Concept and significance of accrual
Accrual is a term from German law, which plays a central role especially in company law. It describes the legal process by which the share of a partner who leaves a partnership or joint ownership association is immediately transferred to the remaining partners. The principle of accrual both enables the continuation of the partnership with the remaining partners and regulates the effects of a member’s departure on the partnership assets.
Legal foundations of accrual
Accrual in company law
In company law, accrual is particularly significant for joint ownership associations such as partnerships under the German Civil Code (GbR), general partnerships (OHG), or limited partnerships (KG). It concerns the rights in assets within the company in the event of a partner’s departure—whether through death, resignation, expulsion, or mutual settlement.
Principle of joint ownership
In the company forms mentioned, the company’s assets do not belong proportionately to the individual partners, but collectively to the association. If a member leaves, his share in the joint assets accrues to the remaining partners in proportion to their previous involvement.
Statutory provisions
The statutory provisions regarding accrual are found in particular in the following norms:
- Section 738 of the German Civil Code (BGB) for partnerships under civil law (GbR)
- Sections 131 et seq. of the German Commercial Code (HGB) for general partnerships and limited partnerships
They primarily regulate the effects of a partner’s departure on the company and the company assets, as well as how their compensation is determined.
Accrual in inheritance law
The concept of accrual also applies in inheritance law. Here, it denotes the process by which an inheritance share, which becomes available due to the disclaimer or loss of an heir, passes to the other heirs (Section 2094 BGB). As a result, the remaining heirs receive a larger share of the inheritance, without a succession in the strict sense taking place.
Accrual in property law
In property law, accrual refers to the acquisition of ownership through combination or commingling. This occurs, for example, in the case of inseparable combination of movable items (Sections 947, 948 BGB) or when acquiring ownership of fruits by the owner of the main item (Section 953 BGB). Here accrual means the automatic transfer of ownership or rights to the owner of the main item, without the need for a special transfer transaction.
Effects of accrual
Accrual in property rights
The central effect of accrual is the immediate transfer of rights: the share of the departing member accrues to the remaining partners or co-owners. This occurs without any special transfer act or further action and typically does not lead to the dissolution of the partnership but merely to a change in the ownership proportions.
Accrual and compensation
When accrual occurs, compensation must generally be paid to the departing partner. This means that the departing partner receives the value of their share in the company’s assets in cash, while the company assets as a whole remain with the company and are used by the continuing partners.
Accrual in the partnership agreement
The rules on accrual can be individually structured and modified in the partnership agreement. Such agreements frequently contain specific provisions regarding compensation, notice periods, or other modalities concerning the departure of partners and the related accrual of their shares. In case of doubt, the statutory provisions apply.
Tax aspects of accrual
The accrual of company shares can have tax implications, especially regarding income and real estate transfer tax. Depending on the structure and type of tax, accrual may result in the realization of hidden reserves and be subject to taxation. Accrual can also be relevant in the context of inheritance and gift taxes, for example, when the share of an heir accrues to another.
Limits and exceptions to accrual
There are situations in which accrual is excluded—for example, when the company’s assets also become settlement assets and must be liquidated, such as in the case of full winding-up or termination of a partnership. Accrual is also not possible if the partnership is structured in such a way that, upon a partner’s departure, the company assets do not pass on but are used otherwise.
Practical significance of accrual
Accrual enables the simple and legally secure continuation of joint ownership associations and partnerships after the departure of members. It prevents the fragmentation of company assets and preserves economic unity. In inheritance law, accrual supports efficient succession and clear asset relations.
Summary
Accrual is an important legal concept with high practical relevance, especially in company, inheritance, and property law. It governs the transfer of shares of a departing member to the remaining participants, ensuring clarity and continuity in legal transactions. The exact structuring of accrual should always be viewed in accordance with applicable law and, if necessary, individual contractual agreements.
Frequently asked questions
What happens to the liabilities of departing partners in the event of accrual?
