Flawed society

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The defective company is a figure of German company law that is used to process ineffective contracts for the establishment of a company . Their ineffectiveness can be caused, for example, by contestation or the involvement of incapacitated persons. Since articles of association are essentially contracts under the law of obligations , the law provides for these cases to be reversed according to the law of enrichment . After this, all asset shifts related to the company will be reversed.

This form of reversal does not do justice to the nature of a social contract. This goes beyond an exchange of services between the parties by creating an organization that acts independently on the market. As a result of the unwinding under enrichment law, this company carrier would be surprisingly removed from the market from the point of view of legal transactions. The shareholders would also have to determine all asset movements within their company and determine their value. They can hardly do this, especially with companies that have existed for several years.

The flawed society figure tries to avoid these difficulties. To this end, it regards the company as having been effectively created despite its ineffective founding agreement. Past business processes are therefore not affected by the fact that the articles of association are flawed. However, the shareholders are given the opportunity to dissolve the company for the future.

function

Articles of association are contracts under the law of obligations that may be ineffective , for example as a result of a formal error ( Section 125 BGB), a challenge by a party ( Section 142 (1) BGB) or a violation of the law ( Section 134 BGB). If one of these facts occurs, this leads, according to general civil law, to the reversal of the failed contract according to the law of enrichment. According to this, all shifts of assets related to the company are reversed by returning the shifted amounts to those from whom they originate.

This leads to two problems: On the one hand, society is declared to be non-existent from the start. On the other hand, the services that the partners involved have provided under their articles of association are returned to them. For this, their value must be determined. Both contradict the needs of legal transactions: On the one hand, it would be associated with considerable effort to determine all asset shifts within the company and to determine their financial value. Such a settlement would also not do justice to the character of a society as a risk community. On the other hand, the retrospective dissolution of the company has a significant impact on legal transactions, as it relies on the existence of the company and concludes contracts with it.

The doctrine of the flawed society addresses these problems by treating the society as effective despite the flawed founding contract. This avoids the complicated reversal of companies under the law of enrichment.

History of origin

The doctrine of the flawed company was developed by the Reichsgericht to offer an appropriate solution for the liquidation of a corporation that was founded by an ineffective partnership agreement . It led to the fiction of the existence of the company in spite of the faulty founding contract. If there was a defect in the founding contract of a partnership, the court initially assumed that shareholders could not assert this defect if it affected the company's relationship with third parties. It later transferred its case law on the defective corporation to the partnership.

The legislature took up the case law of the Reichsgericht for the stock corporation ( § 275 - § 277 of the Stock Corporation Act ) and the limited liability company ( § 75 - § 77 of the GmbH Act ) by creating special regulations that result in an ineffective founding contract regulate. For partnerships for which no comparable regulations were developed, the Federal Court of Justice took up the case law of the Reichsgericht and developed it further. He describes them as a secure part of company law.

In law, alternative concepts have been developed that are supposed to do justice to the difficulties of the unwinding of companies. According to the doctrine of the factual society, a society comes into being when it appears on the market. This view considers the exchange of declarations of intent to be dispensable for the creation of a contractual relationship, since legal relations attach little importance to this in certain situations. However, this view has not prevailed, since the declaration of intent is an elementary basis of legal relations and an outflow of the constitutionally protected private autonomy . In addition, it does not fit into the system of the BGB. Another view regards the construction of the faulty society as superfluous. She tries to achieve traffic protection through legal liability.

requirements

In order for the doctrine of the flawed company to apply, the company concerned must meet several requirements: It must have been drawn up and implemented on the basis of a flawed partnership agreement. Furthermore, the recognition of the company as legally effective must not conflict with any higher-ranking protective interests.

Faulty social contract

The doctrine of the flawed company comes into play when the founding contract of a company is encumbered with an error that leads to its nullity as a whole . On the one hand, this is the case if the error affects the entire contract. On the other hand, the ineffectiveness of individual contractual clauses according to § 139 BGB leads to the invalidity of the entire contract, unless it can be assumed that the parties would have entered into the contract without the invalid part.

A mistake that leads to invalidity can lie in disregarding a formal requirement. In accordance with Section 142 (1) BGB, invalidity can also be brought about by contesting the contract by one of the parties involved. Finally, the validity of the articles of association can be affected by the fact that a person participates in it who is not fully legally competent, for example because they are a minor. In contrast, the revocation of a partnership agreement does not result in initial nullity . A right of withdrawal arises, for example, when a consumer joins a public company as part of a doorstep selling.

