GbR contracts: Essential information + free PDF template

updated on 7. March 2019 44 minutes reading time

This guide will provide you with everything you need to know about GbR contracts. Why are contracts so important for founders and partners of a GbR? What do these contracts have to include? What partner rights and obligations do GbR contracts engender? How can I protect myself if I want to dissolve a GbR? After reading this article, you’ll be ready to adapt a GbR contract template to fit your individual needs.

What is a GbR contract?

A GbR contract or agreement (known in German as a GbR-Vertrag, a Gesellschaftsvertrag or a Gesellschaftervertrag) can be agreed upon with a conventional handshake, after which the legal framework for a GbR becomes applicable. This legal framework can be found in sections 705 to 740 of the German Civil Code (Bürgerlichen Gesetzbuch, or BGB).

For certain cases, however, the agreement must be in writing. You’ll need a written GbR contract, for example, when a partner brings a piece of property or real estate into the joint enterprise.

If you establish a GbR with one or multiple other founders, it is advisable to enter into a contract, regardless of whether real estate is involved. Should future conflicts, legal action or possible insolvency arise, clear rules as to how the GbR should approach such situations should be established from the start. With these rules, you can define what rights you have and what obligations you must fulfil both within the company and externally. In short, you and your cofounders can make fundamental agreements for the management of the GbR and how future events are to be handled, all within the framework of the law.

GbR contract template (in German) – downloadable PDF
GbR contract template (in English) – downloadable PDF

GbR contracts: The basics in nine questions

The most important aspects and structural elements of a GbR contract are provided in the BGB, beginning with section 705. The contract can and should be extensive. There are, however, some aspects in critical need of regulation which the law contains few provisions for. The BGB, for instance, doesn’t contain any specifications regarding GbR partners’ meetings or rules of procedure. Provisions regarding decision-making processes exist only for certain matters. Compensation is also rudimentarily defined at best.

 

In order to organise your GbR as clearly as possible within this legal framework, you should be able to unambiguously answer the following questions within your GbR contract, leaving as little room for interpretation as possible:

  1. What is the objective of your GbR?
  2. How much will partners contribute?
  3. How will the GbR’s profits and losses be distributed?
  4. How will the GbR’s management be organised?
  5. Will there be a partners’ meeting, and will it have an agenda?
    1. How often will the partners’ meeting convene?
    2. Who will (or must) invite participants to attend the partners’ meeting?
    3. How will participants be invited (invitation form, notice, pre-meeting briefing, etc.)?
    4. How will GbR partners reach decisions?
    5. When will a simple majority/two-thirds majority/unanimous decision among partners be required for a resolution?
    6. Will votes be weighted according to each partner’s shares?
    7. How should partner absences be handled?
  6. May GbR partners withdraw their wages?
    1. How much may a GbR partner privately withdraw?
    2. May partners’ compensation be adjusted according to changes in the GbR’s course of business?
    3. Will partners continue to be compensated if they fall ill?
    4. Will the GbR maintain reserves for turbulent times?
  7. May partners transfer their shares to third parties? If so, under what conditions are such transfers possible?
  8. May partners terminate a GbR contract? If so, how much notice is required?
  9. Under what conditions will the GbR be dissolved?

The following tips, information and possible answers to these nine questions aim to help you successfully manage your GbR with your fellow partners. Legal excerpts are included to aid in your understanding of the subject matter.

What is your GbR’s objective?

You should pay special attention when wording your GbR’s objective, or purpose, in your GbR contract. There are few reference points within the law to help you here, but a few provisions do refer to the obligations of the GbR’s partners:

§ 705 BGB: By a partnership agreement, the partners mutually put themselves under a duty to promote the achievement of a common purpose in the manner stipulated by the contract, in particular, without limitation, to make the agreed contributions.

Each GbR partner must support the GbR’s purpose and do their part to contribute to its realisation. The objective and purpose must, therefore, be the same for all partners. This is strictly a matter of the GbR’s purpose, not of the individual partners’ personal goals. This provision calls for a special duty to refrain from any action that would hinder the realisation of the GbR’s objective.

