THE SOCIAL ENTERPRISE IN GERMANY
In contrast to many other European countries, there is still no state-adapted definition of social entrepreneurship in Germany.
The Social Entrepreneurship Network Germany (SEND) has developed a concrete first definition that gives an idea of a conceptual setup shared by many social enterprises in Germany.
Definition of Social Entrepreneurship
The primary goal of social entrepreneurship is to solve social challenges. This is achieved through continuous use of entrepreneurial means and results in new and innovative solutions. Steering and controlling mechanisms ensure that the social goals are lived out internally and externally. (Definition, SEND, 2019)
Social entrepreneurship, and thus the criteria by which it is possible to analyze social enterprises are divided into three dimensions.
Social dimension.
The goal of social entrepreneurship is to solve societal challenges in the social or even environmental field. To define „societal challenges“ more clearly on can take as a basis the 17 Sustainable Development Goals (SDGs) defined by the UN. The core activities of social enterprises should clearly and transparently aim to positively impact at least one SDG.
Entrepreneurial dimension
Social enterprises use entrepreneurial means with the aim of increasing their own impact. In doing so, they finance themselves in very different ways, including through the sale of pro- ducts/services, or through donations and partnerships. It is not the main source of income that is crucial, but a sustainable and consistent financing structure. Social enterprises are also characterized by innovative products or services that differ from existing solutions or approaches in the market and thus have the potential to be particularly effective.
Governance dimension
In order to maintain their social impact in the long term, organizations make use of steering and controlling mechanisms. Profits are primarily not distributed to any shareholders but are largely reinvested. This is intended to prevent mission drift (drifting away from the intended goal). This orientation toward the common good should be permanently anchored - via an appropriate legal form, in the statutes/contracts and/or via external accounting. Involving the target group, customers and employees in strategic decisions and a high degree of transparency are also very important in governance structures.
https://www.send-ev.de/
Unlike in many other countries, there is still no recognised legal form for social entrepreneurship in Germany.
When expanding to Germany, the right legal form is of utmost importance. However, even German social enterprises struggle to identify the most suitable legal form. Unlike many purely profit-oriented companies, social enterprises combine a focus on the common good with eco- nomically sustainable action. This is also reflected in the fact that 58.6% of social enterprises operate from a more commercially oriented legal form and 46.4% from a more socially oriented legal form. The limited liability legal form followed by the non-profit limited liability legal form and the non-profit association legal form is the most frequently chosen legal forms of social enterprises.
Because there is no certain requirements, social entrepreneurs in Germany have a wide range of LEGAL FORMS:
Gesellschaft mit beschränkter Haftung (GmbH)
company with limited liability under German law
1. Establishment of a limited liability company
The establishment of a limited liability company (LLC) creates a legal entity with its own
rights and obligations and its own name. These rights and obligations are detached from the shareholders. The limited liability company can sue and be sued itself, it can be the owner of movable property and real estate, it owns its own assets, which have nothing to do with the assets of the partners. It is also possible to establish a limited liability company by a single shareholder (one-man limited liability company). Foreigners may also establish or participate in a limited liability company without the need for special authorization (but see section 7 for foreign managing directors).
2 Liability of the shareholders
The GmbH is liable for its obligations with all its assets. In contrast, the liability of the shareholders - as the name suggests - is limited in the GmbH. If the GmbH suffers a loss of assets, the partners are not liable with their private assets over and above their contribution. Thus, once the shareholders have made their contribution - as stipulated in the articles of association - they do not have to pay any additional money of their own, even in the event of insolvency. If the contribution has not yet been paid in full, the partners only have to pay the outstanding difference in the event of insolvency.
3 shareholders‘ agreement
Unlike other forms of company, such as the general partnership (OHG) or the limited part- nership (KG), a GmbH can only be formed by written agreement. In addition, the partnership agreement must be notarized. The articles of association must at least stipulate: Name of the company (company name), object of the company (enumeration of areas of activity), regis- tered office of the company, amount of the share capital and the amount of the contribution to be made by each partner to the share capital (share capital contribution). If the company is to be limited for a certain period of time or if other obligations to the company are to be imposed on the shareholders in addition to the payment of capital contributions, these provisions must also be included in the articles of association.