In the absence of a contract, application of the doctrine of the faulty society is out of the question. If the shareholders have nevertheless given the imputable impression that a company exists, it can be a sham company in which the shareholders can be sued by creditors of the company due to legal liability.

Enforcement of the company

Furthermore, there must be a need to protect right-hand traffic. This is the case if the company has been enforced through legally relevant acts. An enforcement order is always given as soon as the company enters into legal relationships with third parties. According to the prevailing opinion, a company is also enforced by the fact that its shareholders act in a legally relevant manner in relation to one another, for example by creating company assets or by passing shareholder resolutions.

The doctrine of the faulty society is also applied to purely internal societies , i.e. connections that do not appear as such in legal dealings. This is the case with the silent partnership , in which the role of a partner is limited to providing his co-partners with a contribution . In these cases, the doctrine of the faulty society does not protect the interests of legal transactions, but it avoids the improper reversal of the business relationship.

No conflicting protection interest

Finally, the recognition of society as effective must not violate overriding protective interests. According to the prevailing opinion, a primary interest may lie in the unity of the legal system: The doctrine of the faulty society must not contradict other legal matters. Such a contradiction would exist, for example, if companies were considered effective that pursue a prohibited (Section 134 BGB) or immoral ( Section 138 BGB) corporate purpose. Therefore, the flawed society doctrine does not apply, for example, to a society established for the purpose of illicit drug trafficking or tax evasion .

Recourse to the doctrine of the faulty society is also excluded by the protection of minors . If a minor wants to participate in a company that is aimed at the operation of a commercial business, this must be represented by his legal representative in accordance with § 107 BGB . This is a consequence of the minor's legal obligations that arise when joining such a company, in particular personal liability as a partner. Legal representatives of a minor are in principle the minor's parents in accordance with Section 1626 (1) sentence 1 BGB, Section 1629 (1) sentence 1 BGB. According to § 1643 paragraph 1 BGB, § 1822 number 3 BGB, the family court must also approve the minor's entry into the company. If this is missing, the minor does not become a partner. If the company only consists of two people, this means that the company does not come into being, otherwise the shareholders continue the company without the minor's participation. The flawed society does not modify this result: Since the law gives the protection of minors a particularly high priority, this outweighs the interests of legal relations in the existence of society, so that the flawed society cannot lead to minors being disadvantaged. According to the prevailing view in jurisprudence, the minor does not become a partner. A contrary opinion assumes that the minor becomes a partner, but cannot suffer the disadvantages associated with being a partner. This view tries to preserve the advantageous elements of the position as a partner, such as profit sharing .

In earlier rulings, the Federal Court of Justice also excluded the applicability of the doctrine of the defective company if a partner was fraudulently deceived or unlawfully threatened by a co-partner and the co-partner thereby gains considerable advantages at the expense of the deceived or threatened. In later decisions, however, the court assessed traffic protection as generally having priority, as the contesting shareholder was adequately protected by his right to dissolve the company. This means that the doctrine of the faulty society is fully applicable in cases of fraudulent deception and unlawful threats.

Consumer protection does not represent a conflicting interest in protection in the case of a revocation of a participation in a company. Although this is the primary goal of the several European directives on which the German right of revocation is based, in the case of revocation of a participation in a public company, the revocation of one consumer has an adverse effect on others Shareholders who are also regularly consumers. Therefore, the doctrine of the flawed society applies in cases of revocation of joining the company. As a result, the consumer-shareholder can leave the company, but when repaying his contribution he has to take into account the losses that the company has suffered since joining. If necessary, he is also liable for shortfalls in accordance with § 739 BGB .

Legal consequences of a flawed society

If the requirements of the defective company are met, the affected company will be treated as effective. As a result, the error in the articles of association does not affect legal transactions, so that legal transactions that the company has concluded remain in place.

The flawedness of the articles of association, however, allows the shareholders to bring about the dissolution of the company for the future. In principle, this can be done through termination in accordance with Section 723 (1) BGB . In the case of commercial partnerships, the dissolution in accordance with Section 131 (1) No. 4, Section 133 of the German Commercial Code (HGB) requires a suit for dissolution. If the defect in the contract only affects individual shareholders, an action can be taken to exclude a partner in accordance with Section 140 HGB.

