One of the least complicated models for a commercial partnership that can be established in Germany is known as a civil law partnership. A civil law partnership, also known as a Gesellschaft bürgerlichen Rechts (GbR), is recognized under German law. It is an entity that is formed based on a partnership agreement, and the purpose of the law is to support and regulate the business entity that is conducted by at least two partners. The cost of starting a partnership governed by civil law is often quite inexpensive, which is the primary benefit of doing so.
Because this partnership operates in Germany in the same manner as any other firm, it is not necessary to possess the legal ability. Following the Trade regulations act and German business law, GbR is structured in two different ways.
The German commercial law called the partners in a GbR ‘Merchant’ and the trade regulation act calls the partners ‘Traders’. The Trade Register is responsible for registering the German general partnership.
Features of the partnership
- To establish it, there is a need for a trade office, (not applicable to freelancers), and an article of association is recommended.
- Capital to start up is not required.
- It is governed jointly by the shareholders and partners.
- The liability is unlimited with private and business assets of all shareholders.
- Taxation is on shareholders’ profit though the company is liable for trade tax, VAT, and income tax.
Setting
The GbR does not require share capital from the state, it is an alliance between several entrepreneurs for a common purpose, though they are all required to contribute to the establishment of the company such as capital, knowledge, assets, and skills.
Agreements
At a minimum, the agreement needs to be signed by two different people or organizations before it can be considered a GbR. It is possible to complete the task verbally; however, having it written down and notarized is preferable. The following information needs to be part of the agreement that is recorded:
- Nature and purpose of the company
- Amount of deposits
- Management and representation
- Procedure for resolution
- Distribution of profit and loss
- Procedure in case of death and departure of a partner
Taxation
GbR serves as a non-commercial entity, the business is not obliged to keep accounting books, though they can document their business activities by submitting a cash journal to the German tax authorities.
It is not subject to income or corporate tax, the profit is slashed and separated among partners and each of them gets taxed by their profits. Though each partner’s share is subject to income and corporate tax depending on the legal form.
Management of a GbR
Upon the approval of the shareholders, an individual partner is allowed to represent the company alone on every business transaction, activity, and decision. The person takes care of the company’s management.
Further information
German lawyers and other forms of freelancers benefit more from this form of establishment, and it can be employed for both short-term and long-term objectives or goals. The partners are liable for the company’s debt and obligation, as all partners involved have equal management right in the company and there is no minimum capital requirement to enter such an agreement
If the GbR’s annual turnover does not exceed £250,000 and employs more than five members of staff, the GbR does not have to register with the commercial register. If they exceed these limits, the GbR is converted into a general commercial partnership (OHG), which means they must be registered in the Commercial Register.
