Social Enterprise Law Surveys |
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Germany |
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| (Europe) Firm Noerr | |
| What jurisdiction(s) do you practice in? | Germany |
| What are the most commonly used types of for-profit corporate organizational forms in your jurisdiction (e.g., corporation, limited liability company, benefit corporation, social purpose corporation, etc.) used by Enterprises operating a trade ... | The most common for-profit organizational forms utilized in Germany are the corporation on shares (“Aktiengesellschaft” - AG) and the limited liability company (“Gesellschaft mit beschränkter Haftung” - GmbH). In many ways, they are similar, but AGs require a higher administrative effort due to a larger number of shareholders. GmbH´s are more flexible and can be steered more easily by the shareholders and the management. In addition, Germany provides a special status for enterprises whose equity holders seek to build a charitable mission for the public good. This must be documented in their organizational documents. The company’s management will have obligations to pursue that mission in parallel to their obligation to maximize enterprise value. Generally speaking, these entities operate as modifications of the traditional AG´s and GmbH´s, however, will be tax privileged if the Charitable Status is awarded (“Gemeinnützigkeit”). Germany has also a long tradition of partnerships, general partnerships (“offene Handelsgesellschaft” – OHG), in which all partners are fully liable to company debts, or limited partnerships (“Kommanditgesellschaft”- KG), in which only one general partner (“Komplementär”, often a GmbH) is fully liable, while the limited partners are liable according to their participation only. The Charitable Status cannot be awarded to such partnerships. Finally, Germany has the legal form of a cooperative (“Genossenschaft” - Gen) structure that is often used for worker-owned cooperatives (like worker-owned grocery stores, restaurants, farms, wineries etc., but also banks and housing companies), which can be awarded the Charitable Status. Exceptionally, a trust (“Stiftung”) is used as a legal form, mostly as a general partner of a KG, as it enjoys certain privileges with regard to employment laws (composition of the supervisory board). Stiftungen can be awarded the charitable status. As another exception, associations (“Verein”) are used, as they can be awarded the charitable status as well.
a. Enterprises that seek financing from investors and will have multiple owners tend to form AG´s. It is certainly possible to work with GmbHs that have many shareholders and investor backing, but it is less standard. b. Social Enterprises often use a GmbH or a Verein as a form, as both are more flexible in terms of permitted modifications to business purposes, such that the members can mutually agree to operate in a manner consistent with their own business’s values. |
| Do any of your jurisdiction’s traditional organizational forms require or permit the board or managers to consider, balance or prioritize interests other than shareholder value in decision making? What other interests, if any, are they required... | AGs: No requirement. Other considerations are permitted to extent they are laid out in the articles of association and supported by the shareholder assembly. GmbHs: No requirement. Boards may be permitted to consider other factors to the extent specified in the articles of association, but there is no requirement to this effect, provided that the shareholders agree. |
| Does your jurisdiction have organizational forms specifically designed for Social Enterprises? If so:a. What type(s) of organizational forms are they?b. How do they materially differ from the most closely analogous traditional organizational ... | No a. In this regard under German law the “charitable status” could be comparable. For entities the charitable status is awarded, because their “defined purpose is intended to foster the society in a material, mental or ethical area, in a selfless way” (Sect. 52 Abs. 1 German tax code). The general clause is clarified by 26 standard examples following the clause. This purpose must be rooted in the articles of association. b. Such charitable status does not require a specific legal form. However, partnerships (OHG,KG) are excluded and cannot be awarded the charity status. c. Main advantages are tax privileges for the founders and the funders. d. A company or association in charitable status is not supposed to gain any profits which are not used for the charitable purposes. e. Applying for the award of the charitable status takes some time, depending on the time required to prove the preconditions. f. Companies and associations under charitable status are very common in Germany. |
| Are Social Enterprises permitted to be formed and operated as Nonprofits? If so: a. Are Nonprofits that are Social Enterprises treated differently under the law as compared to Nonprofits that are not Social Enterprises, whether from a corporat... | No Social Enterprises in Germany available:
a. n/a. b. n/a. c. n/a d. n/a |
| Does your jurisdiction allow for worker-owned Enterprises, such as cooperatives? If so, please describe any material benefits of, and/or restrictions on, using such forms. | Yes, forming a Genossenschaft as a worker-owned Genossenschaft allows for workers to participate and control management. This form also provides favorable tax treatment of member distributions. Enterprises that form as a Genossenschaft may experience difficulties in raising capital and scaling and must abide by additional governance requirements. Further, outside investors are also not incentivized to make large investments since the level of financial investment does not determine control. |
