerable proportion of GbRs are set up on a long-term basis and founded for the purpose of participating in legal transactions with the company, e.g. group practices of physicians or GbRs owning real estate - or simply the founders who start "just like that" and initiate the implementation of their start-up idea without founding a GmbH or UG. Attempts by the courts to find solutions for these companies that are in line with their interests have not been able to completely eliminate legal and other uncertainties. This is now to be resolved by the draft law: In the German Civil Code, the variant of the GbR with legal capacity, which is the basic form of all partnerships with legal capacity, is now to be placed alongside the GbR without legal capacity. It is based on the new legal model of a company structured for a long term perspective and equipped with its own rights and obligations.

According to the draft law, a voluntary, public register of companies is also to be introduced. Customers and business partners of GbR will thus obtain reliable knowledge about liability relationships and representation of the companies. In future, partners will be able to have their company entered in the register but they will not have to do so. With the registration, essential key data of the company can be retrieved from the company register in a legally secure way for the public.

The draft was sent to the German federal states and associations and published on the BMJV's website. Interested parties now have the opportunity to submit their comments by 16 December 2020. The comments will also be published on the website of the BMJV.

Whether the planned amendments will actually increase the attractiveness of a GbR for start-up founders depends on further developments in the legislative procedure and thus remains to be seen. In particular does the personal liability of the founders not cease to apply even in the case of a GbR with legal capacity. However, the increased publicity resulting from the (voluntary) entry in the company register could lead to an improved perception of the start-up organised as a GbR to the outside world, and thus somewhat reduce the pressure that often exists on the part of the contractual partners to establish a corporation, and thus to take on the corresponding financial and organisational effort. This, in turn, could possibly reduce the risk of a quick set-up, make it less discouraging and encourage more young people to at least try to set up a start-up. This would be welcome in view of the still cautious start-up culture in Germany.

Dr Gesine von der Groeben