An example:

Let’s say you want to open a flower shop with your cofounders. You try to describe the GbR’s business purpose as precisely as possible: “The purpose of the GbR is the purchase and sale of all kinds of plants in a shop, especially flowers for every occasion.”

Although this wording concretely describes the purpose, it does restrict the GbR’s development as a business. For instance, if you wanted to rent out plants with a maintenance contract to companies someday, you would have to adjust the GbR contract accordingly.

Tip: If you notice during business plan talks that one or more partners have a more extensive or a more restrictive business objective in mind, do discuss it openly. In the end, all partners must be 100% in agreement with how the GbR’s purpose is worded. Watch out for hidden motives among your cofounders. If you don’t, there are likely to be conflicts in your future.

Do you have questions regarding the process of establishing your GbR?
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How much will partners contribute?

The law assumes that all partners will contribute the same amount to the GbR, and with many GbR’s, that may indeed be the case. Unlike within a corporation, GbR partners do not contribute capital. Usually, partners provide the GbR with expertise, contacts, contracts and jobs, and contributions in kind.

In practice, however, partners often make contributions differing in value. This should be recorded in the GbR contract. For instance, if one partner doesn’t work full time, another brings invaluable material, and a third provides the GbR with his list of customers, each contribution should be specified in the GbR contract. The contributions’ differing values result in a ranking or classification that clarifies what share percentage the partners contribute to the partnership’s assets.

How will the GbR’s profits and losses be distributed?

The law provides that all partners are to take part in profits and losses equally unless their GbR contract states otherwise. If the initial contributions differ in value and the partners provide different kinds of services, the GbR contract should allocate profits and losses accordingly. However, doing so doesn’t necessarily protect you from having to make an additional contribution later (Nachschusspflicht) in accordance with section 735 of the BGB. If a partner can’t put forward his share of the loss in the case of insolvency, the remaining partners are responsible for taking over his or her share. Unlike a GmbH, there is no limited liability when it comes to GbRs. As a partner of a GbR, you are personally liable, and your private assets are at risk in their entirety.

Find out how you can protect your private assets as a founder of a GbR in the event of a liability in this guide.

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How will the GbR’s management be organised?

The GbR is to be managed jointly by its partners (BGB, section 709). All decisions, therefore, require the approval of all partners. In practice, however, this is not always advisable or even practical; if all partners are responsible for the GbR’s management, then each partner has the right to object to every single legal transaction.

You can, therefore, convey management powers to one or more partners in your GbR contract. This will exclude the remaining partners from management activities.

It’s easy to see why it is recommended to establish rules for management that meet your needs in order to avoid such complicated situations in the GbR’s day-to-day operations. That’s why it is common practice, for example, to give the managing partners of a GbR autonomy when it comes to certain basic operations, such as in the following example:

  1. To ease day-to-day operations, any managing partner may make monetary decisions without further consultation up to a certain amount. Depending on your business model, that amount may vary from €500 to €5,000. When specifying the amount, you should make sure to allow the manager to carry out typical day-to-day operations independently. Such operations include making regular supply orders or acquiring business equipment.
  2. Above a certain amount, partner approval is required. In these cases, you should also determine if official approval may be granted with a simple majority or if a unanimous decision is necessary.

In case of a gross breach of duty by a managing partner or an incapacity for proper management, section 712 of the BGB provides that the other partners may dismiss that managing partner. How that decision is reached – whether by a simple majority or a unanimous vote – must be determined by you. The managing partner may also remove himself from management. When doing so, they must take care to not cause damages to the GbR that could otherwise be avoided. They must also ensure the continuation of proper business operations and make sure a transition to another managing partner is organised.

Will there be a partners’ meeting, and will it have an agenda?

The term ‘GbR partner’s meeting’ is not found in the law. The law only requires that certain decisions be reached with a majority or a unanimous vote. When two or three partners run day-to-day operations, it is relatively easy to come to such decisions. If your GbR consists of several partners, one or more of which do not participate in day-to-day operations, you will need to call a partners’ meeting. Each partner, even if they aren’t a managing partner, has the right to inspect the GbR’s accounts and documents if they wish, according to section 716 of the BGB:

§ 716 BGB: Right of control of the partners

(1) A partner may, even if excluded from management, inform himself [or herself] personally of the affairs of the partnership, inspect the accounts and documents of the partnership and provide himself [or herself] with a survey of the state of the assets of the partnership.

