Partnership Agreement in Germany

Content, Form, Special Features and Amendment of Partnership Agreements and Articles of Association in Germany

The partnership agreement is the core of the legal structure of every limited liability company, joint stock company or partnership (GmbH & Co. KG, GbR, silent partnership, etc.). Its clauses in the partnership agreement decide on the distribution of power at the shareholder and manager levels, profits and risks in a company. In addition, this shareholders' agreement sets the course for non-competition clauses and sometimes even for tax burdens. The partnership agreement in Germany must sometimes be supported by a participation agreement, which is not available to the public.

Further information for corporations and partnerships in Germany:

• GmbH partnership agreement
• GmbH & Co. KG partnership agreement

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Legal services around the articles of association

Our lawyers specializing in german corporate law provide advice on all questions concerning the partnership agreement, both nationwide and internationally. With our experience from countless M&A transactions, corporate transformations and shareholder disputes, our team will support you in all legal and tax-related aspects of partnership agreements.

• Drafting of partnership agreements for corporations (AG, GmbH) and partnerships (GmbH & Co. KG, GbR, etc.)
• Examination of the effectiveness and drafting of provisions in partnership agreements
• Extrajudicial and judicial enforcement or defense of claims arising from partnership agreements in the event of shareholder disputes
• Amendment of partnership agreements, preparation of company successions and takeovers
• Tax optimization of partnership agreements

Significance of a partnership agreement in Germany

The common german companies ( limited liability company, AG, KG, GbR or the dormant partnership) look back on a long tradition of well over 100 years (in detail on the legal form of the appropriate company). Regardless of the individual legal form, the partnership agreement, also called the articles of association and sometimes the shareholders' agreement, can be described as follows: The partnership agreement in Germany is a legal transaction by which the partners of a company agree on their essential legal relations. The conclusion of the partnership agreement is a prerequisite for the company to come into existence at all. It should be noted that in individual cases the conclusion of a partnership agreement of a partnership in Germany can even be implied and without a written agreement.

With the partnership agreement, the partners define the framework for the business object pursued. With the mutual obligation in the partnership agreement, the jointly agreed purpose, the association of persons obtains a fixed structure; with the conclusion of the partnership agreement, the partnership is constituted in Germany. The memorandum and articles of association stipulate regulations required for the establishment of the company, description of the authority of the management (corporate governance), the obligation of the partners to make contributions (corporate financing), etc. In addition, it is important to regulate the relations securing the future of the company (e.g. non-competition clauses, transferability clauses, etc.). It is advisable to regulate all internal relationships relevant to business operations in the partnership agreement, since otherwise the dispositive german statutory law applies, which is not always in the interests of all shareholder constellations.

In fact, the partnership agreement in Germany is of great importance if a dispute arises between the partners. The individual procedural regulations for general meetings (AG) and shareholders' meetings (GmbH, KG, GbR), in which important shareholder resolutions are passed, are very important for the disputing shareholders, in particular in order to enforce effective coercive measures and instructions vis-à-vis management

Oral, written, notarized - the formal requirements for partnership agreements in Germany

The question of the formal requirement for a partnership agreement in Germany depends on the legal form of the partnership. In the case of partnerships (KG, OHG, GbR, etc.), the law does not stipulate any formal requirement for the partnership agreement. This means that a partnership agreement in Germany can also be concluded orally. Thus, a partnership can even come into being tacitly through conclusive behavior. Although there is no legal formal requirement for the conclusion of a partnership agreement, it is urgently recommended that the partnership agreement of a partnership be drawn up at least in writing in order to provide evidence of the legal relationships agreed among the partners at a later date.

Furthermore, it must be taken into account that commercial partnerships must be registered with the commercial register in Germany. This registration must be organized via a notary public in publicly certified form. However, this formal requirement relates exclusively to the application to the commercial register and not to the articles of association themselves.

The situation is different for corporations in Germany, such as the GmbH and AG. A partnership agreement of a GmbH or articles of association of an AG must be notarized (Art. 2 para. 1 GmbHG and Art. 23 para. 1 AktG). If the memorandum and articles of association are not notarized, the corporation cannot come into existence because its memorandum and articles of association cannot become effective in Germany (the consequence of nullity results from Art. 125 of the German Civil Code (BGB)). If a partnership agreement is to be concluded by representatives of the shareholders, even the power of attorney requires notarial form. As can be seen, the stricter formal requirements for the formation of a corporation are very important for the legislator.

Important clauses - rights and obligations in the partnership agreement

Depending on the corporate form of the corporate entity, the law and case law in Germany provide different specifications for many areas of a corporation. Most of the stipulations are dispositive. This means that deviations from the law and case law are possible in the interests of individual or all shareholders by means of a provision in the partnership agreement. The contractual leeway depends on whether it is a partnership agreement of a GmbH, AG, GmbH & Co. KG, GbR or a dormant partnership. The following are the most important areas of regulation in german partnership agreements:

