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Modernisation of Partnership Law – amendments introduced by the MoPeG

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At the end of June 2021, the German Bundestag adopted the Act to Modernise the Law on Partnerships (Personengesellschaftsrechtsmodernisierungsgesetz, MoPeG). As a result of the MoPeG, which will come into force on 1 January 2024, numerous changes for partnerships (in particular GbR, OHG and KG) and thus also for Mittelstand-shaped companies in particular will be introduced.

 

With the MoPeG, the legislator has succeeded in implementing the biggest reform of partnership law in decades. Some of the codified regulations on German partnerships, which include the civil law partnership (Gesellschaft bürgerlichen Rechts, GbR), the general partnership (Offene Handelsgesellschaft, OHG) and the limited partnership (Kommanditgesellschaft, KG), have applied largely unchanged in the version that took effect at the beginning of the 20th century, when the Commercial Code first came into force, until today. The contractual practice and case law have in some places departed significantly from the original legal ideas or codified regulations. Today, a large number of regulations – above all with regard to the GbR – can hardly be abstracted directly from the legal act by a legal practitioner but are primarily shaped by case law.


With the MoPeG, the legislator is pursuing the goal of fundamentally modernising the Partnership Law and bringing the codified provisions into line with the applicable case law and further development by contractual  practice.


This article is intended to provide a brief outline of the numerous upcoming changes that will apply to existing and newly formed partnerships when the MoPeG comes into force on 1 January 2024.

 

GbR – partnership register

Unlike the KG and the OHG, the GbR is not "registerable" according to current legislation, i.e. it cannot be entered in the commercial register. In practice, this lack of ability to be entered in the register often leads to considerable difficulties, particularly with regard to legally secure identification of a GbR and its partners.


Therefore, a public register for GbRs (the so-called partnership register), which will be kept at the local courts (Amtsgerichte), will be set up in the future. The name and registered office of the GbR, its partners and the powers of representation will be entered there. In principle, registration is not mandatory.  However, if a GbR wishes to acquire GmbH or Aktiengesellschaft shares, real property or other rights entered in public registers (e.g. trademark or patent rights), entry of the GbR in the partnership register will in future be a mandatory requirement for the acquisition of rights. The obligation to register thus comes "through the back door", so to speak.


Upon registration, the GbR becomes a so-called eGbR (registered GbR) and must include the addition eGbR in its partnership name.


The GbR is deemed to have come into existence towards third parties no later than upon entry in the partnership register. For legal transactions – and especially for (real property) transactions – this brings about the decisive advantage that uncertainties about the actual existence of a GbR are largely eliminated. Furthermore, in legal transactions, the bona fide purchaser enjoys protection with regard to further entries in the partnership register (e.g. the powers of representation).


Finally, it should be noted that an entry in the partnership register triggers the obligation to report the beneficial owners to the transparency register.

 

Legal capacity of the GbR

In the future, the legal capacity of the "external" GbR, which the Federal Court of Justice (BGH) already generally recognised in its "Weißes Ross" decision of 2001, as well as the eligibility of the GbR to be entered in the land register will be expressly enshrined in law. This will eliminate the existing discrepancy between codified law and case law for the sake of general legal certainty.


An entry in the partnership register is still not a prerequisite for the legal capacity of the GbR; however, as a result of being entered in the register, the legal capacity of a GbR is irrefutably presumed. GbRs not entered in the register are deemed to have legal capacity if they actually participate in legal transactions (so-called "external" GbR). A GbR that does not participate in legal transactions and is not entered in the register (so-called "internal" GbR) still does not have legal capacity.


The personal liability of the partners for the liabilities of the GbR also remains unchanged. In particular, the MoPeG does not stipulate the introduction of a limited liability GbR.

 

Law on Defective Resolutions

In contrast to incorporated companies, there have been no statutory regulations for partnerships regarding the (judicial) handling of defective partners' resolutions to date. Partners' resolutions of a partnership that are adopted in breach of the provisions of the partnership agreement or applicable law are always deemed void pursuant to the current legal legislation. This applies regardless of the "intensity" of the respective breach. Filing lawsuits against partners' resolutions is possible for a virtually unlimited period of time, unless specific provisions were made in the partnership agreement. Partners can therefore assert the invalidity of partners' resolutions even years after the relevant resolution was passed, which in practice often leads to considerable legal uncertainty. Until now, only the legal institution of "forfeiture" constituted the time limit for filing lawsuits.