| Are there unique reporting requirements for Social Enterprises? If there are, please describe them. Please also discuss what government bodies Social Enterprises are required to report to. | No. |
| In your jurisdiction, has case law and jurisprudence evolved to address Social Enterprises? If there is meaningful jurisprudence around Social Enterprises, please provide some brief examples. | No. |
| Does your jurisdiction have any ESG requirements for Enterprises generally? If it does, please describe. | No. |
| Does your jurisdiction have any ESG requirements specifically for Social Enterprises? If it does, please describe. | No. |
| Does your jurisdiction have any ESG requirements for investors? If it does, please describe. | No. |
| Are any major investor classes (e.g., pension funds, mutual funds, etc.) required to look at ESG issues when making investment decisions in your jurisdiction? a. If they are, please describe the requirements.b. If they are not, are they permi... | No major investor classes are required to look at ESG issues, e.g. Regulation for the Investment of Assets of Pensions Funds (“Anlageverordnung”). Investors may be permitted to consider such factors, many are already pushing for increased focus on factors additional to the profit motive. There are a number of private funds and large institutional investors that do consider ESG issues when making their investment decisions, and there has been a rise in impact funds that use ESG factors as part of an investment assessment process. |
| What kinds of philanthropic funding do Social Enterprises in your jurisdiction commonly receive (e.g., grants, charitable investment, traditional investment)? | There are no Social Enterprises in Germany. Entities with charity status receive grants, charitable investments, and traditional investments. The type of funding typically varies based on the intentions of the funder. |
| How prevalent, if at all, are new for-profit impact investments in your jurisdiction (e.g. traditional instruments with impact terms, new investment instruments, aggregation with philanthropic capital, community based funding, etc.)? | For-profit impact investments have been slowly increasing in Germany and strong protagonists are pushing the public opinion (Bertelsmann Foundation, Herbert Quant foundation) Banks are offering specific investment opportunities. |
| What are the types of government funding and support available to Social Enterprises, if any, available in your jurisdiction (e.g., grants, investments, bonds, and guarantees)? a. How difficult is it for Social Enterprises to obtain government... | There is no special government funding specifically available to enterprises with charity status. Depending on the enterprise form and industry, government grants, loans, bonds, and guarantees may be available. |
| Are there any companies that are formed as a Social Enterprise listed on your jurisdiction’s leading securities exchange(s)? | No. |
| To what extent are publicly traded Enterprises required to disclose ESG related factors in annual reports/public filings in your jurisdiction. | Since 2017, publicly traded enterprises, employing more than 500 employees and with a turnover of more than EUR 40 M, are required to provide information in the yearly reports about environmental, social, and employee matters and the fighting against corruption. |
| How prevalent, if at all, are impact bonds in your jurisdiction? | Impact bonds are rarely seen in Germany. The first models are in testing. |
| In your jurisdiction, are there any restrictions on foreign investments or donations that are unique to Social Enterprises (whether incorporated as for profit entities or as Nonprofits)? | No. |
| Is “crowdfunding” legal in your jurisdiction? Are there rules under applicable securities laws that make it easier for smaller businesses or Social Enterprises to take money from investors that are not sophisticated/accredited/qualified under a... | Crowdfunding is legal, allowing small businesses to solicit investment from the general public. However, it is not used as a tool by most successful enterprises due to cost, regulatory restrictions and ongoing reporting obligations. |
| Are there any tax exemptions that are uniquely available for Social Enterprises? a. Please describe any tax exemptions that are available and whether they are partial or full.b. Are they dependent on the Social Enterprise utilized using a spe... | Social Enterprises are not available in Germany. There are tax exemptions available for Enterprises with charity status generally. Charity status enterprises have two key tax exemption provisions:
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| Are individuals or other organizations able to provide tax deductible donations to for-profit Social Enterprises? If they are, please describe any restrictions applicable to tax deductible donations? | No. |
| Are there any other tax benefits uniquely available for Social Enterprises? (e.g. deferrals, favorable tax rates, business deductions, etc.) | Sideline occupations for enterprises with Charity Status are partially tax-privileged (currently up to EUR 3,000 gross). |
| Does your jurisdiction provide for reciprocal recognition of tax-exempt status that has been granted under the law of any other jurisdictions? | Jurisdictions of the European Union. |
| Does your jurisdiction have Regulatory Sandboxes or similar policy frameworks for Social Enterprises? If it does, please describe. | No. |
| What government operational support, resources, training or services, are available for small businesses or Social Enterprises? | There is a broad range of government grants and loan guarantees available for small businesses. |
| Are there different compliance requirements for different types of Social Enterprises than for traditional Enterprises? Please provide examples if there are. | No. There are no Social Enterprises in Germany. Enterprises with Charity Status have the same compliance requirements as traditional enterprises. |
