Major events lie ahead - Draft law on the modernisation of the law on partnerships presented with far-reaching innovations for partnerships under civil law, general partnerships and limited partnerships

While the world is still grappling with the Corona crisis, a commission of experts appointed by the German Federal Government has presented a first draft law to modernise the law on partnerships ("MoPeG"). The draft provides partially far-reaching innovations and should therefore be considered by both current and future partners of partnerships, in particular partnerships under civil law ("GbR"), general partnerships (offene Handelsgesellschaft) or limited partnerships (which are popular for investments).

The need for modernisation arose from the fact that the provisions on GbR - which serve as the basis for partnership law - still partly originate from the 19th century and no longer meet the requirements of modern economic life. Legislative measures taken in the meantime since the recognition of the legal and land register capacity of the GbR by the Federal Court of Justice in 2001 were only individual measures and did not effect a fundamental modernisation.

In order to provide early information on the changes proposed in the MoPeG, its most important key points will be briefly presented below.

The most important key points of the modernisation

The main innovations provided for in the draft law include (i) the introduction of a Company Register (Gesellschaftsregister), (ii) the introduction of a right to remedy deficiencies in the decision-making process for partnerships and (iii) the opening of partnerships to the exercise of liberal professions (Freie Berufe). This will lead to a large number of new regulations, especially in the Civil Code, the Commercial Code, the Transformation Act, the Stock Corporation Act, the Cooperatives Act and the Code of Civil Procedure and the Land Register, to name just a few of the laws affected.

1. The Company Register

In future, the GbR shall be able to register voluntarily in a Company Register. Similar to the commercial register (Handelsregister), this new register will then contain information on the name and registered office of the company, the number of partners, the power of representation and the assurance that the company is not already entered in the commercial or partnership register. However, once the entry has been made, the register entry must be kept up to date in order to ensure the associated publicity and transparency on a permanent basis. In this sense the register cannot be "left" again once the (voluntary) entry has been made.

In addition, certain legal transactions will in future be subject to prior entry in the Company Register. This is the case, for example, with the acquisition of property rights: In future, the GbR will only have to be entered in the land register under its name as the holder of the right to real estate and the number of shareholders will no longer have to be stated. This is intended to standardize the information in the individual property registers (including the land register, the patent and the trademark register) and at the same time reduce the burden on the property registers.

The new legal institution of the change of status will also be introduced. According to the expert commission, a change of status is a change from a partnership entered in one register to another register. This is the case, for example, if a GbR entered in the Company Register expands its business activities to such an extent that it requires a business operation set up in a commercial manner, whereby the GbR becomes a general partnership and must be entered in the commercial register.

2. Partnerships' right to remedy deficiencies in the decision-making process

According to current law, defects in resolutions of partnerships lead to their nullity. A general action for a declaratory judgment against all other partners for a declaration of nullity must be filed. This often leads to considerable problems in the companies concerned.

The MoPeG introduces the so-called contestation model (Anfechtungsmodell). In future, a distinction will be made between null and void resolutions and resolutions which can be contested for a limited period of time. Void resolutions are those that violate provisions whose observance cannot be waived. Contestable resolutions, on the other hand, should in principle be contestable in court within a period of three months, whereby the company's Articles of Association may provide for a longer period.

In this way, the MoPeG intends to provide a right to remedy deficiencies in the decision-making process which should do justice to the shareholders' interests in the event that the Articles of Association do not contain provisions for defective resolutions. This is intended to provide more legal certainty and be more procedurally efficient.

3. Opening of commercial partnerships to the liberal professions

Since 2007, auditors and tax consultants have been able to use commercial partnership forms. In future, all members of the liberal professions (including doctors and lawyers) will be able to join a commercial partnership, especially a GmbH & Co. KG. In principle, this will allow for a more extensive limitation of liability than the forms of company that have been available up to now.

However, this possibility is subject to the provision that the merger in a commercial partnership is permitted by the applicable professional law. The Federal Government and the Federal Provinces' Government can thus, within the scope of their legislative competences, make access to commercial partnerships subject to certain conditions. The requirements under professional law, in particular insurance obligations, are intended to ensure that the risks arising from the limitation of liability of a GmbH & Co. KG for legal transactions are compensated (e.g. for clients, patients, consumers who use the services offered). In addition, the professional autonomy of certain professions should be guaranteed by setting restrictive requirements for the capital participation of persons who are not professionals.

Entry into force still uncertain

A concrete date for the entry into force of the innovations has not yet been determined. This is because several comments from the bodies concerned are still awaited. It therefore remains to be seen when and in what form the amendments to the personnel company law are expected to come into force. Since the draft of the expert commission is the first draft of the MoPeG, the essential content may change further during the legislative procedure. We will therefore keep this newsletter up to date and keep you informed on this topic regularly.

Until then, an overview of the details of the draft can be viewed on the homepage of the Federal Ministry of Justice and Consumer Protection.

Schalast will be happy to assist you with any questions on this topic. Please feel free to contact our lawyers at our offices in Frankfurt am Main, Hamburg and Berlin at any time.