Civil law partnership (Gesellschaft bürgerlichen Rechts - GbR)

Civil law partnership (Gesellschaft bürgerlichen Rechts - GbR)

Typically the first legal form opted for when two or more partners start a company, a civil law partnership or Gesellschaft bürgerlichen Rechts (GbR) is one of the most simple forms of business partnerships. Its major advantage is that the requirements for founding a GbR are typically quite low.

Key features of a GbR

  • Establishment: Registration with trade office (not freelancers), article of association (recommended)
  • Capital: None required
  • Governance: Jointly by shareholders
  • Liability: Unlimited with private and business assets of all shareholders
  • Taxation: Shareholders liable for income or corporation tax plus solidarity surcharge; company is liable for trade tax (not freelancers), VAT and income tax

How to establish a GbR in Germany

As no share capital is required to establish a GbR, the only real requirement is that several entrepreneurs join together in a common purpose, and that each of the partners contributes something, whether that be knowledge, skills or capital. The partners are usually two or more people, but a GbR can include a corporation, in which case the company is liable to pay trade tax.

The partnership contract

It is not legally compulsory to sign a partnership contract when forming a civil law partnership, but it is strongly recommended to avoid disputes in future. The agreement should be recorded in writing and cover the following aspects:

  • Nature and purpose of company
  • Amount of deposits
  • Management and representation
  • Procedure for resolution
  • Distribution of profit and loss
  • Procedure in case of death or departure of a partner

GbR or OHG?

A GbR does not have to be entered into the commercial register, as long as its annual turnover does not exceed 250.000 euros and employ more than five members of staff. If these limits are exceeded, the GbR must be converted into a general commercial partnership (OHG), a type of company which needs to be registered in the commercial register.

Civil law partnerships & liability in Germany

All of the shareholders of a GbR have unlimited personal liability for the business’s debts. This is equally shared unless alternative arrangements were made by the initial article of association. If you are facing significant liability risks, you might consider setting up a limited liability company, such as a UG or a GmbH, as an alternative. For freelancers, a PartG partnership company is an alternative legal form that limits the shareholders’ liability.

Civil law partnerships & business taxes

GbRs are generally liable for most business taxes, including trade tax, income tax and VAT. Income tax is calculated from the profits of the shareholders and must be paid directly by them, rather than from the company’s accounts. If both shareholders qualify as freelancers, the GbR is exempt from paying trade tax and may also be exempt from VAT.

How to name a GbR in Germany

The civil law partnership company’s name needs to bear the first names and surnames of its shareholders. These can be supplemented with an additional name that describes the company’s purpose and must be followed by the identifier “GbR”.

GbR accounting

GbRs are allowed to determine their profits and losses according to a simple income surplus calculation. You can, however, voluntarily account your partnership’s profits according to commercial law.

Management of a GbR

In principle, the approval of all shareholders is a prerequisite for every business transaction and decision made by a GbR. However, it can be agreed from the outset that individual partners are allowed to represent the company alone.

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