| Is there a dedicated government agency or department that oversees Social Enterprises? If there is, please describe its mandate and effectiveness. | No. |
| Is there a different bankruptcy system available for Social Enterprises? | No. |
| What are the average time and filing fees to form an Enterprise in your jurisdiction? | Depending on the current processing times and whether the documents are filed online, in person, or by mail, it can take a couple of days to form a legal entity in Germany. The process to be awarded the Charity Status typically takes between 3-12 months as the tax authorities have to confirm the status application. |
| What government or third-party certifications or accreditations, if any, are available for Social Enterprises that allow for access to benefits e.g. funding, beneficial tax status, etc.? Please provide examples and briefly describe them as well... | None. Awarding the Charity Status requires a specific purpose for the public good, must be pursued selflessly, i.e. without profit gaining interests, the purpose has to be founded in the articles of association and factual management must be in line with this purpose declarations. |
| Please describe whether, in your opinion, startups and other entrepreneurial Enterprises generally can easily form and flourish in your jurisdiction. | Yes, startups can easily form and flourish in Germany. They have a number of Enterprise forms available to choose from. |
| Please describe whether, in your opinion, Social Enterprises, in particular, can easily form and flourish in your jurisdiction. | N/A |
| Please describe whether in your opinion there are any laws that are obstructive to the formation of Social Enterprises (i.e. that actively disfavor or penalize, or otherwise discourage their formation) in your jurisdiction (for example, are Soc... | N/A |
| In your jurisdiction, are there any major fraud concerns or defects due to corruption or fraud that should be addressed? If there are, please briefly discuss the concerns or defects. | No. |
| What changes to the law do you think would be most beneficial to enabling Social Enterprises to flourish in your jurisdiction? | 1. Adjusting the key areas for charity activities to more modern requirements. 2. Expanding the scope of permitted activities for charity (gradually or partially accepting tax privileges). 3. Making crowdfunding easier, cheaper and more accessible to accelerate individual smaller investments in social projects. |
| What changes to the law do you think would be most beneficial to enhancing the social and environmental responsibility of Enterprises generally (whether or not Social Enterprises)? | Implementing a uniform and easily understandable scale of standards for ESG policies. Communication of the public reporting of public companies, limiting the options to hide it the business report below a fast load of facts and other information. |
| Is there anything else you would like to add or guidance you would like to provide? Are there any questions we should have asked but did not? | Listen to active social entrepreneurs to understand which bureaucratic burdens are existing and maybe can be lifted. |
Social Enterprise Law Surveys
Germany
The most common for-profit organizational forms utilized in Germany are the corporation on shares (“Aktiengesellschaft” - AG) and the limited liability company (“Gesellschaft mit beschränkter Haftung” - GmbH). In many ways, they are similar, but AGs require a higher administrative effort due to a larger number of shareholders. GmbH´s are more flexible and can be steered more easily by the shareholders and the management.
In addition, Germany provides a special status for enterprises whose equity holders seek to build a charitable mission for the public good. This must be documented in their organizational documents. The company’s management will have obligations to pursue that mission in parallel to their obligation to maximize enterprise value. Generally speaking, these entities operate as modifications of the traditional AG´s and GmbH´s, however, will be tax privileged if the Charitable Status is awarded (“Gemeinnützigkeit”).
Germany has also a long tradition of partnerships, general partnerships (“offene Handelsgesellschaft” – OHG), in which all partners are fully liable to company debts, or limited partnerships (“Kommanditgesellschaft”- KG), in which only one general partner (“Komplementär”, often a GmbH) is fully liable, while the limited partners are liable according to their participation only. The Charitable Status cannot be awarded to such partnerships.
Finally, Germany has the legal form of a cooperative (“Genossenschaft” - Gen) structure that is often used for worker-owned cooperatives (like worker-owned grocery stores, restaurants, farms, wineries etc., but also banks and housing companies), which can be awarded the Charitable Status.
Exceptionally, a trust (“Stiftung”) is used as a legal form, mostly as a general partner of a KG, as it enjoys certain privileges with regard to employment laws (composition of the supervisory board). Stiftungen can be awarded the charitable status. As another exception, associations (“Verein”) are used, as they can be awarded the charitable status as well.
a. Enterprises that seek financing from investors and will have multiple owners tend to form AG´s. It is certainly possible to work with GmbHs that have many shareholders and investor backing, but it is less standard.
b. Social Enterprises often use a GmbH or a Verein as a form, as both are more flexible in terms of permitted modifications to business purposes, such that the members can mutually agree to operate in a manner consistent with their own business’s values.