In future, therefore, there will be a separate law on defective resolutions for the KG and OHG. This is largely based on the law on defective resolutions for stock corporations, which distinguishes between mere contestability and invalidity of a shareholder resolution. In the future, if a partner resolution of a KG or OHG has a defect, this must be asserted by way of an action for rescission, whereby the assertion must be made within a deadline of three months. Otherwise, the resolution – despite its defect – will, as a rule, be deemed fully valid. However, this does not apply of course to cases where the resolution has such a serious defect that it shall be deemed void.


While the provisions of the law on defective resolutions apply to OHGs and KGs just by operation of law, i.e. they do not require incorporation in the partnership agreement documents, it is up to the partners of a GbR whether they wish to implement them in the partnership agreement or not.

 

Discrepancy between the partnership's registered office and its place of management

According to current legislation, the registered office of a partnership corresponds to its actual place of management. Any change in the partnership's management therefore automatically entails a change of registered office. Consequently, cross-border relocations of the registered office have so far always led to the dissolution and liquidation of the partnership relocated abroad.


Under the MoPeG, a free right of choice of the registered office will apply in future to all partnerships registered in Germany, irrespective of the place of entry. This means that a German partnership will – theoretically – be able to conduct all its business activities abroad and still operate as a German partnership.


Previously, this option was only available to incorporated companies. The new regulation facilitates, for example, the participation of German partnerships in cross-border shareholding structures.


However, the prerequisite for the "departure" of a partnership abroad, namely that the partnership is recognised as such in the "host state", which is generally the case at least with regard to states within the European Union, still applies. Otherwise, in case of doubt, the partnership must be dissolved upon transfer of the place of management abroad.

 

Voting rights and profit sharing

Shares in profit and loss as well as voting rights of the partners of OHGs, KGs and GbRs have so far been based on the headcount unless otherwise expressly stipulated in the partnership agreement. In practice, this regulation is waived by corresponding arrangements in the partnership agreement.


Upon entry into force of the MoPeG, the scope of the voting rights of the partners in GbR, KG and OHG and their respective shares in profits and losses will be based primarily on the shareholding ratios and, alternatively, on the ratio of the agreed values of the respective contributions of the partners.


Existing partnerships should therefore ensure in future that their shareholding ratios are fixed or that a binding value is determined with regard to the partners' contributions. Otherwise, there is a risk of legal uncertainty with regard to the determination of voting rights and shares in profit and loss.

 

Opening of commercial partnerships to freelancers

In future, members of the liberal professions (architects, doctors, attorneys at law, etc.) will also be given the opportunity to organise themselves in a commercial partnership, in particular a GmbH & Co. KG, in order to make liability relationships more flexible. This option is currently still not available to members of numerous liberal professions.


However, in order to guarantee independence of professional practice, the Federal Government and the federal states are given the possibility of restricting access to commercial partnerships, among others, by imposing requirements regarding the equity participation of partners who are not professionals.

 

Transformation ability of GbR

Under current law, the GbR is prevented from merging with another company/partnership or from being transformed into a company/partnership with a different legal form by way of a change of legal form under the German Transformation Act. In practice, partnerships use complex structures in some cases to arrive at appropriate results.


In future, therefore, the GbR will be included in the group of legal entities capable of transformation within the meaning of the UmwG. This will enable GbRs entered in the partnership register to become active and passive legal entities of mergers or demergers and to effect changes of legal form in accordance with the Transformation Act. Corporate structurings involving GbRs are thus facilitated and can be handled more flexibly.


Effective date and outlook

Unlike originally planned, the changes associated with the MoPeG will not come into force until 1 January 2024. This is intended in particular to give the federal states more time to define the technical and organisational requirements for the partnership register.


The law on partnerships, above all the law governing GbRs, will be fundamentally changed by the MoPeG, making it more up-to-date and easier to understand. In addition, the MoPeG will lead to greater legal certainty. Existing companies are now advised to review their partnership agreements at an early stage and adapt them to the new legislation in good time.

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