4 minimum capital
The statutory minimum share capital of a GmbH is 25,000 euros. The nominal amount of the shares must be denominated in full euros. A shareholder may also take over several shares.
5 contributions
The share capital can consist of cash or non-cash contributions. In the case of cash formation, one-quarter of the contributions, but at least half of the statutory minimum share capital (= 12,500 euros) must be paid in at the time of registration in the commercial register. The shareholder is liable for the difference up to the amount of his contribution. In practice, cash formation takes the form of opening an account for the GmbH at a bank, which is at the free disposal of the company. Proof of payment, which must be provided to the registration court, can be provided by submitting an account statement. If contributions in kind are to be made - i.e., instead of money, movable or immovable property, licenses, companies and so on - there are two special features: First, the contribution in kind must always be made in full, and second, the value of the contribution in kind must be evidenced in a report on the formation of the company in kind. If used items are contributed as a contribution in kind, the local court will generally require an expert opinion to prove the value. The cash formation is therefore simpler. If only part of the share capital is to be provided as a contribution in kind, the principles for a cash formation and a formation in-kind coincide.
https://www.ihk-muenchen.de/de/Service/Recht-und-Steuern/Gesellschaftsrecht/GmbH- gruenden-IHK/
gemeinnützige Gesellschaft mit beschränkter Haftung (gGmbH)
non-profit company with limited liability under German law
What is a non-profit GmbH?
The gGmbH is a special form of the GmbH and can be chosen by founders as an independent legal form.
It is aimed specifically at companies with a charitable purpose. Income generated by the company may only be used for this purpose. What this means exactly, we explain to you further down in the article.
In general, it can be said that the non-profit GmbH combines the economic advantages and framework conditions of the GmbH with the tax advantages of the non-profit law. That is why it is extremely attractive for many founders in the field of social entrepreneurship.
The gGmbH is subject to the provisions of the GmbH Act and the Commercial Code. This means, among other things, that it must be entered in the Commercial Register Section B. In addition, like the classic GmbH, it consists of three bodies:
Shareholders/shareholders Management as external representation
Supervisory board as a controlling body (usually only from 500 employees).
The difference between the gGmbH and non-profit associations and foundations lies primarily in its economic activity. This means that the non-profit limited liability company is certainly geared towards making profits. However, these must be used again for charitable activities in accordance with their purpose.
https://www.gruenderkueche.de/fachartikel/ggmbh-gruenden-in-sieben-schritten-zur-ge- meinnuetzigen-gmbh-inkl-muster-satzung/
Verein
Association
An association can be founded in various legal forms. The most common form of association in Germany is the registered ideal association (e.V.). In addition, there is also the unincorporated association (also: non-registered association), the economic association and various alter- native forms of organization. It is advisable to inform yourself in advance about the respective advantages and disadvantages.
In order to found a legally capable or registered association (e.V.), at least seven legally capable founding members are required. A non-legal association can be founded with considerably less effort and only two persons. The entry in the register can be made at a later date and with the required number of members.
At the initial founding meeting, all founding members come together to adopt the articles of
association and elect the board of directors. A foundation protocol must be drawn up.
The articles of association must be signed by at least seven legally capable founding members and contain the regulations prescribed in §§ 57 & 58 BGB.
With the status of non-profit status, the association benefits from tax relief, but is also bound by conditions. The non-profit status must be applied for at the responsible tax office, preferably before the entry in the register of associations.
The elected board of directors must submit all the necessary documents (articles of association, minutes, registration letter) for entry in the register to the local court (registry court). This is usually done through a notary, who must certify the documents beforehand.
A registered association should open an association account and must allow the tax office to inspect the accounts.
https://deutsches-ehrenamt.de
Stiftung
Foundation
1 what is a foundation?
