The Civil Law Partnership (GbR): A Comprehensive Overview

Introduction

The Gesellschaft bürgerlichen Rechts (GbR), or Civil Law Partnership, is one of the simplest and most common forms of partnerships in Germany. It is frequently used by freelancers, small business owners, or private interest groups. The GbR is a flexible legal form that requires no minimum capital and is relatively easy to establish. This article provides a comprehensive overview of the GbR, including its taxation and a comparison with the Gesellschaft mit beschränkter Haftung (GmbH) and the Unternehmergesellschaft (UG).

Formation of a GbR

A GbR can be formed by at least two natural or legal persons who come together to pursue a common purpose. The formation does not require a notarized contract and can be done informally through an oral or written agreement. However, a written agreement is recommended to avoid future disputes.

The essential elements of the partnership agreement include:

• Name of the partnership (usually the names of the partners followed by "GbR")
• Purpose of the partnership
• Contributions of the partners
• Profit and loss distribution

Liability

A significant disadvantage of the GbR is the unlimited liability. The partners are personally liable with their private assets and jointly liable for the partnership's obligations. This means that creditors of the GbR can claim the entire debt from any partner.

Taxation

The GbR itself is not a separate tax entity but a transparent partnership. Taxation occurs at the partner level. The GbR is subject to the following types of taxes:

• Income tax: Each partner taxes their share of the GbR's profits at their personal income tax rate.
• Trade tax: If the GbR is engaged in commercial activities, it is subject to trade tax. The allowance is currently 24,500 € per year.
• Value-added tax (VAT): The GbR is subject to VAT if it generates taxable sales. The standard taxation or the small business regulation (§19 UStG) can be applied.

The Registered GbR (eGbR)

Since January 1, 2024, there is the option to register a GbR in the partnership register, giving it the status of a "registered GbR" (eGbR). This innovation brings several advantages:

• Legal capacity: The eGbR acquires its own legal capacity and can thus acquire rights and enter into obligations, sue, and be sued.
• Legal certainty: Registration in the partnership register creates transparency and makes it easier to prove the existence and representation of the GbR.
• Firm name: The eGbR can operate under its own firm name, professionalizing its appearance in business dealings.
• Ownership of real estate: An eGbR can acquire ownership of real estate in its own name and be entered in the land register.

The registration is carried out at the competent local court and requires the following information:

• Name of the partnership
• Registered office of the partnership
• Names and addresses of the partners
• Representation regulations

Comparison with GmbH and UG

Gesellschaft mit beschränkter Haftung (GmbH)

• Liability: The GmbH is liable only with its corporate assets; the partners do not bear personal liability.
• Minimum capital: A minimum capital of 25,000 € is required to form a GmbH.
• Formation: Formation requires a notarized partnership agreement and registration in the commercial register.
• Taxation: The GmbH is a separate tax entity and subject to corporate income tax, trade tax, and VAT. Profits are taxed at the company level, and distributions are taxed at the partner level.

Unternehmergesellschaft (UG)

• Liability: Similar to the GmbH, the UG is liable only with its corporate assets.
• Minimum capital: The UG can be founded with a minimum capital of just 1 €, but a portion of the annual surplus (at least 25%) must be retained until the capital reaches 25,000 €.
• Formation: Formation is simpler and cheaper than for the GmbH, but also requires notarization and registration in the commercial register.
• Taxation: Taxation is the same as for the GmbH.

Conclusion

The GbR is a straightforward and cost-effective legal form for small businesses and groups that do not require limited liability. It offers flexibility and ease of handling, but at the cost of the personal liability of the partners. With the introduction of the eGbR, the GbR becomes more attractive for certain purposes by providing additional legal certainty and options. For larger businesses or those with higher liability risks, the GmbH or UG may be better alternatives, as they offer limited liability, although they come with higher formation requirements and ongoing obligations.