(2) An agreement that excludes or limits this right does not prevent its being asserted if there are grounds for assuming dishonest management.

As matters concerning money or the GbR’s assets can arise, it is best to keep non-management partners up to date on the GbR’s performance, and the best time and place to do so is a partners’ meeting.

Tip: It would be wise to call a partners’ meeting at least once per year to report on the close of the financial year.

Above all, the following common disputes should be discussed and resolved during a partners’ meeting:

  1. Appointing or removing a manager
  2. Allocation of profits, especially to reserves
  3. Dismissing or suspending a partner
  4. Altering the GbR contract
  5. Resolving a managing partner’s opposition to a legal transaction carried out by another managing partner

You can and should establish a committee for partners’ meetings and set its agenda in your GbR contract. In doing so, you should define how the process will be organised and determine the following aspects:

  1. How often will the partners’ meeting convene?
    It is recommended to convene a partners’ meeting once per year. The ideal time to do so would be at the close of the financial year. If a partner expresses a desire for a specific official inspection or raises an objection to a legal transaction, an extra partners’ meeting should be convened. If one of the five issues listed above arises, an extra GbR partners’ meeting should be convened as well.
  2. Who will (or must) invite participants to the GbR partners’ meeting?
    The GbR’s managing partner usually invites participants to the partners’ meeting. You may also choose to grant all partners the right to request a partner’s meeting (we’ll shorten it to ‘PM’ for the rest of this guide) in the GbR contract. A PM could be convened as requested, for example, when more than half of all partners sign such a request.
  3. How will participants be invited (invitation form, notice, pre-meeting briefing, etc.)?
    To make sure all partners can effectively exercise their right to control (or inspect), the management should invite participants two to four weeks before the PM. An ideal invitation would include an agenda as well as all documents necessary for resolving the matter at hand. The GbR contract should also specify what form the invitations should take. Invitations are usually written and sent by mail or handed out personally.
  4. How will GbR partners reach decisions?
    You can use your GbR contract to determine what type of majority is needed to reach decisions, and you can do so with near complete freedom. You can also assign different majority requirements to different cases: unanimity, two-thirds majority, or a weighted vote according to partner shares in profits and losses. Experts recommend requiring a unanimous vote for all personnel decisions, except for cases in which a partner is to be dismissed. In such cases, unanimity would mean approval from all remaining partners – the partner to be dismissed technically still has the right to a vote, but he or she is unlikely to vote for their own dismissal.
  5. When will a simple majority/two-thirds majority/unanimous decision among partners be required for a resolution?
    Your GbR contract should require unanimity, or at least a two-thirds majority, to approve any alterations made to the contract. The GbR’s stated purpose, or objective, is perhaps the most common dispute. It is therefore recommended to specify within the contract that a simple majority is not sufficient to make changes to the GbR’s purpose. Other decisions regarding the ordinary course of business, however, should be able to be reached with a simple majority.
  6. How should the votes of partners who are absent from the partners’ meeting be handled?
    If a partner is unable to participate in a PM, they cannot exercise their right to vote. Exceptions can be made in the GbR contract. For example, the contract can allow the partner to submit their vote in writing. It could also allow them to transfer their voting right to another partner. In any case, the GbR management must ensure that every partner is informed of the meeting and its appointed time in a timely manner.
  7. Can I enable the GbR to reach decisions by a written circulation procedure in its contract?
    A written circulation procedure via email is always recommended when quick decisions outside of a PM must be made.

Tip: In general, you can organise your GbR’s decision-making procedures freely. Unlike with corporations, you can opt to make it possible to reach decisions verbally. However, the more partners participating, the higher the risk that fractions pursuing different interests could develop within the group. It is therefore advisable to require written decisions. Ideally, minutes should be taken at each partners’ meeting and sent to each partner afterward. Set a deadline by which all partners must raise any objections. Once the deadline has passed, the minutes should be considered approved, and management can begin to implement any decisions made. Such an approach creates room for the GbR’s managing partners to act effectively and legally.

May GbR partners withdraw their wages?