There is no exact definition of the term „foundation“ in the German Civil Code. A foundation is an institution that uses assets to pursue a purpose determined by the founder. In doing so, the assets are preserved in perpetuity; only the income is used for the purpose. Foundations
can be established in various legal forms and for any legal purpose. Recently, there are special forms of foundations that consume their assets in a fixed period of time (consumption foundation).
2 why establish a foundation?
There are many reasons for establishing a foundation. Initially, endowing simply describes dedicating an asset to a specific purpose in perpetuity. Either because a founder wants to secure his or her commitment to a specific purpose that he or she already recognizes as important in the long term, or because he or she is looking for a meaningful purpose to which he or she can dedicate his or her assets in the long term. The legal form of the foundation offers many ad- vantages under tax law and it can be used as an inheritance if there are none otherwise. Often it is idealistic motives, such as gratitude, attachment to a region, profession, hobby or personal concern, which motivate a person to consider setting up a foundation. Please feel free to talk to us about this.
3 How do you establish a foundation?
In principle, there are two possibilities: One can establish an independent foundation or a fiduciary foundation. For the establishment of an independent foundation the following steps are necessary:
Formulation of the foundation deed Formulation of the foundation charter
Submission of the application to the foundation authority Verification of non-profit status
Transfer of the foundation assets
Details are regulated by law in §§ 80 ff BGB and the corresponding state laws. In contrast, the formation/establishment of a fiduciary foundation is quicker and easier but is also associated with other requirements.
4 When should a foundation be established?
In principle, you can establish a foundation upon death or during your lifetime. There is no right time. Establishing a foundation during one‘s lifetime gives one the opportunity to familiarize oneself with the various instruments of a foundation and to participate in its design.
5 Can a foundation only be established for a certain period of time?
Yes, with the model of the consumption foundation this is possible.
6 What is the so-called foundation transaction?
The foundation transaction is the actual foundation act. It is a unilateral legally binding declaration that must be made in writing (personal signature of the founder or notarization). The foundation transaction must contain the binding declaration of the founder to dedicate assets for the fulfilment of a purpose specified by him/her. Through the foundation transaction, the foundation must receive a charter with regulations concerning:
- the name of the foundation the seat of the foundation
- the purpose of the foundation the assets of the foundation
- the formation of the foundation‘s board of directors.
In principle, the foundation transaction cannot be made subject to conditions that may affect the existence of the foundation. However, the foundation (as an independent legal entity with legal capacity) is finally established only upon its recognition by the foundation authority.
7 What is a foundation charter?
A statute is a written legal order. The foundation statutes formulate the founder‘s intentions and, in the case of a foundation with legal capacity, require approval by the state foundation authority (of the respective federal state). It must contain at least the contents mentioned under point 6.
8 What is regulated in the foundation statutes?
The tasks and objectives of every foundation are laid down in a binding manner in the foundation statutes. Every foundation must have articles of association. They must contain provisions on the name, registered office, purpose, assets and formation of the foundation‘s board of directors. Provisions on the formation of the board of directors relate in particular to the number of members, their appointment and dismissal. All other bodies and their area of responsibility must also be regulated therein.
9 Can the foundation statutes be amended?
After the foundation has been recognized, the foundation statutes can only be amended subject to special requirements. All changes must be approved by the foundation authority, for example, the Regierungspräsidium Baden-Württemberg.
10 What forms are there for the foundation transaction upon death?
The foundation transaction upon death can be represented as a last will and testament within the meaning of §§ 2247 ff BGB and § 2265 BGB or as a contract of inheritance pursuant to § 2274 BGB.
11 What forms are there for the foundation transaction during a lifetime?
The foundation transaction inter vivos can be made by the founder personally or by proxy. Several founders can establish a foundation jointly in a deed or by special declarations.
12 Do I need an official permit to establish a foundation?
Yes. In accordance with the state foundation laws in conjunction with §§ 80 - 84 BGB, a foundation requires state recognition by the foundation authority, for example, the Regierungsprä- sidium Baden-Württemberg. Only in this way does a foundation acquire legal capacity.
