Gesellschaft bürgerlichen Rechts (GbR) – The Gesellschaft bürgerlichen Rechts is a German legal form which is established by two or more persons for a certain period of time in order to conduct a certain business together or to achieve a common goal. It is therefore always for a specific purpose and usually exists only as long as the joint venture has not yet been completed. As the name suggests, it is subject to civil law and is therefore often referred to as a BGB company. Tax advisors help with the formation, as well as with all taxes in Germany. All about the GbR. Back to the individual: Legal forms.
Civil law partnership: formation, advantages and disadvantages
In the following, you will find out everything you need to know about setting up a GbR. How do you become a partner in a GbR? What are the differences between incomplete and complete companies? What are the advantages? What are the disadvantages? How do I set up a company? What is a company? You’ll get answers to all these questions and more – explained simply and quickly. Plus everything you need to know about taxes and real estate trading.
If you are considering forming a civil law company, you first need to know about the formation process: Who can form what exactly, when and to how many… what are the differences and similarities between the various civil law companies? It is equally important to know the advantages and disadvantages of a GbR: From profit distribution to saving taxes – the seven most important formation criteria for you at a glance.
What are the founding criteria?
Number of shareholders
Management
Foundation
Company name
Funding
Liability
Profit distribution
Learn everything important about it here! In addition, you will find all German types of companies and legal forms, as well as tips on how to start a company, including the special case of real estate GmbH, family foundation & Co.
BGB companies at a glance
In the entrepreneurial world, there are many different forms of business you can choose from. They are roughly divided into two categories, namely sole proprietorship and companies, which in turn are divided into incomplete companies – these include dormant companies and BGB companies – and complete companies – partnerships, corporations and some more.
The civil law partnership – GbR for short – is one of the so-called incomplete partnerships and is often also referred to as a BGB partnership because, unlike the complete partnerships, it is not subject to the German Commercial Code (HGB) but to the German Civil Code (BGB). The GbR is an uncomplicated form of corporate law because it can be founded informally and a minimum of only two founding members is required. Since the formation of a GbR is for the purpose of jointly conducting a specific business, it is also referred to as an occasional company.
GbR between private persons
If you want to form a civil law partnership, there are different options for you and your co-founder(s). In fact, most people – knowingly or unknowingly – have already been part of a BGB company at one time or another: if, for example, you form a car pool with your colleagues or go on holiday together with your friends and split the costs between them, you have formed an occasional company in the legal sense. For a common goal, you have joined forces with at least one other person, temporarily or for a longer period of time, and contributed to the fulfilment of this goal under the premise of equality – in this or a similar way, a civil law partnership is informally formed between private individuals.
GbR among freelancers
You are already self-employed and want to found a GbR? No problem! Even between sole traders, the formation of a civil law partnership is not uncommon: Especially in the healthcare and legal sectors, doctors and lawyers like to join forces for a longer period of time. They establish a civil law partnership among freelancers in order to increase their chances on the market or to strengthen their competitiveness or simply to save costs.
GbR among merchants & banking syndicate
As a businessman or businesswoman, you can also join forces with like-minded people and set up an occasional company. For example, if you have a large construction project that you as a craftsman cannot handle alone, you can join forces with other craftsmen for this customer or project to tackle the property together. Once the construction project is complete, everyone goes their separate ways. In this case, it is a matter of founding a civil law partnership among merchants. A special feature here is the merger of banks: If several banks form a GbR – for example, for the purpose of easier organisation of the share issue when a public limited company (AG) is re-established – this is referred to as a banking consortium.
BGB companies in brief:
GbR between private persons
GbR among freelancers
Partnership under business
Banking syndicate
Formation process of the GbR: From the number of shareholders to the distribution of profits
Regardless of whether you are a private individual, a freelancer or a merchant: The process of forming a civil law partnership is the same everywhere: For one thing, you need at least one other person to be able to form a GbR. The claim that a GbR is more or less a sole proprietorship, only with more people, is therefore no coincidence. But apart from the question of liability, these two legal forms have little in common.
Doing business together from 2 persons
Although it is possible to appoint a single managing director from among the BGB partners by agreement, all partners usually take over the management jointly and also make joint decisions.