If a partner resigns or files for dissolution, the liquidation procedure occurs , during which the company is wound up and then dissolved. The liquidation process is largely based on the articles of association. The contractual clause which is the cause of the company's flawedness remains out of consideration. In their place comes dispositive statutory law. In the event of an action for exclusion , the share of the resigning shareholder increases to the co-shareholders. If the contract defect is only minor, the assertion of this defect can violate the loyalty obligation of the partner.

Other use cases

The doctrine of the faulty society also applies to faulty membership in a society. Such is the case if the entry is based on an ineffective contract. If the joining partner makes contributions to the company or takes other relevant actions within the company, his accession is effective despite the faulty contract. Therefore, he cannot demand his contributions through the right to enrichment. Instead, he receives his dispute credit.

The doctrine of the faulty society is also applied accordingly to the faulty exit from a society. This happens, for example, after a withdrawal agreement has been challenged. In such a case, the resignation of the partner is effective. The resigned partner can, however, request to be re-admitted to the company.

A similar problem of reversal as in company law exists in employment relationships based on an ineffective employment contract . If, for example, it turns out after several years of work that there is no employment relationship, the value of all work performed would have to be determined in the event of a reversal according to the enrichment law, which is hardly possible in practice. Jurisprudence reacts to this problem with the teaching of the faulty employment relationship. Their prerequisites and legal consequences correspond to those of the faulty society.

Individual evidence

  1. Torsten Schöne: § 705 , marginal no. 84. In: Heinz Bamberger, Herbert Roth, Wolfgang Hau, Roman Poseck (eds.): Beck'scher Online Comment BGB , 43rd Edition 2017.
  2. Knut Lange: From faulty and from sham societies . In: Jura 2017, p. 751 (752).
  3. Jan Lieder : § 105 , Rn. 105. In: Hartmut Oetker (Ed.): Commercial Code: Comment . 6th edition. CH Beck, Munich 2019, ISBN 978-3-406-73000-9 .
  4. a b Carsten Schäfer: § 705 , Rn. 323-324. In: Mathias Habersack, Hans-Jürgen Papier , Carsten Schäfer, Karsten Schmidt, Martin Schwab, Foroud Shirvani, Gerhard Wagner (eds.): Munich Commentary on the Civil Code . 7th edition. tape 6 : Law of Obligations, Special Part IV, Sections 705–853, Partnership Act, Product Liability Act . CH Beck, Munich 2017, ISBN 978-3-406-66545-5 .
  5. RGZ 165, 193 (204-205).
  6. BGHZ 3, 285 .
  7. BGHZ 17, 160 .
  8. BGHZ 55, 5 .
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  18. a b BGH, decision of May 5, 2008, II ZR 292/06 = New Journal for Company Law 2008, p. 460 (461–463).
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  20. Jan Lieder: § 105 , Rn. 106. In: Hartmut Oetker (Ed.): Commercial Code: Comment . 6th edition. CH Beck, Munich 2019, ISBN 978-3-406-73000-9 .
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  23. BGHZ 3, 285 (288).
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  25. BGHZ 13, 320 (321).
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  27. BGHZ 8, 157 (166).
  28. ^ BGH, judgment of July 19, 2004, II ZR 354/02 = Neue Zeitschrift für Firmenrecht 2004, p. 961.
  29. Johannes Wertbruch: § 105 , Rn. 269. In: Carsten Ebenroth, Karlheinz Boujong, Detlev Joost, Lutz Strohn-Müller (eds.): Commercial Code . 3. Edition. tape 1 : §§ 1–342e. Beck, Munich 2014, ISBN 978-3-8006-4497-1 .
  30. BGHZ 62, 234 (241).
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  36. Jens Koch: Corporate Law . 10th edition. CH Beck, Munich 2017, ISBN 978-3-406-70537-3 , § 5 Rn. 16.
  37. BGHZ 13, 320 (323).
  38. BGHZ 55, 5 (10).
  39. ^ BGH, judgment of November 19, 2013, II ZR 383/12 = Neue Zeitschrift für Firmenrecht 2013, p. 1422 (1423).
  40. ECJ, judgment of April 15, 2010, C-215/08 = Neue Juristische Wochenschrift 2010, p. 1511.
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  46. BGHZ 26, 330 .
  47. Jan Lieder: § 105 , Rn. 124. In: Hartmut Oetker (ed.): Commercial Code: Commentary . 6th edition. CH Beck, Munich 2019, ISBN 978-3-406-73000-9 .
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