13 Do I need a minimum capital for a foundation?
In principle, there is no legal regulation for a minimum capital for the establishment of a foundation. For a foundation with legal capacity, a minimum financial endowment is recommended in order to be able to administer the foundation or to fulfil the foundation‘s purpose, since the foundation cannot live from the share capital, but only from the income. Even taking into account the low-interest phase, it is essential to obtain advice in advance as to whether an independent foundation with legal capacity is the only option for the founder or whether there are other options. With smaller amounts, a so-called dependent or fiduciary foundation can be established, in which the foundation assets are managed by another institution (for example, the University of Mannheim Foundation).
14 How is a foundation organized?
The body authorized to represent a foundation is the board of directors. An executive board may appoint a management board, which is then authorized to represent the foundation to the extent determined by the executive board. Generally, a board of trustees consisting of full-time or honorary members constitutes the controlling body of a foundation. Other bodies are also conceivable.
15 How does a foundation act?
In order to be able to participate in business and legal transactions, a foundation requires mandatory bodies to act on its behalf. These are regulated in the foundation organization. Theoretically, the entire foundation organization can consist of one person acting as the sole body to manage, administer and represent the foundation. Normally, however, there is at least one advisory and one controlling body. The board of directors represents the foundation in and out of court. The board of directors can also include more than one person. This shall be regu- lated in the articles of association.
16 Are members of foundation bodies subject to special duties when acting?
The members of the foundation‘s executive bodies are obliged to manage the foundation‘s assets conscientiously and economically.
17 What is a sub-foundation?
Sub-foundations are funds that are donated to the basic assets of an independent foundation and remain there. The foundation‘s purposes can be realized from the income.
18 What is an independent foundation?
An independent foundation or a foundation with legal capacity is primarily defined by a special purpose fund with legal personality. Its essential characteristics are purpose, assets and non-associative organization.
19 What is a dependent foundation?
In contrast to independent foundations, dependent foundations (also known as fiduciary foundations) do not have a legal personality. They are created by the founder transferring assets to an existing person, for example, a legal entity under private law, on the basis of a trust agreement, with the proviso that the assets or their income are used for a specific purpose.
20 When does a foundation have legal capacity? This is regulated in § 80 BGB. This states:
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for a foundation with the legal capacity to come into being, the foundation transaction and recognition by the competent authority of the country in which the foundation is to have its seat are required.
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the foundation shall be recognized as having legal capacity if the foundation transaction meets the requirements of § 81 (1), the permanent and sustainable fulfilment of the foundation purpose appears to be assured and the foundation purpose does not endanger the common good.
21 What is a trust foundation?
A trust foundation involves funds which a founder transfers to a trustee for the realization of one or more purposes. The trust foundation is based on a foundation charter and a trust agreement, which the founder concludes with a trustee of his choice. The trustee manages the assets and represents the trust foundation in all legal transactions. On the basis of the trust agreement, the assets of the foundation become the property of the trustee, who manages them separately from his own assets and in accordance with the articles of association. This model is associated with advantages and risks.
22 Who can be a trustee of a foundation?
In principle, any natural person with legal capacity or legal entity can be a trustee, such as a private individual, a registered association, a legally independent foundation or a limited liability company.
23 What is the difference between a trust foundation and an independent foundation?
In contrast to the independent foundation, the trust foundation is not a legal entity, but is legally represented by the trustee, who also assumes the administration. Therefore, the trust foundation is not subject to the legal supervision of the federal states and does not require their recognition. However, the trust foundation is treated as an independent foundation for tax purposes.
24 manifestations of a foundation - What is a Förderstiftung?
A development foundation promotes social projects. Organizations can apply for funds at a Förderstiftung by submitting applications. A grant-making foundation is distinguished from operationally active foundations.
25 manifestations of a foundation - What is an operational foundation?
