In a nutshell: The German Act on the Modernisation of the Law on Partnerships (“MoPeG”) came into force on 1 January 2024. This affects the civil law partnership (GbR, also BGB-Gesellschaft) as well as the general partnership (OHG) and the limited partnership (KG). The MoPeG introduces numerous changes to the respective provisions of the Civil Code (BGB) and the Commercial Code (HGB). Some sections will undergo a complete revision.

In this newsletter, we provide an overview of key changes and important aspects, particularly for the practice of a GmbH & Co. KG.

Background

With the MoPeG, the German legislator is implementing a long-requested reform of the legal provisions on partnerships with an act that was already passed in summer 2021. The new and amended provisions introduced by the MoPeG apply equally to all partnerships since the beginning of the year and therefore also to partnerships already existing at that time. There is no special transition period.

However, even under the new law, the partners enjoy extensive flexibility and can largely waive or modify the statutory rules in their partnership agreement. The new law therefore only applies insofar as the partnership agreement do not contain any deviating rules.

The aim of the MoPeG is to adapt the statutory law to the requirements of modern legal and economic life. In legal practice, partnerships had through the contractual arrangements in their partnership agreements moved far away from the models that the (historical) legislator had in mind. The leading courts’ rulings in recent decades have also resulted in legal developments that are not yet reflected in the legal text. With the MoPeG, the legislator has now incorporated many of these further developments into the statutory regulations.

Unified partnership

Now, for the first time, the MoPeG introduces regulations on the responsibilities of the corporate bodies within a so-called “unified partnership” (Einheitsgesellschaft). The unified partnership is a special (but now quite widespread) form of a GmbH & Co. KG in which the KG is the sole shareholder of its general partner GmbH. The KG and GmbH are therefore shareholders of each other, resulting in a circular participation structure. This structure offers advantages when transferring shares in the KG, as in order to transfer the “complete” GmbH & Co KG, a transfer of the limited partnership shares is sufficient. A separate transfer of the shares in the general partner GmbH (in a notarised deed) is not necessary. However, the law did not previously provide for a unified partnership. The circular participation structure between the KG and the GmbH therefore meant that, according to the statutory provisions, the managing director of the general partner GmbH could exercise the rights of the shareholder of the GmbH as the representative of the KG and thus, for example, could decide on his own discharge or the amendment of the provisions of the GmbH’s articles of association to be observed by him. In order to avoid this control deficit, special provisions were usually included in the partnership agreement, according to which the limited partners of the KG were entitled to exercise shareholder rights in the general partner GmbH and thus supervise the managing director.

The legislator has now incorporated this solution of contractual practice into the HGB: In the case of a unified partnership, the limited partners now represent by law the KG in the shareholder’s meeting of the general partner GmbH. However, provisions in the partnership agreement remain necessary if the powers are to be transferred to another body (e.g. an advisory board). Depending on the individual case, further provisions in the partnership agreement may also be useful.

Defective shareholder resolutions

A significant difference between partnerships and corporations (GmbH and Aktiengesellschaft) under the previous legal situation was the treatment of defective shareholder resolutions.

In the case of partnerships, when formal errors occurred or the content of the resolution was in breach of statutory law, it meant that the shareholder resolution was null and void. Such a defect could potentially still be asserted years later. In the case of corporations, on the other hand, only certain serious violations lead to nullity, while other defects only make the resolution rescindable. An action must be filed within a certain period to assert the grounds for rescission of the resolution. If this is not done, the breach of law is irrelevant. This “rescission model” from the law of corporations offers more legal certainty for the corporation, as it provides certainty that the resolution can no longer be challenged once the deadline for filing an action has expired.

For the same reason, partnership agreements often stipulate that defective resolutions must be rescinded by action in court within a certain period. With the MoPeG, the legislator has now also introduced a distinction between void and rescindable resolutions for commercial partnerships (OHG and KG). According to the new regulations, the period for filing an action is three months, but this can be shortened to one month by means of a provision in the partnership agreement.

In practice, existing provisions in the partnership agreement remain effective here as well. However, the change in legislation provides an opportunity to review whether the existing provisions should be harmonised with the newly introduced legal model.

Foreign domicile

The MoPeG now gives partnerships the option of specifying a registered office in the partnership agreement that is located in a different place than the place from which the partnership’s business is actually conducted. While the “contractual domicile” must be in Germany and determines (e.g. the competent registry court), the “administrative domicile” can also be located abroad. This allows businesses that are organised in a German legal form, such as a KG, to “relocate” abroad while retaining a connection to the German legal system via the contractual domicile. The new regulation also facilitates the option of using a foreign legal entity to serve as the general partner of a German KG, where the general partner company can also have its actual administrative office abroad.

In practice, this can, in certain constellations, be an interesting structuring option, as, for example, the formation of a “Limited & Co. KG” instead of a “GmbH & Co. KG” becomes possible. However, many details are still unclear, including how the target legal system deals with the “move” of a German entity to its legal system. The tax implications should also be examined in detail.

Adaptation of existing partnership agreements

The MoPeG incorporates many provisions into statutory law that are already included as standard in the partnership agreement of most commercial partnerships. In addition, the provisions of the partnership agreement take precedence over the statutory provisions, as was previously the case – unless there is mandatory law to the contrary. For this reason, the partnership agreements of existing companies are generally compatible with the new law, so that in most cases it is not strictly necessary to make adjustments on the occasion of the new regulations entering into force.

However, the situation is different for partnerships that are closely modelled on the previous legal model and where it is not intended to adopt the newly introduced rules. It would then be necessary to exclude these in the partnership agreement.

However, if changes to the partnership agreement are being considered anyway, it makes sense to consider an update of the partnership agreement with regard to the legal reform.

Please get in touch with your contact person at EHLERMANN RINDFLEISCH GADOW or Dr. Hauke Rittscher or Nils Klages.