Establishing a GbR: A Step Towards Self-Employment in Germany.

If you're considering stepping into self-employment, forming a GbR might be a viable option. The full name, Gesellschaft bürgerlichen Rechts (GbR), is a partnership entity that can be established simply by registering a business. The formation process is relatively straightforward and offers several advantages over a GmbH. However, there are also some disadvantages to consider. Certain conditions must be met for forming a GbR, and liability issues should be clarified in advance. Here’s what you need to know if you plan to establish a GbR…

Definition: What is a GbR?

There are various types of business entities, including partnerships, corporations, and registered cooperatives. A GbR falls under the category of partnerships, formed by two or more individuals coming together. The partners of a GbR also act as its managers, making it the simplest form of partnership, preceding the General Partnership (OHG) and the Limited Partnership (KG).
Unlike a GmbH, the founders of a GbR are personally liable for their own assets. The GbR is governed by §§ 705 – 740 of the German Civil Code (BGB), hence it is also referred to as a BGB-Gesellschaft.
In everyday life, a GbR can appear in various forms. Freelancers often band together, or professionals establish joint practices or law firms under a GbR. Since no written contract is required, verbal agreements like shared housing or carpooling arrangements also technically operate under the GbR legal form.
If you're aiming for self-employment, you should consider whether a GbR suits you or if another legal structure is more appropriate.

Pros and Cons of a GbR

Every business form has its own set of advantages and disadvantages. Therefore, it’s impossible to declare one better or worse than another universally. The decision should be based on weighing the pros and cons in the context of your situation.
To help you determine whether it makes sense to form a GbR, we have listed the key advantages and disadvantages of this type of partnership:

Advantages

A GbR is easy to establish and dissolve.
No notarial certification is required.
The bureaucratic effort is minimal.
Unlike corporations, there is no obligation for disclosure.
No minimum capital is required.
The formation costs are low, with minimal ongoing costs.
There are tax advantages for a GbR.
Every partner has a say in decision-making.
Banks often favor a GbR due to the unlimited liability.
It’s suitable for beginners as the risk and work are shared.

Disadvantages

Every partner bears the full risk.
Each partner has full liability, particularly joint and several liability.
Potential for conflicts with partners.
A GbR is not suitable for commercial activities.
The reputation of a GbR is not as high as that of a GmbH.

Establishing a GbR: What Requirements Must Be Met?

Have you compared different legal forms and concluded that a GbR is the right choice? Then there is little standing in your way, as the requirements are relatively minimal:

Number of Founders: You can't establish a GbR alone – you need at least two partners.
Initial Capital: A GbR can be founded without any initial capital, as none is required. However, it's advisable to have a business account to separate private and business transactions. Some banks may not allow business use of private accounts.
Naming: Typically, a GbR includes the first and last names of all partners in the business name. Additionally, the legal form "GbR" must be added. If the name becomes too long, last names may be used. Unlike a GmbH, fictional names require approval from authorities.
Registration: Registering a commercial GbR is done through the responsible trade office. All partners involved in the founding are listed. For tax registration, the tax identification questionnaire is sufficient, after which you will receive your tax number. For a non-commercial GbR, a notification to the tax office suffices. Additionally, businesses must register with the Chamber of Commerce (IHK) or Chamber of Crafts (HWK). Depending on whether you plan to hire employees, you will need to obtain an operational number from the Employment Agency.
No Commercial Business: If your company's purpose is commercial in nature, you cannot establish a GbR. A general partnership (OHG) is intended for commercial businesses. Since commercial business is not allowed in a GbR, registration in the commercial register is also unnecessary.

Tips: What to Consider When Establishing a GbR

The simple formation and few requirements are common reasons to choose a GbR. However, you should consider a few things when establishing a GbR:

Define the Business Purpose: Determining the business purpose not only helps to establish if a GbR is the suitable form but can also be useful in operations to remind yourself and the other partners of the goals and objectives of the joint venture.
Determine Management: In a GbR, partners are initially equal in terms of management. However, it can be decided whether one of the partners represents the GbR externally or who is responsible for specific tasks. The majority required to make a decision can also be regulated. However, for particularly important matters, the consent of all partners is always required in a GbR.
Create a Partnership Agreement: Although a GbR does not legally require a written partnership agreement, it is highly recommended to create one. This should include the aforementioned points and any possible liability limitations for individual partners.
Bookkeeping: Like its formation, bookkeeping for a GbR is relatively simple. An income-expenditure statement is sufficient. Paragraph 141 of the Fiscal Code (AO) states that only when a GbR reaches an annual turnover of 600,000 euros or more than 60,000 euros in profit does it become required to maintain a balance sheet.

Establishing a GbR: What About Liability?

A crucial question when forming a GbR is: What happens in the worst-case scenario? A GbR might accumulate debts over time and become unable to repay them. What does this mean for you as a partner? Quite a lot, as in a GbR, the partners are also liable for their assets. This means that for the liabilities of the GbR, the partners are equally responsible unless otherwise agreed in the partnership agreement.
Since all partners are jointly responsible for the same debt, this joint and several liability is also known as solidarity liability. This can lead to significant conflicts, as a creditor can demand the entire outstanding amount from a single partner. That partner must then seek to recover the respective shares from the other involved partners. Therefore, you should carefully consider with whom you want to form a GbR, especially regarding potential liability disputes.

Profit, Loss, and Taxes in a GbR:

Another important aspect to consider when establishing a GbR is the handling of profit, loss, and taxes. Although all partners are equally liable in case of a loss (once the company's assets are depleted), they have the freedom to determine the distribution of profits and losses.
Unlike a corporation, a GbR is not subject to income or corporate tax. Instead, the partners are individually liable for taxes. Each partner's tax liability is based on their share of the profits. As a partner, you must report your respective profits in your tax return and pay income tax, the solidarity surcharge, and, if applicable, church tax.
Regarding trade and value-added tax, the GbR itself is the entity subject to these taxes.

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Establishing a GbR: A Step Towards Self-Employment in Germany.