Most important points

• The German Civil Code (BGB) distinguishes between consumers (Section 13 BGB) and entrepreneurs (Section 14 BGB). A consumer is a natural person who enters into a legal transaction for a purpose that is predominantly outside their trade, business or profession. An entrepreneur is a natural or legal person or partnership with legal capacity who, when concluding a legal transaction, is acting in the exercise of their commercial or independent professional activity.

• This distinction is central to many consumer protection regulations: For example, only consumers have a right of withdrawal for online purchases, entitlement to consumer guarantees, full protection through prohibitions on terms and conditions clauses, etc.

• When drafting contracts and general terms and conditions, start-ups must check whether they are contracting with consumers or entrepreneurs. Stricter information obligations and limits on contractual freedom apply to consumers; more freedom can be used in pure B2B business.

• In cases of doubt (e.g. a sole trader buys something partly for private and partly for business purposes), it depends on the predominant purpose of the contract.

• Knowledge of these terms also helps founders to assess their rights when acting as consumers themselves (e.g. concluding a consumer contract privately).

Definition of consumer (§ 13 BGB)

A consumer is always a natural person (not a company) who enters into a legal transaction for private purposes. Examples:

• A private individual orders clothing online for his own use.

• Someone books a trip as a private individual, buys a book or takes out a cell phone contract for themselves.

Important: Self-employed persons or freelancers can also be consumers if they buy something not for their business but for private use (e.g. a tax consultant buys a television for his living room). Conversely, an employee who has a small business on the side can be considered an entrepreneur if he buys something for this business.

Definition of entrepreneur (§ 14 BGB)

An entrepreneur can be a natural person (sole proprietor, freelancer) or a legal entity (GmbH, AG) or a partnership with legal capacity (GbR, OHG, KG) that is acting in the exercise of its commercial or independent professional activity when concluding the transaction.

Examples:

• A limited liability company orders office equipment.

• A dentist buys medical equipment for his practice (although he is a natural person, here as an entrepreneur).

• An online store operator concludes a contract with a wholesaler for the delivery of goods (B2B).

Authorities or public institutions can also be considered entrepreneurs if they act as such on the market.

Legal consequences of the distinction

Many consumer protection laws only apply to contracts between entrepreneurs and consumers(B2C = Business to Consumer):

• Right of withdrawal: Only consumers can withdraw from doorstep selling or distance selling (online purchase) (see article on the right of withdrawal). There is no statutory right of withdrawal for pure business transactions(B2B).

• Duty to provide information: There are extensive information obligations towards consumers before the contract is concluded (e.g. in e-commerce: legal notice, general terms and conditions, data protection, product features, prices, delivery costs).

• Control of general terms and conditions: Although general terms and conditions are also controlled in the B2B sector, some prohibitions on clauses only apply strictly to consumers (e.g. shortening the warranty to less than 2 years is not permitted for consumers, but is possible for entrepreneurs).

• Warranty: Consumers cannot waive their warranty rights; warranty rights can be waived vis-à-vis entrepreneurs.

• Product liability: Product liability (ProdHaftG) does not make a direct distinction, but in practice it is usually consumers who assert claims.

• Consumer loans: Loans to consumers are subject to special regulations (e.g. revocation, mandatory information); some protective regulations do not apply to business loans.

Conversely, entrepreneurs enjoy less protection, but are also seen as less in need of protection as they are supposed to be experienced in business.

Doubtful cases and current developments

Sometimes it is not clear whether someone is acting as a consumer or an entrepreneur:

• Mixed cases: e.g. a self-employed person buys a PC that he uses both privately and professionally. Here it depends on whether the business purpose predominates. If so, he would be classed as an entrepreneur, if not, as a consumer.

• Straw man transactions: If someone buys things purely for private purposes via the company, one could argue that this is consumer trade. However, the seller will be able to rely on the appearance (company as buyer).

Courts often tend to rule in favor of consumer protection in unclear cases.

There are also discussions about putting micro-entrepreneurs or start-ups on an equal footing with consumers in certain constellations, but this has not yet been implemented in law.

Importance for start-ups

A startup must assess whether it is active in B2C or B2B (or both).

When consumers are customers:

• Contract documents and the website should contain all necessary information and instructions.

• The business models must take into account revocation processes and warranty processing, for example.

• Marketing and offer prices must be communicated gross (incl. VAT), as final prices must be stated for consumers.

If only entrepreneurs are addressed:

• Certain obligations no longer apply or can be contractually regulated differently (e.g. payment conditions, limitation of liability).

• Nevertheless, communication should be honest; in the event that there is a consumer among the customers, do not naively risk ignoring consumer regulations.

In addition, founders themselves are often in both roles: private consumer, business entrepreneur. It is worth taking advantage of consumer protection in private matters (e.g. being aware of withdrawal rights) and making clever but fair use of the freedom that B2B offers in a business context.