Introduction

The civil law partnership, or GbR for short, is one of the simplest and most flexible legal forms for a partnership in Germany. It comes into existence when at least two people join together to pursue a common goal without establishing a special legal form such as a limited liability company or a joint stock company.

Foundation

The formation of a GbR is relatively uncomplicated. No minimum capital is required, and the company may be formed by an oral or written partnership agreement between the partners. An entry in the commercial register is not mandatory.

Liability

In contrast to a GmbH, the partners of a GbR have unlimited liability for the company’s liabilities with their personal assets. This means that in the event of debts or liabilities of the GbR, the creditors can fall back on the private assets of the partners.

Management

In a GbR, all partners are generally entitled to manage the company, unless otherwise stipulated in the partnership agreement. As a rule, the shareholders make decisions unanimously.

Tax aspects

The GbR itself may be liable to pay trade tax and sales tax depending on the nature of the business:

• Value added tax: if the turnover of the GbR in the previous year was no more than 22,000 euros (until 31.12.2019 17,500 euros was the limit) and in the current year does not exceed 50,000 euros, no value added tax is levied. Otherwise, the GbR must pay sales tax.
• Trade tax: If the GbR operates a trade, it is generally liable to trade tax. Exceptions apply to freelancers; if freelancers join together to form a GbR, no business tax is due.

In addition, the partners of the GbR must pay tax on their income from the partnership in their personal income tax return.

Advantages

• Simple and inexpensive foundation.
• High flexibility in the drafting of the articles of association.
• No obligation to publish annual financial statements.

Disadvantages

• Unlimited personal liability of the shareholders.
• Potential difficulties in raising capital.

Conclusion

The GbR is a flexible and uncomplicated legal form that is particularly suitable for small companies, freelancers and temporary projects. However, the unlimited liability of the shareholders is a significant disadvantage that should be carefully considered. In addition, the tax aspects, in particular the VAT and trade tax liability, should be taken into account when choosing this legal form.