Differences in assets or liability

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How and to what extent is which entrepreneur liable?

Author: RA Dr. Babette Gabhard

What does owner liability mean and to what extent does it apply in practice? And how can you as an entrepreneur protect your private assets in the best possible way despite legal liability? Here you find the answers.

Personal liability means that the entrepreneur is liable for all his business decisions with all his private assets. Private assets include not only saved money, cars, securities, private and business equipment and other movable objects, but also real estate that is entered in his name in the land register, as well as claims against third parties, entitlements and other monetary legal positions. Creditors may enforce all of these assets if they have won a legally binding title, i.e. usually a legally binding judgment against the entrepreneur in court. Personal liability therefore represents a considerable threat to the entrepreneur and his relatives.

By law, liability with private assets applies to every private person and every businessman if they are not protected by statutory provisions within a company, have taken out mandatory insurance or, in individual cases, have reached an effective regulation with their customers or creditors to limit or exclude liability . Forms of company law that explicitly protect the private assets of the owner are the GmbH, the Entrepreneurship (limited liability) as well as the Joint-stock company).

If none of these forms of corporate law are established, the entrepreneur appears on the market as an individual entrepreneur or individual supplier. If at least two people have joined forces and offer their goods or services together, there is one Civil Law Society (GbR) in the sense of §§ 705 ff of the German Civil Code (BGB).
Typical civil law societies are associations of freelancers such as doctors, lawyers, translators, but also all kinds of consultants or other providers. If the purpose of the company is to operate a trade under a joint company, then there is one general partnership (oHG) within the meaning of §§ 105 ff. Commercial Code (HGB) which is to be entered in the commercial register. As far as no special regulations are contained in the commercial code, the law of the civil society applies to the oHG as a substitute.

Sole proprietorship liability

The sole proprietorship is liable with all of his private assets for all his private as well as for all his company-related legal transactions and actions. Landlords, tenants, customers, clients, suppliers, contractors, employees, freelancers and other business partners and third parties can hold him accountable for contracts concluded as well as for breaches of duty and cases of damage. The sole proprietorship can only rely on facts from the course of the matter and on legal statements on the legal situation to defend against claims. If he can prove that he is being used in an unjustified manner, he can fend off payments. However, he is not heard with the admission that he has no credit in his business account if he still has private assets. If the sole trader has taken on his business activities to the extent that he is over-indebted or (or additionally) insolvent, he will have to file for bankruptcy.

oHG shareholder liability

The general partnership (oHG), i.e. a company made up of at least two people who operate a trade, takes part in business life as a so-called separate legal entity, and company assets are also formed through the contributions of the shareholders. However, if the company's assets are not sufficient in the case of liabilities, the following applies: According to § 128 HGB, the shareholders of an oHG with their personal assets are unrestrictedly liable for the liabilities of the oHG. An agreement to the contrary is ineffective with regard to third parties. Liability even extends to the company's old liabilities that were already established before a new shareholder joined, which, according to Section 130 of the German Commercial Code, cannot be effectively ruled out towards third parties.

The liability is jointly and severally, i.e. the obligee can demand the full debt from each partner, but of course he is only allowed to collect the payment once. In the internal relationship between the partners, the so-called internal settlement can take place via Section 426 of the German Civil Code, i.e. the paying partner can request the non-paying partners to share in the debt. If a partner leaves the company, he is liable for a further five years after his departure for the liabilities established at the time of his shareholder status, insofar as these are or become due during the grace period and are determined by a court. Further requirements are regulated in § 160 HGB on this topic. The five-year extended liability period mentioned, which is of great importance in practice, does not begin to run until the day on which the departure of the shareholder is entered in the commercial register.

GbR partner liability

The liability of shareholders in a civil law company (GbR) is similar to that of oHG shareholders. Here, too, a company asset is initially formed with the contributions of the partners, but all partners are jointly and severally liable with their private assets for all liabilities. If the company is dissolved, i.e. liquidated, which is the case when the company's purpose has either been achieved or cannot be achieved, the shareholders have to compensate for the shortfalls on the basis of the closing balance sheet, i.e. to pay jointly and severally for the debts. Section 735 of the German Civil Code (BGB) expressly stipulates that wealthy shareholders must assume the liability share for insolvent shareholders, so that there is joint and several liability.

If a partner leaves the GbR, he is liable to the other partners for any deficit in debts according to § 739 BGB. He is additionally liable to the creditors directly for a further five years after his departure for the liabilities established at the time of his shareholder status. Since the departure - unlike the oHG - cannot be entered in a commercial register (since there is no register for GbRs), the five-year extended liability period, which applies analogously to § 160 HGB, only begins when the specific creditor is aware from the departure of the shareholder from the oHG. Every partner who leaves a GbR should therefore inform all larger creditors of the GbR at the same time by registered mail about his departure and keep the supporting documents for at least ten years.

To the checklist: Limitation of liability