Dissolving a German GbR: Winding-Up, Assets and Liability

A. Introduction

A German Gesellschaft bürgerlichen Rechts, commonly referred to as a GbR, is often established to pursue a joint business or professional project. The cooperation may later fail, however: the partners may develop different business objectives, the commercial basis may change or the partners may simply no longer wish to continue working together.

In that situation, the partners must distinguish between the dissolution of the GbR and its final termination. Dissolution generally moves the partnership from an operating business into a winding-up phase. The partnership continues for the purpose of completing pending matters, settling liabilities and distributing the remaining assets.

This article presents the legal and practical position as of its first publication on 29 August 2018. It focuses on the dissolution agreement, the winding-up of assets and contracts, and the potential liability of former partners.

Historical legal notice: This English version reflects the legal and practical position at the time of first publication in 2018. Later reforms and legal developments have not been incorporated without separate review.

B. The legal position in 2018

1. Grounds for dissolution

Under the legal position in 2018, a GbR required at least two partners. Potential grounds for dissolution included, among other things:

• ordinary or extraordinary notice by a partner;
• death of a partner;
• insolvency proceedings over a partner’s assets;
• loss of the partnership purpose;
• insolvency of the GbR;
• expiry of an agreed period;
• occurrence of a dissolving condition;
• agreement or resolution of the partners;
• further grounds under the partnership agreement.

The occurrence of a dissolution ground did not, by itself, complete the partnership’s affairs. It triggered the process of winding-up.

2. Winding-up and distribution of assets

If the GbR still held partnership assets, the partners had to conduct an orderly winding-up. Under the historical framework described in the article, the partners were expected to:

• complete pending transactions;
• take measures required to preserve and administer the partnership assets;
• identify the partnership’s assets and liabilities;
• return assets that had only been made available for use;
• pay outstanding partnership debts;
• establish reserves for disputed or not-yet-due liabilities;
• prepare a final account;
• return contributions from the remaining assets;
• distribute any surplus or fund any deficit.

Assets could be converted into cash where necessary to repay contributions or settle liabilities. A remaining surplus was distributed according to the applicable participation ratios. If the winding-up produced a deficit, the partners had to contribute according to the relevant loss-sharing arrangements.

3. Final termination

The completion of winding-up must be distinguished from the initial dissolution. The GbR was considered terminated only after the partnership assets had been fully dealt with and the surplus had been distributed or the deficit had been funded.

This distinction is particularly important when drafting a dissolution agreement. The agreement should not merely state that the partners intend to stop operating together. It should also define the steps required to complete the winding-up and the point at which the partners consider their respective obligations fulfilled.

4. Liability after dissolution

Former partners could be personally liable for liabilities of the former GbR that became known after the winding-up. At the time, a five-year limitation period applied to claims by partnership creditors, subject to potentially shorter limitation periods and the relevant rules on when the period began.

Former partners should therefore consider notifying creditors, customers, suppliers, banks and other contractual counterparties in writing. The precise legal consequences must be assessed under the law applicable at the relevant time.

C. Drafting and negotiating a dissolution agreement

1. Why a tailored agreement matters

A GbR may own or control a broad range of assets and business relationships, including:

• offices, equipment, vehicles and machinery;
• inventory and receivables;
• customer relationships and goodwill;
• brands, designs, domains and social-media accounts;
• patents and other intellectual property;
• leases, insurance policies and energy contracts;
• supplier and customer contracts;
• loans, collateral and bank accounts.

The partners may not want to sell everything and distribute the proceeds. One partner may wish to take over machinery, another may continue serving certain customers and each partner may intend to continue the business independently or in a new structure.

A tailored dissolution and winding-up agreement can document these arrangements. A generic template will often fail to address transfer restrictions, third-party consents, valuation questions, data transfers, ongoing liabilities or the treatment of disputed claims.

2. Key provisions

A dissolution agreement should be reviewed for the following topics:

• effective date and partner resolution;
• winding-up authority and signing powers;
• bank accounts, tax matters and public authorities;
• inventory of assets, claims and liabilities;
• valuation and equalisation payments;
• allocation of intellectual property, domains and accounts;
• transfer or termination of customer, supplier, lease, insurance and finance agreements;
• required consents and register notifications;
• treatment of guarantees and collateral;
• customer allocation and non-solicitation provisions;
• releases, indemnities and internal contribution claims;
• document retention, confidentiality and data protection;
• procedure for undiscovered liabilities and later claims.

3. Contract review and due diligence

Before signing, the partners should review all material contracts and supporting documents. The review should identify termination rights, assignment restrictions, consent requirements, exit or change-of-control clauses, personal guarantees, open claims, tax matters and data-transfer requirements.

The dissolution of a GbR is therefore not merely an internal separation. It may affect customers, suppliers, lenders, employees, insurers, public authorities and other stakeholders.

4. Customer relationships and restrictive covenants

Where customer relationships are allocated between former partners, the agreement may include non-solicitation or non-compete provisions. Such restrictions should be limited in time and should generally not exceed two years. The enforceability of any particular clause depends on the facts, scope, duration and applicable law.

D. Practical checklist for partners

Corporate and governance matters

• review the partnership agreement;
• identify the dissolution ground and required voting threshold;
• document the dissolution resolution;
• specify the effective date;
• appoint the persons responsible for winding-up;
• clarify authority and signing powers.

Assets and liabilities

• prepare a complete asset inventory;
• identify ownership and mere-use arrangements;
• list receivables and debts;
• reserve for disputed and contingent liabilities;
• calculate contributions, surplus and deficit;
• document transfers and equalisation payments.

Contracts and stakeholders

• review all material contracts;
• identify termination and assignment provisions;
• obtain third-party consents;
• allocate customer and supplier relationships;
• review finance, insurance and guarantee arrangements;
• notify relevant counterparties;
• complete required registry and authority filings.

Legal support

Early legal advice can help the partners identify hidden transfer restrictions, unresolved liabilities and contractual consent requirements before a dissolution agreement is signed. Stroschein & Makowka advise companies, founders and partners on the structuring and documentation of partnership dissolutions, asset transfers, contractual transitions and liability allocation.