The foundation itself requires a tax identification number – in short: tax ID – which you can apply for at the tax office responsible for your administrative area. Furthermore, you must apply for the registration of a small business at your responsible trade office, which usually costs you about 10 to 65 euros for processing. As a small business BGB company, you are restricted in terms of turnover – this means that you may generate turnover up to a fixed maximum limit of currently 250,000 euros per year. For higher amounts, the civil law partnership is automatically converted into a general partnership – OHG for short – for which entry in the commercial register is mandatory.
Company identification: Full name + GbR
Since you are not registered in the commercial register as a GbR partner, you cannot officially trade. This means that your company does not have a company name, but only a company designation. The company name must consist of your full first name and your surname plus the suffix “GbR”, which indicates the legal form of your BGB company. You are free to expand your company name by naming the industry and/or an imaginary name.
Financing, Liability & Profit
The financing is entirely at your discretion, so you can theoretically do without any start-up capital. However, it is advisable to have certain reserves and to draw up a financing plan in order to be financially prepared in case of unpleasant surprises. The company risk is borne jointly by all partners and they are liable for both business and private matters. Therefore, if something goes wrong and the BGB company falls into arrears and financial difficulties, you must – even in the case of wrong decisions by your co-partner(s) – take unlimited responsibility with your private assets.
Just like the entrepreneurial risk, the profit is also distributed equally. With two founding members, each of you receives 50 percent of the profit. If there are three or more partners, the profit is distributed accordingly per head.
Advantages: Winning by heads, team decision & joint liability.
After presenting the typical characteristics of a BGB company, you have certainly already recognized the advantages that this legal form offers you: The foundation is relatively uncomplicated and you do not need any start-up capital. You are active as a team together with your co-founder(s): You make all company-relevant decisions together, bear the liability risk jointly and share profits equally among yourselves.
Fast and uncomplicated foundation
Flexible share capital
Head split
Liability risk in the team
Decisions with little coordination with others
No disclosure of business figures
Disadvantages: Full liability, turnover restriction & OHG conversion.
The disadvantages of setting up an occasional company can also be quickly identified: On the one hand, you do not have sole decision-making power and must coordinate with your staff of partners. Nevertheless, in case of doubt, you must be fully and completely liable – even privately! even if you were not responsible for the losses. Thirdly, as a GbR you are limited in turnover and have to be careful not to unintentionally change into a OHG. Last but not least: Since a GbR is purpose-bound, a dissolution can be enforced without much effort – it is not made for eternity.
No sole decision-making power
Full liability (incl. private assets)
Limitation of turnover up to 250.000 Euro per year
Automatic conversion into OHG
Simple dissolution of the GbR
Evaluation: Start-up without bureaucracy & share capital
After comparing the advantages and disadvantages, it becomes clear that if you like to work in a small and familiar team to achieve a common goal and do not want to overcome any major bureaucratic hurdles, you can get off to a fast and easy start as a GbR. Profits are shared fairly and losses are borne jointly, so that businesses with a manageable risk are particularly suitable as objectives. In addition, a GbR makes sense for entrepreneurs who do not have the necessary share capital for a corporation and/or have a general partnership as their goal.
Immobilien GbR: change of legal form, asset management & Co
You don’t think the idea of a general partnership is a bad idea at all, and now you’re wondering how to combine your partnership with real estate? From form change tricks and private contributions to corporations to real estate brokers and asset management companies. All essential information on real estate partnerships, real estate GbR and real estate KG for you in a nutshell.
Small tip: When acquiring and/or managing real estate, make sure that all details are clearly stated in the partnership agreement. Due to the principle of joint, unlimited and direct liability, you should also make sure that your managing partners are persons with comparable creditworthiness – otherwise there could be difficulties with financing and creditworthiness.
Variant 1: Save taxes through change of legal form trick
As an individual, you would like to contribute your property to a limited liability company (LLC) or other corporation, but the tax levies are too high for you? Then you should consider transferring your property to a partnership. The advantage: registered partnerships can be easily converted into corporations by means of a change of form and you can save the real estate transfer tax!
