The Registered Civil Law Partnership (eGbR): Overview, Advantages, and Formation

The registered civil law partnership (eGbR) is a special form of the civil law partnership (GbR). This legal form is particularly attractive for small and medium-sized enterprises (SMEs) as it provides a simple and flexible way to bundle entrepreneurial activities and secure them legally. This expert article aims to provide a comprehensive overview of the eGbR, highlight its advantages, and outline the necessary steps for its formation.

1. Overview of the eGbR

1.1. Definition and Legal Classification

The civil law partnership (GbR) is a partnership formed by at least two persons to pursue a common purpose. Unlike the GbR, which does not need to be entered into a public register, the eGbR is characterized by its entry in the register of partnerships. This registration grants the eGbR increased legal certainty and visibility in business transactions.

1.2. Legal Foundations

The legal foundations of the GbR, and thus the eGbR, are found in the German Civil Code (BGB), particularly in §§ 705 ff. BGB. The registration requirement for the eGbR is based on the reform of the Act to Modernize Partnership Law (MoPeG), which came into effect on January 1, 2024. This reform stipulates that civil law partnerships entered in the commercial register or another public register are to be treated as eGbR. Additionally, there is a registration requirement if the GbR acquires real estate, which is particularly relevant for real estate companies structured as GbR.

1.3. Characteristics of the eGbR

The eGbR essentially has the same features as the traditional GbR, with the exception that it is registered. The characteristic features include:

• Partnership Agreement: The foundation of the eGbR is the partnership agreement, which can be concluded without any formalities but should be documented in writing for evidentiary purposes.
• Common Purpose: The partners pursue a common purpose, which can be either economic or non-economic.
• Joint Management and Representation: The management and representation of the eGbR are generally carried out jointly by all partners, unless otherwise stipulated in the partnership agreement.
• Liability: The partners are personally, unlimitedly, and jointly liable for the obligations of the partnership.

2. Advantages of the eGbR

Choosing the eGbR offers several advantages compared to other forms of partnerships:

2.1. Simple Formation and Low Costs

The formation of an eGbR is relatively simple and cost-effective compared to corporations such as the GmbH or AG. No special formalities, such as the notarization of the partnership agreement, are required. Registration in the partnership register incurs only minimal fees.

2.2. Flexibility and Simple Structure

The eGbR offers high flexibility regarding internal organization and the distribution of management powers. The partnership agreement can be tailored to meet the needs of the partners. This flexibility is particularly advantageous for small businesses and startups that need to quickly adapt to changing market conditions.

2.3. Increased Legal Certainty

By registering the eGbR in the partnership register, the partnership is recognized as a separate legal entity, which provides increased legal certainty in business transactions. Contractual partners and creditors can rely on the accuracy of the registered information and the existence of the partnership. This strengthens trust and facilitates the establishment of business relationships.

2.4. Tax Advantages

Depending on the individual situation, the partners of the eGbR may benefit from tax advantages. The profits of the eGbR are taxed at the partner level, which can result in a lower tax burden compared to corporations in certain cases. Additionally, loss allocations within the eGbR can be claimed for tax purposes.

2.5. Participation in Legal Transactions

The eGbR can enter into contracts in its own name and can sue or be sued in court. This significantly simplifies business transactions, as not every partner needs to appear individually. Registration in the partnership register clarifies the representation relationships and the powers of the acting individuals.

3. Formation of the eGbR

3.1. Planning and Preparation

The formation of an eGbR requires careful planning and preparation. The future partners should agree on their goals and objectives and record these in a partnership agreement. The following points should be considered:

• Partnership Purpose: Definition of the common purpose of the partnership.
• Partner Contributions: Determination of the contributions of each partner, whether in the form of capital, assets, or labor.
• Management and Representation: Regulation of management and representation powers.
• Profit and Loss Distribution: Determination of the distribution of profits and losses among the partners.
• Admission and Withdrawal of Partners: Specification of the modalities for the admission of new partners and the withdrawal of existing partners.
• Dissolution of the Partnership: Regulation of the conditions and procedures for dissolving the partnership.

3.2. Conclusion of the Partnership Agreement

The partnership agreement is the central document of the eGbR. Although no specific form is required for its conclusion, written documentation is recommended for reasons of legal certainty and verifiability. The agreement should be signed by all partners.

3.3. Registration in the Partnership Register

The registration of the eGbR in the partnership register is carried out at the competent local court. The following steps are necessary:

• Application: The application for registration is made by the partners or an authorized representative. The application must be in publicly certified form.
• Submission of Documents: Along with the application, the partnership agreement and, if applicable, other documents such as powers of attorney or evidence of the management's representation authority must be submitted.
• Registration Note: After examining the documents, the eGbR is entered into the partnership register. The partnership receives a registration number under which it will appear in legal transactions.

3.4. Necessary Permits and Licenses

Depending on the nature of the eGbR's activities, certain permits or licenses may be required. For example, craft businesses need registration in the Register of Craftsmen, and specific services may require business registration. It is advisable to check the relevant regulations early and submit the necessary applications.