No – the law does not provide for wages for partners. You may pay managing partners management salaries in an amount appropriate for the GbR’s respective industry. These payments count as profit-reducing operating expenses. Partners are generally compensated with their profit shares only, which are normally payed out after the close of the financial year.

§ 721 BGB: Distribution of profits and losses

(1) A partner may only demand the statement of accounts and distribution of profits and losses after the dissolution of the partnership.

(2)If the partnership is intended to exist for a protracted period of time, then the statement of accounts and the distribution of profits must in case of doubt occur at the end of every business year.

For-profit share payments made during/before the end of the year, you can utilise private withdrawals. This means that you can specify how you and the other partners can receive salary-like compensation within your GbR contract.

  1. How much may a GbR partner privately withdraw?
    You and the other GbR partners may, in agreement, freely determine how much a partner may privately withdraw. However, it is advisable to include a provision in the GbR contract that guarantees sufficient liquidity for the partnership. One practical solution would be to draw up monthly accounts. Depending on their profit shares, each partner may then privately withdraw 50% of those shares, for example. These private withdrawals would, of course, be documented, and would have to be recorded in a so-called private account (Privatkonto) for bookkeeping purposes. A private account is a subaccount of a partner’s equity. Private withdrawals also include the private use or consumption of products or the private usage of business equipment. Private withdrawals of profit shares in the form of cash payments or transfers are exempt from VAT, but VAT is charged to partners’ private usage of business equipment and private consumption of self-manufactured products.
  2. May private withdrawal amounts be adjusted according to changes in the GbR’s course of business?
    With your partners’ approval, you may change the amount partners may privately withdraw from their profit shares at any time. It is always recommended to reduce that amount when the liquidity of the GbR is at risk.
  3. Will partners continue to be compensated if they fall ill?
    Private withdrawals within the GbR are profit shares that you cannot withhold from a partner who falls ill. When it comes to managing partners receiving management salaries, the legal regulations governing sick pay apply. Provisions for cases in which a partner is permanently unable to fulfil his or her responsibilities in terms of performance can be written into the GbR contract. If a partner will be unable to contribute for more than a quarter of a year, for example, you can determine that his profit shares for that year may be lowered in proportion to his reduced contribution.
  4. Will the GbR maintain reserves for turbulent times?
    As a cautious entrepreneur, you should always keep reserves. These usually consist of revenues and profit shares that aren’t withdrawn. It is recommended to keep reserves sufficient enough to be able to cover all liabilities at all times and continue to meet payment obligations even when business is slow.

May partners transfer their shares to third parties?

No. Section 717 of the BGB states that “the claims to which the partners are entitled against each other under the partnership relationship are not transferable.” It is therefore forbidden for partners to sell their partnership shares. If a partner wishes to ‘retire’ from the partnership, he or she must give proper notice.

May a partner terminate a GbR contract?

Contract termination is allowed. The law includes provisions for various cases in sections 723 to 725 of the BGB and regulates the minimum requirements.

§ 723 BGB: Termination by partner

(1) If the partnership has not been set up for a definite period of time, then each partner may terminate it at any time. If a period of time has been determined, then notice of termination prior to the expiry of that period is admissible if there is a compelling reason. A compelling reason includes without limitation:

1. if another partner has intentionally or with gross negligence violated a fundamental duty incumbent upon him under the partnership agreement or if the discharge of such a duty becomes impossible…

(2) Notice of termination may not be premature unless there is a compelling reason for the premature termination. If a partner gives premature notice of termination without such a reason, then he must compensate the remaining partners for the damage thus incurred.

(3) An agreement by which the right to give notice is excluded or is limited contrary to these provisions is void.

This section fundamentally protects the partnership and its continuation in cases where a partner exits the partnership.
But what are some examples of ‘compelling reasons’, and what does ‘premature’ mean when it comes to retiring from a GbR?

What is considered to be a ‘premature’ retirement from a GbR?

The term ‘premature’ has no clear legal definition, but a rough understanding can be derived from other laws. A bailiff, for example, may not execute a seizure at the weekend or at night. That would be considered ‘premature’. An employer may not dismiss an employee while that employee is on holiday. This is also considered a premature dismissal.

