GbR: Meaning, definition and formation of a civil law partnership in Germany

What is a GbR?

The term GbR stands for 💬Gesellschaft bürgerlichen Rechts and is a civil law partnership. It’s the simplest business partnership in Germany, suitable for both commercial traders 💬Gewerbetreibende and liberal professionals 💬Freiberufler. Forming a GbR is quick and straightforward. A GbR is not a separate legal entity, but a partnership between at least two parties. Companies can join a GbR, provided at least one partner is a natural person.

All partners are personally liable with their private assets, unlike shareholders in corporations (e.g., UG or GmbH), who are only liable up to their capital contribution. However, partners in a GbR have more direct control over business decisions. The legal basis for this structure is found in §§ 705 ff. of the German Civil Code.

In addition to the GbR, legal forms such as a general partnership 💬offene Handelsgesellschaft or OHG and limited partnership 💬Kommanditgesellschaft or KG also belong to the category of partnerships. Both have a more complex legal framework and additional administrative obligations.

The inadvertent GbR

A GbR can come into existence without intention. For example, if several founders share an office and use common supplies to keep costs low, this arrangement can appear to the tax office as a GbR, even if the office users are not actively working together as a partnership. Ultimately, the tax office decides whether a de facto GbR exists.

📌If the authority concludes that such a GbR has been formed, it may issue a substantial tax assessment for back payments.

How to establish a GbR

The GbR can be set up quickly and with little bureaucratic effort. This makes a good fit for founders just starting out or who want to test business ideas. Here is a rundown of what’s involved:

• Calculate the starting capital—unlike corporations such as the GmbH, there are no statutory share capital.
• Agree on a company objective with the other GbR partners.
• Draft and sign a partnership agreement 💬Gesellschaftervertrag, also known as a GbR agreement.
• Register with the tax office 💬Finanzamt.
• Register with the local trade office 💬Gewerbeamt—unless you have formed a Freiberufler GbR or a non-profit GbR. In that case, skip this step.

Chamber membership

You have to also register with the Chamber of industry and commerce 💬IHK or the Chamber of crafts 💬HWK—depending on your company objective. Membership in one of the chambers is mandatory. Freiberufler GbRs are exempt from this rule. For them, compulsory membership with the IHK or HWK does not apply.

FAQ

Is there a limitation of liability for civil partnerships?

No, some GbRs try to give the impression of limited liability by adding “mbH” to their business names. But, this would be an illegal misrepresentation because the GbR can never be a limited liability entity. Others try and limit their liability in their general terms and conditions for their services—which is also unlawful.

Is a GbR considered a legal entity?

No. A GbR cannot, in most cases, be entered in the commercial register 💬Handelsregister. Without this entry, it does not qualify as a firm 💬Firma under German commercial code. Traditionally, the GbR is a partnership structure, not a legal entity.

However, since the MoPeG reform, a GbR can obtain legal entity status if it registers in the new partnership register 💬Gesellschaftsregister. In that case, it becomes an registered civil-law partnership 💬eingetragene Gesellschaft bürgerlichen Rechts or eGbR, which is treated as a legally capable entity.

When is a GbR actually an oHG?

Certain circumstances can turn your civil law partnership into general partnership—whether you like it or not. But, the nature of these circumstances is hard to pin down.

The most tangible is when your GbR starts generating a high turnover. If this happens, expect the tax office to convert your GbR into an oHG. With an annual turnover over €250,000 and more than five employees, the tax office often assumes that the GbR is a merchant business—which would make an entry in the commercial register mandatory.

Every merchant business in the commercial register has to follow stricter rules, namely the commercial code 💬Handelsgesetzbuch.

If the tax authorities decide that your GbR need tighter regulations, they might force it to change into an oHG. It is best to ask your tax adviser if you think this is something likely to happen to your partnership.

Simple bookkeeping

Since a GbR is not entered in the commercial register, its accounting obligations are far less stringent. No double-entry bookkeeping required! Simple bookkeeping and an EÜR, a simplified income surplus accounting, are usually enough. Learn more about the taxation of a GbR here.

GbR partner: rights & duties

Partners in a GbR have certain rights and obligations. These are defined in the GbR agreement. Instead of regulations set by the GbR partners, only the statutory provisions apply:

• Each partner is the joint owner of the GbR and has an equal share in the company, including its profits and losses.
• The partners are jointly and severally liable and unlimitedly liable with their private assets.
• The partners are subject to a duty of loyalty, which means safeguarding the GbR’s interests and avoiding foreseeable damage.

GbR contracts often allocate areas or activities to individual partners. For example, one partner is responsible for marketing and sales, another for finances.

Business assets

Since the assets of the GbR are held jointly by all partners, the individual partners cannot dispose of the share they have contributed. They are also not entitled to demand a division of assets.

Management

The joint management is the responsibility of all partners, i.e. the GbR is managed jointly by all partners. In practice, this means that all GbR managing partners must be present at every legal transaction and sign every contract.

Therefore, the GbR agreement often establishes a division of labour. For example, setting a monetary value within which partners can act independently.

Just as the powers and privileges can be given to a partner, so can they be taken away. But, it has to be for a legitimate reason, for example, a gross breach of duty or an inability to manage the business.

Dissolution and liquidation

No matter the business, there should be a plan for winding it down. The best way to do this is to set the rules in the partnership agreement. From a purely legal standpoint, there are three reasons which can lead to the dissolution of a GbR:

• The purpose of the GbR was fulfilled or was impossible to fulfil
• Insolvency
• Death of a partner

Automatic dissolution

Specifying the provisions in the event of death or insolvency in the partnership agreement prevents the automatic dissolution of the GbR if they happen.

Liquidation

After a GbR is dissolved it is then liquidated. If liquidation rules are not contractually determined, the statutory regulations kick in:

1. All current business has to be wound up and all debts repaid.
2. The partners’ contributions and contributions in kind are refunded and returned.
3. The remaining assets are divided among the partners.

Who should form a GbR?

A GbR is a legal form for teams that want to start a business with the least amount of capital and red tape possible. Both the lower tax burden and the simple bookkeeping are definitely perks. But the downside of the GbR is unlimited personal liability. Ultimately, the risk profile of your business is likely to be the deciding factor.

An incorporated alternative

If limited liability is a non-negotiable, consider forming a UG (haftungsbeschränkt). Shareholders can benefit from the limitation of liability. Although slightly more expensive to set up, the minimum capital needed is still low.

Since the UG has to be entered into the commercial register, it also comes with more red tape, i.e. double-entry bookkeeping and annual financial statements that are available to the public.