AGs: No requirement. Other considerations are permitted to extent they are laid out in the articles of association and supported by the shareholder assembly.
GmbHs: No requirement. Boards may be permitted to consider other factors to the extent specified in the articles of association, but there is no requirement to this effect, provided that the shareholders agree.
No
a. In this regard under German law the “charitable status” could be comparable. For entities the charitable status is awarded, because their “defined purpose is intended to foster the society in a material, mental or ethical area, in a selfless way” (Sect. 52 Abs. 1 German tax code). The general clause is clarified by 26 standard examples following the clause. This purpose must be rooted in the articles of association.
b. Such charitable status does not require a specific legal form. However, partnerships (OHG,KG) are excluded and cannot be awarded the charity status.
c. Main advantages are tax privileges for the founders and the funders.
d. A company or association in charitable status is not supposed to gain any profits which are not used for the charitable purposes.
e. Applying for the award of the charitable status takes some time, depending on the time required to prove the preconditions.
f. Companies and associations under charitable status are very common in Germany.
No Social Enterprises in Germany available:
- n.b.: The charity status requires a non-profit oriented entity, i.e. the purpose must not be to earn profits, but the charitable efforts. If the interest to gain profits prevails, the charity status can be rescinded.
a. n/a.
b. n/a.
c. n/a
d. n/a
Yes, forming a Genossenschaft as a worker-owned Genossenschaft allows for workers to participate and control management. This form also provides favorable tax treatment of member distributions. Enterprises that form as a Genossenschaft may experience difficulties in raising capital and scaling and must abide by additional governance requirements. Further, outside investors are also not incentivized to make large investments since the level of financial investment does not determine control.
No.
No.
No.
No.
No.
No major investor classes are required to look at ESG issues, e.g. Regulation for the Investment of Assets of Pensions Funds (“Anlageverordnung”). Investors may be permitted to consider such factors, many are already pushing for increased focus on factors additional to the profit motive.
There are a number of private funds and large institutional investors that do consider ESG issues when making their investment decisions, and there has been a rise in impact funds that use ESG factors as part of an investment assessment process.
There are no Social Enterprises in Germany.
Entities with charity status receive grants, charitable investments, and traditional investments. The type of funding typically varies based on the intentions of the funder.
For-profit impact investments have been slowly increasing in Germany and strong protagonists are pushing the public opinion (Bertelsmann Foundation, Herbert Quant foundation) Banks are offering specific investment opportunities.
There is no special government funding specifically available to enterprises with charity status. Depending on the enterprise form and industry, government grants, loans, bonds, and guarantees may be available.
No.
Since 2017, publicly traded enterprises, employing more than 500 employees and with a turnover of more than EUR 40 M, are required to provide information in the yearly reports about environmental, social, and employee matters and the fighting against corruption.
Impact bonds are rarely seen in Germany. The first models are in testing.
No.
Crowdfunding is legal, allowing small businesses to solicit investment from the general public. However, it is not used as a tool by most successful enterprises due to cost, regulatory restrictions and ongoing reporting obligations.
Social Enterprises are not available in Germany. There are tax exemptions available for Enterprises with charity status generally.
Charity status enterprises have two key tax exemption provisions:
- they do not have to pay income and some local tax themselves,
- donors may take deductions on their reported income.
No.
Sideline occupations for enterprises with Charity Status are partially tax-privileged (currently up to EUR 3,000 gross).
Jurisdictions of the European Union.
No.
There is a broad range of government grants and loan guarantees available for small businesses.
No. There are no Social Enterprises in Germany.
Enterprises with Charity Status have the same compliance requirements as traditional enterprises.
No.
No.
Depending on the current processing times and whether the documents are filed online, in person, or by mail, it can take a couple of days to form a legal entity in Germany.
The process to be awarded the Charity Status typically takes between 3-12 months as the tax authorities have to confirm the status application.
None.
Awarding the Charity Status requires a specific purpose for the public good, must be pursued selflessly, i.e. without profit gaining interests, the purpose has to be founded in the articles of association and factual management must be in line with this purpose declarations.
Yes, startups can easily form and flourish in Germany. They have a number of Enterprise forms available to choose from.
N/A
N/A
No.
1. Adjusting the key areas for charity activities to more modern requirements.
2. Expanding the scope of permitted activities for charity (gradually or partially accepting tax privileges).
3. Making crowdfunding easier, cheaper and more accessible to accelerate individual smaller investments in social projects.
Implementing a uniform and easily understandable scale of standards for ESG policies. Communication of the public reporting of public companies, limiting the options to hide it the business report below a fast load of facts and other information.
Listen to active social entrepreneurs to understand which bureaucratic burdens are existing and maybe can be lifted.