• Services and contributions of the partners in favor of the company (money, loans, contribution in kind, labor, services, leasing, etc.). In particular, subsequent contribution obligations - conceivable especially in GmbHs, KGs and GbRs - can put shareholders in financial distress. Corresponding obligations to make contributions and subsequent obligations to make contributions must be agreed with due caution.
• Definition of areas of responsibility between shareholders, management and supervisory bodies (supervisory board or advisory board). In medium-sized companies in which majority shareholders provide one of the managing directors, disputes often arise between the shareholders and managing directors due to unclear delimitation of competences. Particularly in partnerships in which shareholders are personally liable (conceivable in GbRs and KGs), there is a strong interest on the part of the shareholders in controlling the management. A partnership agreement should provide for appropriate control mechanisms.
• Regulations on voting in general meetings and shareholders' meetings as well as procedural regulations in the event of disputes.
• Scope of information duties in favor of shareholders and supervisory/advisory board members. Each shareholder has information rights vis-à-vis the company. These vary greatly depending on the legal form of the company. In practice, shareholders often instrumentalize their information rights in shareholder disputes and in disputes with management. For this reason, a regulation of the content and procedure of information rights in the articles of association can be highly relevant.
• Mechanisms of conflict management in individual corporate bodies (e.g. shareholder disputes in a limited liability company or partnership) and between corporate bodies.
• Resignation options and termination provisions for partners. In practice, the voluntary withdrawal of shareholders from the company is often restricted. The background to this is that every withdrawal gives rise to a claim for compensation against the company. Thus, in family partnerships, especially where minors are involved, there are high barriers to withdrawal.
• Regulations on the exclusion of shareholders from the company.
• Severance clauses, in particular restrictions on the severance claims of shareholders and on the valuation of the company to determine the severance claim.
• Non-competition and confidentiality clauses at the shareholder and managing director level.
• Regulation on the preparation and approval of annual financial statements. The approval of annual financial statements is elementary for a shareholder's entitlement to profits. Clear regulations in the articles of association therefore limit expensive shareholder disputes.
• Profit participation and voting rights and corresponding restrictions. In principle, profit and voting rights can be distributed on a disproportionate basis in the articles of association. However, in the case of a disproportionate distribution of profits, tax regulations must always be observed.
• Special rights of shareholders and managing directors. Particularly in many medium-sized family-owned companies, the possibility is used to grant special rights to certain shareholders and managing directors. The safest legal route for such special rights is through the partnership agreement.
• Regulations on succession and their restrictions through succession clauses
• Provisions restricting the transfer of shares in a company (so-called transfer restriction clauses) can be found in almost every partnership agreement. Such transfer restriction clauses in the articles of association primarily serve to control the influence of third parties in the circle of shareholders. Far-reaching share transferability clauses also cover the new possibilities of circumvention through corporate conversions and constructions of circumvention under the law of obligations.
• Jurisdiction and specifications for dispute resolution (e.g., mediation proceedings) arbitration or arbitrators). In partnership agreements with a larger group of shareholders, dispute resolution mechanisms and arbitration clauses are often found if the public associated with ordinary jurisdiction is to be excluded in the event of a shareholder dispute.
• Both in corporations and in partnerships, there is a great need in german practice for tax clauses in partnership agreements in order to correctly allocate still unforeseeable tax effects. Only clear tax clauses can prevent individual responsible persons from creating financial burdens that are socialized within the circle of shareholders or at the company level.
• Transparency obligations vis-à-vis shareholders and the general public, e.g. through the commercial register in Germany

Special features for partnership agreements in Germany

Almost every single form of company in Germany has special features and requirements for the articles of association that restrict the shareholders' contractual freedom. For example, when regulating the financial constitution of a corporation, the statutory rules on raising and maintaining capital must be observed. The articles of association of a GmbH and AG, for example, may not provide for a cash contribution obligation for the shareholders if the company is partly financed by means of a contribution in kind (example: the paid-up share capital of 250,000.00 EUR is used immediately after the formation for the acquisition of a property of a shareholder; case of a hidden contribution in kind). In the articles of association of an german AG, the statutory requirements may only be deviated from if the AktG expressly permits this (Art. 23 para. 5 AktG).

In a german partnership, the partnership agreement may not completely exclude the termination of the partnership. Nor may there be a one-person partnership. The partnership agreement of a partnership may not allocate several partnership shares to one partner. And in a KG there may not be a personally liable partner who is also assigned a limited partnership interest at the same time.

It applies to all partnership agreements in Germany that in the event of a partner leaving, his compensation may not be reduced unduly. If there is a gross disproportion between the market value of the shareholding and the severance payment provided for in the partnership agreement to the detriment of the shareholder concerned, the severance payment clause in the partnership agreement is invalid.

Amendments to the partnership agreement in Germany

In the course of time, experience has shown that the conditions in almost every german company have to be readjusted. This very often requires the amendment of the partnership agreement. The amendment of a partnership agreement can be brought about at any time by a corresponding shareholders' resolution amending the articles of association.

In principle, the articles of association may stipulate the majority with which an amendment to the articles of association must be adopted. Often, the articles of association stipulate that the articles of association can be amended with a 3/4 majority. In companies with a small circle of partners, especially in partnerships, unanimity is sometimes required in Germany. Since unanimous decisions can prove very difficult in a large group of partners (blockade risk), the company is well advised to review the requirements for amendments to the partnership agreement as the group of partners grows.

As with the formation-related conclusion of the partnership agreement, the amendment of partnership agreements in a partnership does not require the written form. In principle, a partnership agreement of a partnership can even be amended orally in Germany. However, it is strongly recommended that the contract be amended in writing - not least because problems may arise with the tax authorities if the contract cannot be proven to have been amended.

At the level of german corporations (GmbH and AG), the formal requirements are again higher. The resolution to amend the articles of association in a GmbH or AG must be notarized. Only when the amendment to the articles of association is entered in the trade register does it become legally effective. The german law requires a resolution amending the articles of association of a corporation, i.e. a resolution passed with a 3/4 majority of the votes cast. Within certain limits, the articles of association may require a different majority for a resolution amending the articles of association.

If you have questions about the effectiveness of clauses in articles of association or if you want to change regulations and the power relations connected with them, we are at your disposal for an exchange. Please contact the lawyers in our offices in Hamburg, Berlin, Munich and Frankfurt. We will be happy to advise you nationwide in Germany.

Further information on the amendment of articles of association can be found here:

• Amendment of partnership agreement in Germany