In the context of accrual, especially in a two-person partnership under civil law (GbR) or a general partnership (OHG), the question regularly arises as to what happens to the existing liabilities of the partners when one of them leaves due to death, resignation, or exclusion, and the company assets pass to the remaining partner by virtue of accrual. According to Section 738 BGB, the remaining partner is generally liable for all partnership liabilities, since the partnership as such ceases to exist; for liabilities previously incurred personally by both partners, this means that the remaining partner continues to be fully liable to third parties. Creditors may therefore still seek satisfaction of their claims against the remaining partner. If the remaining partner does not agree with a partner leaving, a settlement resolution or, where applicable, a new arrangement in the partnership agreement is required. Special circumstances apply in cases of contractual limitation of liability or the entry of an heir: Here, succession clauses may apply to allow the continuation of the partnership and prevent accrual.
What are the tax consequences of accrual for the remaining legal entities?
Accrual has relevant consequences for both income tax and VAT purposes. In the case of dissolution of the partnership by accrual (Section 738 BGB, Section 131 HGB), tax law recognizes a so-called ‘real division’ if the whole or part of the company’s assets transfer to the remaining partners. In the event of a complete transfer to one partner, this process can be regarded as the acquisition of a sole proprietorship. In this regard, hidden reserves in the assets being transferred must generally be disclosed and taxed, unless special tax privileges such as book value continuation under Section 6(3) EStG apply. In addition to income tax implications, VAT consequences must also be examined—such as in connection with the possible transfer of economic units or business shares—and real estate transfer tax in cases involving property must also be examined and appropriately declared.
How does accrual affect existing company contracts?
With the accrual and the associated universal succession, the rights and obligations belonging to the company assets, in particular existing contractual relationships, generally pass to the remaining partner. However, it must be noted that this does not always constitute classic universal succession as it does for legal entities. Contracts specifically tailored to the partnership (e.g., lease agreements, employment contracts) may require the involvement (consent of the counterparty) or contain extraordinary termination rights. In the case of contracts concluded “intuitu personae,” i.e., aimed at a specific person, the counterparty may prohibit the continuation. Early contractual safeguards or the obtaining of required consents are thus recommended.
Can accrual be excluded by contractual provisions in the partnership agreement?
Yes, the parties to a partnership agreement can modify or entirely exclude the legal consequences of accrual. Partnership agreements often include so-called continuation clauses, which prevent the (co-)accrual of company assets to the remaining partner upon a partner’s departure. For example, it can be stipulated that in the event of death or resignation, the partnership continues with the remaining partners or a successor is admitted. Such provisions take precedence over statutory accrual in accordance with Section 738 BGB and Section 131 HGB. Without such a contractual provision, accrual occurs by law. Therefore, it is advisable to carefully review the partnership agreement in advance and, if necessary, adapt it to the needs of the partners.
Is notarization required in connection with accrual?
Whether notarization is required depends significantly on the asset being transferred. With the transfer of assets by accrual, real property is particularly relevant: If accrual involves the transfer of real estate, it requires notarization under Section 311b BGB; otherwise, the transaction is invalid. In the case of shares in a GmbH, notarization is also required (Section 15(3) GmbHG). For movable assets, receivables, or rights only, notarization is not required. Nevertheless, careful documentation of the transfer is still recommended to avoid later legal disputes.
To what extent are creditors protected by accrual?
Creditors of the former partnership benefit from continuity in liability by the remaining partner in the event of accrual. Legally, the German Civil Code (Sections 736 ff., 738 BGB) and the Commercial Code (Section 160 HGB) provide that the remaining partner is still liable for all prior liabilities. Creditors’ rights are generally preserved, but identifying a new debtor may be more difficult in individual cases. In particular, where several partners remain, they are jointly and severally liable. Creditors should be promptly informed of the new situation, especially regarding business loans, lease agreements, and service contracts. Additionally, security interests and guarantees can be adjusted or newly provided to comprehensively protect creditors’ interests.
Are there special considerations regarding accrual to the heir of a partner?
Upon the death of a partner and the entry of their heirs, the provisions of the partnership agreement apply initially. If it contains a continuation clause, the heir assumes the partner role, so no accrual occurs. If such a provision is absent, the company assets typically accrue to the remaining partner and the heir only has a compensation claim (Sections 738 ff. BGB). In this regard, inheritance law aspects such as the calculation of compulsory shares or estate liabilities and the need to determine the compensation claim’s value must also be observed. Tax consequences can also arise through accrual, such as inheritance or gift tax obligations.