Operationally active foundations use their foundation funds for their own tasks, unlike grant-making foundations.
26 what is foundation supervision and what is the function of foundation supervision?
On the one hand, the foundation supervisory authority is responsible for state control over foundations. From approval to the dissolution of the foundation, it must ensure uniform handling within the scope of the relevant foundation law.
27 What assets can flow into a foundation?
Assets of any kind can flow into a foundation, such as financial assets, real estate, bank as- sets, corporate investments, art assets and other tangible assets.
28 Can you secure your assets through a foundation?
A foundation is an excellent instrument for preserving assets because by transferring the assets to the foundation, the founder divests himself of his assets once and for all. The assets belong to the foundation and no longer to the founder or his family. It is true that the foundation‘s boards can be suitably staffed to ensure control by the desired persons. However, unhindered access to the foundation capital is no longer possible, because a foundation is designed for eternity and it is responsible for preserving the assets.
29 How is the foundation financed?
A foundation is financed by donations, endowments and their earnings. Only the donations and income may be used for the preservation of the foundation‘s purpose.
30. May a foundation make profits?
The principle of the appropriation of earnings states that the earnings must be used to fulfil the foundation‘s purpose. However, this does not mean that the entire income from the foundation‘s assets must be used to fulfill the foundation‘s purpose in the year in which it accrues. However, there are fixed rules for the use of funds.
31 What is the difference between endowing and donating?
The foundation is obliged to maintain the entrusted assets of the endowment undiminished. Only from the investment income does the foundation provide funds on an ongoing basis. In contrast to income from endowment funds, a donation must be used promptly.
32 What tax advantages do founders and donors receive when making donations to a foundation?
Donations to foundations that pursue tax-privileged purposes (e.g. scientific, charitable and non-profit purposes recognized as particularly worthy of support), in particular the initial endowment of a foundation with foundation assets and subsequent increases through endowment contributions, can be deducted from income tax, corporate income tax and trade tax.
33 Can a foundation inherit?
Not only an already existing foundation, but also a future foundation can be bequeathed by will, within the framework of the legal fiction of Section 84 of the German Civil Code („Städel Paragraph“).
Unincorporated foundations can also be economic heirs or legatees. Since they do not form a legal personality of their own, in their case the trustee becomes heir or legatee, who is/are then obligated under inheritance law by condition and/or on the basis of the trust agreement to use the donated asset „for“ the foundation.
https://www.stiftungen.org/en/home.html
Genossenschaft
Cooperative
Purpose and aim
To promote the economic, social and cultural objectives of the members by means of joint business operations.
Foundation
At least three natural and/or legal persons, who establish a written statute.
Legal capacity
The registered cooperative is a legal entity and thus a bearer of rights and obligations.
Capital
The cooperative may adopt a minimum capital, but the law does not prescribe a fixed capital. Each member subscribes to one or more shares, the amount of which is specified in the artic- les of association.
Company name
The company name of a cooperative can be a real or personal company or a fancy company. The addition „registered cooperative“ or „eG“ is part of the company name.
Company assets
The corporate assets are the cooperative‘s own assets as a legal entity.
Liability
Creditors are liable for the cooperative‘s assets; further liability of members can be excluded.
Organs
Board of directors, supervisory board (optional for smaller cooperatives), general or representative assembly.
Most important tasks of the organs
The management board manages the cooperative on its own responsibility. If there is a supervisory board (optional, in smaller cooperatives this task is assumed by the general meeting), it supervises the activities of the executive board.
The general assembly is the highest decision-making body of the cooperative. It elects the supervisory board. The articles of association must specify whether the general assembly or the supervisory board appoints the executive board.
Voting rights
In principle, each member has only one vote, irrespective of his capital participation.
https://www.genossenschaften.de/
Further Sources:
https://www.interreg-central.eu/Content.Node/CE-Responsible/Social-Entrepreneurship-in-
Germany.html
https://ginsep.co/germany-as-a-hotspot-for-social-entrepreneurship/