The new law on defects in partnership resolutions

"The smart man builds ahead." - Adapt partnership agreements now

Disputes between partners are usually not only highly complex, but also extremely stressful for the parties involved and often threaten their existence. The passing of resolutions by shareholders is a particular venue for shareholder disputes. This applies all the more to partnerships.

Since the beginning of 2024, the German Act on the Modernization of Partnership Law (MoPeG) has applied to civil law partnerships (Gesellschaft bürgerlichen Rechts – GbR), partnerships (Partnerschaftsgesellschaft – PartG), general partnerships (Offene Handelsgesellschaft – OHG), limited partnerships (Kommanditgesellschaft – KG) and GmbH & Co. KG new regulations for passing resolutions and defects in resolutions. These new regulations are ultimately the result of an adaptation of the law of partnerships to the law on defective resolutions of corporations (Gesellschaft mit beschränkter Haftung – GmbH and Aktiengesellschaft – AG).

In the absence of statutory regulations on the passing of resolutions and defects in resolutions and despite a large number of court decisions, there was great uncertainty for partnerships with regard to the requirements for shareholder resolutions and the consequences of defective resolutions. The legal reform that came into force on January 1, 2024 is intended to remedy this unsatisfactory situation and to create clear legal regulations. However, although these new regulations have already been in force for a good six months, many partnerships have still not adjusted to this new situation and adapted their articles of association.

The new resolution deficiency law (avoidance model)

With the introduction of the MoPeG, OHG, KG and GmbH & Co. KG are now subject to the so-called avoidance model, unless the shareholders have individually made other arrangements (so-called opt-out). This means that erroneous shareholder resolutions are now generally valid but contestable (Sec 110 et seq. of the new version of the German Commercial Code, HGB). Only in special cases are defective resolutions void from the outset. Namely, only if their content violates fundamental, indispensable legal provisions (Sec 110 (2) sentence 1 no. 1 HGB). These include essential rights of the shareholders such as their right to information, participation or voting rights. If a resolution is void from the outset due to such serious errors, neither the company nor the shareholders can derive legal consequences from this; the nullity can be asserted by any shareholder even years later - which naturally results in considerable legal uncertainty.

As a rule, in the case of contestability, the defective resolution takes full effect if it is not contested within a certain period of time. This applies in particular to the violation of dispositive provisions, i.e. those that the shareholders can waive. These include, in particular, an inadequate announcement of items on the agenda or the lack of a meeting invitation. According to Sec 112 (1) sentence 1 (2) HGB, such defects must be asserted within three months of the announcement of the resolution by means of an action for rescission if no other deadlines have been agreed in the articles of association. Although the action for rescission must be directed against the company itself, the judgment is also effective for and against all shareholders. The law thus ensures that a court decision is sought quickly in the event of disagreement over contestable defects in resolutions. If no action is brought within the contestation period, the company and its shareholders receive legal certainty regarding the validity of the resolution.

The old right to challenge resolutions (declaratory model)

In contrast, the new avoidance model only applies to GbR and PartG if the company opts for it (opt-in model). Otherwise, the previously applicable so-called determination model remains in place.

According to the declaratory judgment model, a shareholder resolution that is defective in form and/or content is null and void, regardless of how serious the defect is. Any shareholder can invoke nullity, irrespective of a specific deadline. This naturally entails considerable legal uncertainty, as the nullity can be established long after the resolution has been passed. The action for a declaration of nullity, which is admissible in this respect, is not to be brought against the company itself, but against each shareholder who invokes the validity of the resolution, with the result that shareholders generally bring an action against their co-shareholders, because this is the only way to obtain a judgment with effect against all shareholders.

In practice, it can therefore be seen time and again that shareholders assert the defectiveness of a resolution passed some time ago solely in order to strengthen their position vis-à-vis other shareholders in a current situation. However, the company and shareholders have a strong interest in legal certainty, which the classic declaratory model simply does not offer, particularly in the case of important resolutions such as the appointment and dismissal of managing directors, financial statements and the appropriation of profits as well as the exclusion of shareholders. Shareholders are therefore free to deviate from this model and opt in to the new avoidance model.

For this reason, many companies had already in the past structured the right to challenge resolutions individually and in line with the model of the right to challenge resolutions of corporations. Since the beginning of the year, it has probably made more sense to refer to the corresponding regulations for OHGs, KGs and GmbH & Co. KG according to Sec 110 et seq. HGB in order to avoid such disputes.

Regulations on shareholder meetings and shareholder resolutions

However, the MoPeG has not only changed the law on defective resolutions for partnerships. Rather, the new Section 109 of the German Commercial Code (HGB) now also contains regulations on the passing of resolutions in commercial partnerships. These new regulations include, for example, that in the case of OHG, KG and GmbH & Co. KG, resolutions may only be passed in meetings (Sec 109 (1) HGB), meetings can be convened informally by partners authorized to manage the company, but within a reasonable period of time (Sec 109 (2) HGB) and resolutions must generally be passed unanimously (Sec 109 (3) HGB). If it is agreed in the articles of association that resolutions "only" require a certain majority, such as a simple majority or a three-quarters majority, then the meeting has a quorum in accordance with Sec 109 (4) HGB if this majority is present or represented (Sec 109 (4) HGB).

Conclusion and recommendation

The avoidance model, which now also applies to partnerships or at least can be agreed upon, brings a considerable increase in legal certainty. However, ambiguities could now arise due to the fact that the current articles of association already contain (separate contractual) provisions on defects in resolutions which, however, do not take into account the new legal situation. Therefore, all companies should review critically their existing contractual agreements and, in case of doubt, make new, individual provisions of their own that are, above all, adapted to the new legal situation in order to avoid disputes arising from the new legal situation. Therefore, even six months after the new regulation came into force, it is still advisable to review the contractual law on defective resolutions on the basis of the new statutory provisions of OHG, KG and GmbH & Co. KG according to Sec 110 et seq. HGB (avoidance model).

Even if the current legal situation regarding shareholders' meetings and the passing of resolutions in partnerships already represents significant progress compared to the previous legal situation, these should be further supplemented and specified in the articles of association. In particular, it is advisable to include provisions on the form and notice period for invitations to shareholders' meetings and whether shareholders' resolutions can only be passed in person or also by telephone or video conference. Further regulations on the conduct of shareholders' meetings, in particular on the chairing of meetings, the adoption and recording of resolutions, make sense.

This applies all the more to the GbR (and subsequently to the PartG), which is standardized in the German Civil Code (BGB) and not in the German Commercial Code (HGB), because resolutions here generally require the consent of all shareholders with voting rights (unanimity) in accordance with Sec 714 BGB. For historical reasons, the BGB does not contain any further and more precise provisions, in particular regarding the convening, procedure and formalities for passing resolutions. In this respect, each company is required to create its own internal law by means of contractual provisions that also allow for viable and clear decisions in the event of a dispute.

Dr. Thomas Hausbeck, LL.M. and the corporate team at SKW Schwarz will be happy to assist you with any questions you may have in connection with updating and redrafting your articles of association.