4. Taxation of the eGbR

4.1. Income Taxation

The eGbR itself is not a separate tax entity but a partnership. This means that the income of the partnership is directly attributed to the partners and is subject to income tax. The profits are distributed among the partners according to the partnership agreement or, if it does not provide otherwise, equally and are taxed within the personal income tax returns of the partners.

4.2. Trade Tax

An eGbR can also be subject to trade tax if it carries out a commercial activity. The trade tax liability arises regardless of the legal form as soon as a commercial activity is conducted. The amount of trade tax is based on the business income of the partnership and the applicable assessment rate of the municipality where the eGbR is located. There are, however, allowances that can be considered when calculating the trade tax. The allowance for partnerships is currently 24,500 euros.

4.3. Value-Added Tax (VAT)

The eGbR is generally subject to VAT if it provides taxable supplies or services. The partnership must regularly submit VAT returns and remit the collected VAT to the tax office. Simultaneously, the eGbR can deduct the input VAT it has paid on its invoices from its VAT liability. It is important to strictly adhere to VAT obligations to avoid financial disadvantages or penalties from the tax office.

4.4. Accounting and Financial Reporting

The eGbR is required to keep accounts and prepare financial statements if the nature and scope of its business operations necessitate a commercially organized business operation or if revenue and profit thresholds are exceeded. These thresholds are specified in the German Commercial Code (HGB). Businesses that do not exceed these thresholds can use simple income-expenditure accounting (EÜR). Otherwise, double-entry bookkeeping is required, and annual financial statements, including a balance sheet and profit and loss statement (P&L), must be prepared.

4.5. Special Tax Provisions

There are various special tax provisions that can be relevant for eGbRs, including:

• Investment Allowance (IAB): Small and medium-sized enterprises can, under certain conditions, deduct up to 40% of the anticipated acquisition costs for specific fixed assets in advance.
• Special Depreciation: Certain investments can be subject to additional special depreciation beyond the regular depreciation.
• Retention Privilege: Profits that are not distributed but retained in the business can be taxed at a reduced rate under certain conditions.

5. Practical Tips and Recommendations

5.1. Consultation with Legal and Tax Experts

The formation and management of an eGbR require a thorough understanding of legal and tax regulations. Therefore, it is advisable to consult a legal expert in partnership law and a tax advisor early on. These professionals can provide valuable support in drafting the partnership agreement, registering in the partnership register, and optimizing tax matters.

5.2. Regular Review of the Partnership Agreement

The partnership agreement should be reviewed regularly and adapted if necessary to account for changing legal frameworks and business developments. Amendments to the partnership agreement require the consent of all partners and should be documented in writing.

5.3. Documentation and Transparency

Careful documentation of all business transactions and transparent communication among partners are crucial for the long-term success of the eGbR. Important decisions should be recorded and made accessible to all partners to avoid misunderstandings and conflicts.

5.4. Liability Issues and Risk Minimization

A significant aspect of the eGbR is the personal and joint liability of the partners. This means that each partner is liable with their entire private assets for the partnership's obligations. Therefore, it is advisable to include provisions in the partnership agreement to limit liability and minimize risks. For example, liability can be limited internally between the partners by agreeing on recourse claims. Additionally, taking out business liability insurance can be a sensible measure to cover financial risks.

5.5. Succession Arrangements

For the long-term continuation of the eGbR, it is important to establish clear rules for the event of a partner's departure or death. The partnership agreement should contain provisions on succession and the transfer of partnership shares. This is particularly important for family-run businesses to ensure the continuity of the enterprise.

5.6. Dissolution and Liquidation of the eGbR

The dissolution of an eGbR usually occurs by resolution of the partners when the partnership purpose has been achieved or becomes impossible, or when the partners mutually agree to dissolve. Following dissolution, the partnership is liquidated, during which the outstanding liabilities are settled, and any remaining assets are distributed among the partners. Clear regulations in the partnership agreement can ensure an orderly process in the event of dissolution.

Conclusion

The registered civil law partnership (eGbR) offers an attractive option for entrepreneurs to implement their business ideas in a flexible and cost-effective legal form. By registering in the partnership register, the eGbR gains increased legal certainty and visibility in business transactions, which is particularly beneficial for small and medium-sized enterprises. The formation of an eGbR requires careful planning and consideration of legal and tax aspects. With proper preparation and professional support, the eGbR can provide a solid foundation for entrepreneurial success.

This expert article is intended to serve as a comprehensive resource and guide you through the necessary steps and considerations for forming an eGbR. If you have further questions or require individual advice, our firm's experts are at your disposal.

We assist you in drafting the partnership agreement, registering in the partnership register, and addressing all other legal and tax matters related to the eGbR. Through thorough consultation and support, you can ensure that your partnership is established on a solid legal and economic foundation and operates successfully in the long term.