What legal form should you aim for if you want to start or professionalize an esports team? The answer to that is actually a classic “it depends.” Contrary to what many always believe, there is no “right” or “wrong” when it comes to choosing a legal form. Each legal form has advantages and disadvantages and is more or less suitable for certain purposes.
Most teams are likely to already be a GbR, i.e. a civil law partnership. This does not require a written contract. If more than one person is responsible for the organization, it becomes rather difficult not to assume a GbR. This has numerous implications.
- In the GbR, the power of representation, without a separate agreement, is only possible jointly. So no one can commit the team alone, and without the consent of the others, by signing contracts. If he does this without the consent of the other GbR partners, he will be liable for damages. But beware, if the team gets bigger, you can quickly become a general partnership, with more big liability risks.
- However, you should also be careful with giving titles in this case. Read more in this article.
- However, it should be clear to every member of the GbR that he is liable for the liabilities of the GbR with his full private assets, in case of doubt possibly also for the next 30 years. This applies to concluded contracts with service providers and players as well as liability for competition and/or copyright infringements. The debtor can always pick out any of the partners and hold them liable for the full amount. In the case of several shareholders, compensation is only ever paid among themselves. Of course, this also applies to things like taxes or social security contributions, completely independent of whether one was aware that such were owed in the first place. You can find more information about this topic in this article.
- Although a GbR is only a partnership, it is necessary to think about the registration according to tax law and trade law. When it comes to the distribution of profits and further division of duties or liability, the preparation of a GbR contract should be considered.
registered trader/sole trader
Theoretically, the operation of an esport team is also possible within the framework of an individual trade or, somewhat more professionalized, within the framework of a “registered merchant”. Numerous requirements of the Commercial Code must be observed here, which I do not wish to go into in detail in the context of this article, but which may well lead to numerous liability traps.
Although, from a purely legal point of view, the association is the basic form of the corporation, the registered association is not a suitable vehicle if you want to make money with the esport team. The legal issues surrounding commercial associations, where the prototype is, for example, ADAC, are very complicated in detail and, above all, involve tax issues. The club is therefore probably best suited if you only want to be active in the popular sports sector. It is true that there are ways to earn money here, even apart from membership fees, or to create a structure in connection with the GmbH or Aktiengesellschaft. However, this should not be possible without the accompaniment of a lawyer and a tax advisor. A few articles of mine on the subject can be found here regarding the foundation, here regarding various legal issues, and here regarding the promotion of youth.
- If you want to found an association, you should not underestimate the effort that the founding and also the discussion around the possibly aspired non-profit status can mean. Structures, statutes and much more must also be prepared, discussed and legally regulated.
- An association needs structures, committed members and much more. However, if the goal is to promote esports only, and not to see the activity as a “job” or “profession”, the association form is probably the most suitable.
The prototype for a commercially operated Esport team in Germany would probably be a GmbH, flanked by the “small” GmbH Unternehmergesellschaft. The costs for a UG and a GmbH differ only in the formation costs, which, however, are ultimately incurred anew in the event of a possible later change of name of a UG into a GmbH. In this respect, the difference lies only in the share capital to be raised. All other essential legal issues, liability risks or obligations do not differ between UG and GmbH in the vast majority of cases. The ongoing costs for accounting, balance sheet, annual financial statements, IHK and so on are also essentially the same.
- The formation of a UG itself is somewhat less complicated than the formation of a GmbH, since theoretically a complete shareholder agreement is not necessary, but the model articles of association are sufficient. Personally, I am nevertheless not a friend of a UG, since the establishment of a UG, according to my 20-year experience as an entrepreneur and lawyer, sets wrong incentives to the existence, the tasks and obligations as an entrepreneur and lulls the founders just because of the simplified establishment often in false security. In this case, I would definitely advise you to seek advice from a lawyer and to be accompanied by a lawyer during the first few months.
- A misconception, also in the question of whether to establish a UG or a GmbH, occurs time and again, namely whether and under what conditions the share capital can be used. I have published a post about this here.
- One should not underestimate the fact that a UG is considered “small” by many investors, sponsors, contractors and the like, which could cause a lot of problems in establishing contacts and collecting capital.
- Theoretically, it is also possible to establish a stock corporation, but the effort is much greater than with a limited liability company. More information in this article.
As indicated above, there is no right or wrong legal form. It is always necessary to find out what the requirements and goals of the founders are. I advise on this regularly and of course with much more detail than can be presented in the context of such an article.
Basically, however, I recommend an additional consultation, for example with the Chamber of Commerce and Industry (IHK), and possibly the completion of a start-up seminar before or at the start-up or the beginning of self-employment, in order to learn basic questions about taxes, trade law, accounting and so on. This can often save a lot of trouble or high legal fees.
By the way, most of the explanations, with the exception of the association, actually apply in full to all other startup formations as well.