The prohibition of premature GbR terminations arises from the relationship of trust between partners upon which the GbR contract is based. This obligation toward fulfilling the GbR’s common objective also means protecting the GbR from damages. If a partner retires from the GbR on short notice and in the knowledge that he or she is putting a project or the entire GbR at risk, this is considered to be a premature termination.

Tip: To minimise the risk of a partner’s short-term termination, you can include a notice period in your GbR contract. For example, you can require that a partner can only exit the partnership if he provides notice at least six months before the close of the financial year. This gives the remaining partners enough time to prepare for that partner’s retirement.

Do take into consideration, however, that the retiring partner can demand the return their profit shares and the funds they contributed. If the partnership does not have sufficient liquidity, the remaining partners must provide the funds themselves, and to do so, they need enough time. Below, you’ll read how to properly proceed with such an exit within the ‘winding-up’ process.

A ‘compelling reason’ for terminating a GbR

A GbR that was founded for a certain purpose can only be terminated if another partner breaches his or her duty. Such a breach can be intentional, or it can be the result of gross negligence.

An example:

Let’s say you’re organizing a festival and you establish a GbR with three other partners for that purpose. You have all agreed to generate profit through sponsors, ticket sales and rent from food and drink stands. You would be unable to exit the partnership a quarter of a year before the festival is to take place, unless you have a compelling reason for doing so. The following examples could be grounds for leaving the partnership:

  1. Intentional: You realise that one of your partners is embezzling money from sponsors. In this case, you may terminate the partnership, as the matter at hand is an intentional crime and violates the trust that the cooperation is built upon.
  2. Negligent: A partner was supposed to acquire event insurance for the festival but forgot to do so. It’s impossible to get coverage on such short notice. The risks go beyond the agreed business model. You may also leave the partnership in this case.

A termination in such cases would free you from the risky situation your GbR finds itself in due to the negligent or intentionally damaging behaviour of a partner.

Dismissing a GbR partner

In general, you are legally allowed to dismiss a partner for their failure to fulfil their obligations. Such dismissal is regulated in section 737 of the BGB, and the most important reason for a dismissal can be found in section 723. In the case of an intentional crime, you should also report the offence if you can provide enough evidence.

When should a GbR be dissolved?

Sections 726 to 728 provide three causes that could lead to the dissolution of a GbR:

  • Dissolution due to achievement or impossibility of its object (§ 726 BGB)
  • Dissolution due to the death of a partner (§ 727 BGB)
  • Dissolution due to insolvency of the partnership or one of its partners (§ 728 BGB)

The first case is self-explanatory. Cases of death or insolvency, on the other hand, are more complex.

Dissolution due to the death of a partner

Your GbR contract must contain a provision that protects the GbR in such a case. It’s worth taking a look at the text of the law here:

§ 727 BGB: Dissolution due to the death of a partner

(1)The partnership is dissolved by the death of one of its partners unless its partnership agreement leads to a different conclusion.

(2) In the case of dissolution, the heir of the deceased partner must inform the remaining partners of the death without undue delay and, where postponement entails danger, must carry on the business transferred to the deceased by the partnership agreement until the remaining partners can reach another arrangement jointly with him.
The remaining partners are in like manner obliged to continue temporarily the business transferred to them. The partnership is deemed to continue in existence in this respect.

If a partner dies, his or her legal successors must immediately inform the remaining partners. The remaining partners will then continue the partnership’s course of business (with those successors if necessary). They are obligated to find a solution in such a manner.

Tip: Your GbR contract can include a provision that specifies how the GbR is to handle the death of a partner, including how the remaining partners are to proceed with the deceased partner’s partnership shares. It’s generally best to avoid a situation in which a complete stranger can ‘vote’ on behalf of the deceased partner.

Contracts usually contain a provision that allows the deceased partner’s partnership shares and responsibilities to be taken over by the remaining partners. The successors would then only receive the share payment. In such a case, you must calculate the stand of the deceased’s profit shares and contributions in kind as of the day of their death and pay/give that amount back to the deceased partner’s successors. Here, the legal regulations concerning the ‘winding-up’ of a partnership apply. This will be clarified shortly.