Change of legal form to a registered partnership
As a partnership under civil law (GbR), you can convert your property into 100 per cent GbR shares as a 100 per cent shareholding and, in the next step, carry out the change of form to a general partnership with entry in the commercial register. This turns the GbR into a full company and, above all, also into a registered partnership, which is the basic prerequisite for the conversion into a GmbH. But watch out: You need another person for the formation, who temporarily joins the company without deductible.
Change of legal form to a corporation after 5 years
The change of legal form to a GmbH is again tax-free in terms of the identity of the legal entity, so that you remain exempt from real estate transfer tax and can still transfer your private property to a corporation. You only have to wait until the five-year lock-up period has expired, because otherwise taxes will still be due retroactively in accordance with the Real Estate Transfer Tax Act (GrEStG). If everything goes smoothly, you are still 100 percent owner and your co-founder can leave the GmbH without any problems.
Variant 2: Real estate agent with business licence
If you want to become a self-employed real estate agent, it’s not that easy. The profession of real estate agent is subject to the trade obligation and is not one of the liberal professions. This means that in order to be able to pursue this activity, you must first apply to the trade licensing office for permission and hope for a positive light. The official permit is required by law, for example to be able to assess your reliability in advance.
Real estate agent OHG, GbR & KG
Partnerships can also operate as real estate agents. However, without their own legal personality, OHGs, GbRs and KGs must obtain an official permit for each individual managing partner. In addition to the application form for permission, further documents must also be submitted. These include:
A police clearance certificate – available on request from the Residents’ Registration Office;
An extract from the Trade Central Register – available on request from the Ordnungsamt;
A tax clearance certificate – available on request from the tax office;
A certificate of no current insolvency proceedings – available on request from the local court;
A certificate of missing entries in the debtors’ register – available on request from the local court.
A certificate of competence can also be provided on a voluntary basis.
Variant 3: Asset-managing partnership
If you want to be active in the area of surplus income – i.e.: income from non-self-employed work, capital assets, renting and leasing or other income – an asset-managing partnership could be just right for you. Here you can typically either use the legal form of a GbR or fall back on trading companies regulated in the HGB such as the OHG or KG. Mixed forms such as the GmbH & Co KG are also conceivable in principle, but mean further regulations and requirements.
Participation, say & tax advantages
An asset-managing partnership makes sense if several real estate investors want to manage their real estate holdings jointly. The aspect of ensuring succession in the event of inheritance is also interesting here. The partnership agreement determines how much say the individual partners have – decisions are often made on the basis of shares, but even partners with a small shareholding can gain a dominant voting right – for example, if they have enormous expertise, professionalism or experience.
Tax advantage of such an arrangement? The capital-forming partnership is not the same as the tax object: each partner is taxed individually and all income taxes as well as taxes from inheritance, sale or gratuitous transfer of partnership shares must be reported by each partner individually for tax purposes.
Taxes for BGB partners: income tax, VAT & trade tax
As a GbR partner, you need to know about some types of taxes, because with the establishment of your company, you receive income from your business and must of course also pay tax on this. Tax law stipulates that in addition to the income tax of each partner, further duties must be paid for turnover tax, unless the GbR makes use of the small business regulation. In addition, trade tax is due for commercial enterprises with an annual income of more than 24,500 euros. A GbR among freelancers remains exempt from the trade tax obligation.
Conclusion: Civil law partnership – for whom is it worthwhile?
If you are prepared to join forces with other trustworthy people to start your own business quickly and easily, you do not need enormous financial reserves and also pay relatively little tax on your profits. A GbR is therefore ideally suited for young freelancers who want to take their lives into their own hands, not only dream of self-realisation and do not want to wait until they have saved up the necessary start-up capital.
From a real estate point of view, a BGB company is particularly worthwhile for beginners who would prefer to invest their capital directly in the purchase of real estate instead of laying down the share capital for a corporation. If you are successful, however, you should consider converting the casual partnership into a general partnership – if only to reduce the liability risk – or contributing the GbR as a contribution in kind to a GmbH.
You can find out more about general partnerships and limited liability companies here:
Besides the civil law partnership (GbR), there are a few other alternative types of companies that could be interesting for you as a founder! You want to learn more about starting a business? Learn more about share capital, taxes and the advantages and disadvantages of the different types of companies.
Here you will find all the legal forms that can be chosen as a founder in Germany and a guide with a checklist:
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