Dissolution due to insolvency

If the partnership becomes insolvent, it must file as such with its district court. Once the insolvency proceedings have begun, a court-appointed insolvency administrator will usually take over the business. If there is still a chance for the GbR to carry on, you can continue to work according to an insolvency plan.

If only one partner becomes insolvent, however, the GbR can be dissolved. The remaining partners are then obligated to temporarily take over the responsibilities of the insolvent partner, and the partnership is considered to still be valid. When the ‘winding-up’ takes place, it is crucial that the insolvent partner’s assets are removed from the GbR, with the goal of letting the GbR continue. The remaining partners must either pay out the insolvent partner with the GbR’s reserves or with their own funds. Afterwards, the GbR may continue to operate.

Winding-Up: Continuation after a termination or dissolution

A termination or dismissal of a partner or a dissolution of the GbR does not necessarily mean that the GbR must cease its operations. If a partner leaves or is dismissed, the remaining partners will usually do everything they can to allow the GbR to continue. To do so, the partnership has to organise a so-called ‘winding-up’ (‘Auseinandersetzung’), during which all of the partnership’s funds, as well as assets and liabilities, are calculated as of a certain date. The calculated profits or losses will determine whether the partners will receive a profit share or if they will have to pay in additional capital. ‘Windings-up’ are regulated in sections 730 to 740 of the BGB.

If the GbR is to be dissolved for good, all ongoing legal transactions must be concluded, which could take quite a while. The law refers to these transactions as ‘pending transactions’ (‘schwebende Geschäfte’). It would not hurt to take a look at the text of the law in this case either:

§ 730 BGB: Winding-up of the partnership: Management

(1) After the dissolution of the partnership, winding-up takes place between the partners with regard to the assets of the partnership unless insolvency proceedings have been opened in relation to the assets of the partnership.

(2) For the termination of transactions in progress, for the entering into of new business required for this purpose and for the maintenance and administration of the assets of the partnership, the partnership is deemed to be carried on to the extent the purpose of the winding-up so requires.

However, the authority to manage to which a partner is entitled under the partnership agreement is extinguished, unless the contract leads to a different conclusion, upon dissolution of the partnership; from dissolution onwards, all partners are entitled to jointly manage its business.

During dissolution and winding-up, it is critical that former partners are stripped of their rights and powers within the GbR. All partners then carry out the GbR’s management together.

When the partnership’s debts have been paid and all pending transactions are concluded, the partners may then reimburse their capital contributions (§ 733 BGB). The repayment amounts must equal the amount that was initially contributed. If a surplus remains after repayment, the partners can divide the remaining profit among themselves proportionately to their shares (§ 734 BGB). If losses remain, however, such as liabilities towards third parties, all partners are obligated to pay in their shares of the losses (subsequent contributions, § 735 BGB).

GbR Contracts: Summary

A GbR contract is a powerful tool for securing your partnership’s long-term success. Take advantage of the organizational freedom you have beyond the BGB’s minimum requirements when creating your GbR contract. The contract will establish rules that facilitate an orderly decision-making process for the partnership.

When drafting your GbR contact, it is important to discuss every sentence with your partners. Discussing the contract will help you to continue and consolidate your discussions concerning the GbR’s business plan and finances.

The contract will also regulate sensible task assignments and define the partners’ internal relationships. You can determine how the GbR’s management will be defined and what powers you will grant it. The contract will document the GbR partners’ contributions and assign them value. It will determine profit and loss shares based on what services the partners offer and which responsibilities they will take on when it comes to establishing the GbR and its day-to-day operations.

Even if you feel that you have a great GbR contract when all is said and done, you should still have a lawyer assess it. There’s one thing you need to understand above all: You are free to determine many aspects for which there are no legal provisions, but there are some situations which are strictly regulated – and these regulations that can’t be neglected. To stay on the safe side, have a lawyer make sure you don’t make any serious mistakes.

The information published on our site is all written and checked by experts with the greatest care. Nevertheless, we cannot guarantee the accuracy of this information, as laws and regulations are subject to constant change. Therefore, always consult an expert in a specific case – we will be happy to establish contact.

firma.de assumes no liability for damages caused by errors in the texts.

 

 

 

 

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