Concept and significance of free formation of corporations
Die Free formation of corporations is a legal concept that is particularly significant in German constitutional, association, and corporate law. It describes the right of natural and legal persons to join together for specific purposes as independent corporations—that is, as legally constituted member associations—and to structure these associations with autonomous self-determination. Free formation of corporations is a central element of democratic systems and ensures the participation and representation of social groups beyond state organizations.
Constitutional framework
Fundamental rights anchoring
The right to free formation of corporations is closely linked to the fundamental right of freedom of association. In Germany, this fundamental right is enshrined in Article 9, Paragraph 1 of the Basic Law (GG):
“All Germans have the right to form associations and societies.”
This right protects not only the mere formation of associations, but also the founding of other private and non-state corporations, such as cooperatives, foundations, or professional organizations.
Restrictions and limitations
The Basic Law expressly sets out limitations. For example, Article 9, Paragraph 2 GG excludes associations whose purposes or activities violate criminal laws, or which are directed against the constitutional order or the concept of international understanding. There are also special provisions for professional organizations and associations in certain areas, such as labor or religious law.
Forms and types of corporate formation
Differentiation by degree of legal capacity
Corporations may be legal entities or not. The legal capacity means that an association itself can hold rights and obligations, i.e., it can sue or be sued.
Corporations with legal capacity within the meaning of free formation of corporations include, among others:
- Registered associations (§ 21 et seq. BGB)
- Cooperatives (§ 1 GenG)
- Stock corporations (AG) and limited liability companies (GmbH)
- Religious communities (Article 140 GG in conjunction with Art. 137 para. 3 WRV)
Corporations without legal capacity are, by contrast, associations without their own legal personality, for example unregistered associations.
Differentiation by sponsorship
Corporations can be of private or public law nature. Free formation of corporations predominantly refers to private law corporations. Public law corporations (e.g., municipalities, universities, chambers of industry and commerce) are established by law or governmental act of authority and are subject to different founding mechanisms.
Legal founding requirements
Founding act
The formation of a corporation generally takes place through a founding act (e.g., resolution of statutes). For registered associations, the drafting of statutes is required, which must meet certain minimum content requirements (§ 57 BGB). Registration with the association register is also a requirement for full legal capacity.
Number of members
Depending on the type of corporation, the required minimum number of members differs. For registered associations, at least seven founding members are required (§ 56 BGB), for cooperatives also at least three (§ 4 GenG).
Statutory autonomy
A core element of the free formation of corporations is so-called statutory autonomy. This allows founding members to determine the internal organization, objectives, and procedures of the corporation largely independently—without state mandates—provided higher-ranking law (e.g., constitution, criminal laws) does not conflict.
Supervision, control, and state intervention
Legality and supervision
Generally, independent corporations are not subject to comprehensive state supervision, but are only monitored in legally stipulated exceptional cases (e.g., for registered associations, cooperatives, or foundations). However, the state may intervene by dissolution or prohibition if the corporation violates applicable law or endangers certain protected interests (§§ 129 et seq. StGB, § 3 VereinsG).
Prohibition and dissolution
The Associations Act (VereinsG) includes special powers to intervene in cases where a corporation poses significant threats to public safety. State prohibition, however, is always a last resort (ultima ratio) and requires careful examination as well as a guarantee of legal recourse pursuant to Article 19, Paragraph 4 GG.
Relevance between state and society
Significance for a pluralistic society
The free formation of corporations serves as a foundation for a vibrant civil society. It makes it possible for diverse interests to be articulated and pursued by independent organizations. Especially in the political, social, economic, or cultural fields, their existence expresses democratic decision-making beyond governmental structures.
Distinction from state corporations
Free corporations must be distinguished from statutorily established, state-controlled organizations—such as corporations under public law. The latter perform public administration tasks or are granted special rights (e.g., chambers, universities), while free corporations are formed and organized independently from within society.
International references
European level
At the European level as well, free formation of corporations is recognized as part of fundamental rights. The European Convention on Human Rights (ECHR) protects the right to freedom of association in Article 11. The case law of both the Federal Constitutional Court and the European Court of Human Rights (ECtHR) emphasizes the fundamental importance of this freedom for the formation and activity of associations and corporations.
International law dimension
International treaties, such as the International Covenant on Civil and Political Rights (ICCPR), likewise safeguard freedom of association and thus the opportunity to freely establish corporations in various legal forms worldwide.
Conclusion
Die Free formation of corporations is a fundamental principle of the democratic rule of law and a pluralistic society. It enables individuals and groups to pursue, represent, and contribute to societal development through shared interests in a structured manner. The legal prerequisites and protection mechanisms safeguard this freedom against unwarranted state interventions, while still providing a framework for legitimacy, legal certainty, and public order.
Frequently asked questions
What legal requirements must be met to establish a free corporation?
To establish a free corporation in the legal sense, certain requirements must be met, which may differ depending on the legal form (e.g., association, foundation, cooperative). First, it is necessary to form a legally binding union of several persons with a common purpose, whereby this purpose does not have to be profit-oriented. Typically, the German Civil Code (BGB) requires at least seven founding members for establishing a registered association (§ 21 et seq. BGB). Articles of association must be drawn up, specifying in particular the purpose, name, seat, and organization of the corporation. The articles must meet statutory minimum requirements and be signed by the founding members. Furthermore, correct registration with the competent registry court is necessary, which also requires the appointment of the statutory representative (e.g., the board). In some cases, especially for non-profit corporations, tax regulations from the tax office must be observed in order to obtain or confirm tax benefits. Finally, the corporation must conduct its activities within the framework of applicable legal provisions (such as association law, foundation law, or cooperative law).
What rights and obligations do members of a free corporation have?
Members of a free corporation have comprehensive rights and obligations, which are primarily governed by the respective articles of association and applicable law. Key rights include participation in decision-making within the corporation, such as voting rights in the general meeting, as well as the right to information and access to certain documents of the corporation. The right to use the corporation’s services or offers may also be stipulated in the articles. Duties primarily include payment of fees, if so provided by the articles, as well as safeguarding the interests of the corporation and complying with its rules. Members are also obliged to participate in meetings or assume certain tasks, if so required internally. In case of disputes, an internal arbitration procedure is often stipulated before resorting to legal action.
How is judicial oversight exercised over free corporations?
Free corporations are generally subject to state legal supervision, the scope and nature of which depend on the respective statutory framework. For registered associations, the registry court monitors compliance with legal requirements and the proper articles of association, and for foundations, this supervision is exercised more intensively by the foundation supervisory authority. The review mainly concerns proper management, achievement of the set purpose, and compliance with statutory and legal requirements. Additionally, courts may conduct judicial reviews as part of legal disputes, such as contestations of resolutions or disputes regarding membership rights and obligations. In the case of serious violations of law, courts may even order the dissolution of the corporation.
Under what circumstances can a free corporation lose its legal capacity?
The loss of legal capacity of a free corporation generally occurs through dissolution and deletion from the relevant register (e.g., association register, foundation directory, or cooperative register). Dissolution may occur voluntarily by resolution of the general meeting in accordance with the articles, or involuntarily by court decision (for example, in the event of serious legal violations). Removal from the register usually requires liquidation, i.e., winding up all affairs and distributing assets in accordance with statutory requirements (§§ 47 et seq. BGB). For foundations—unlike associations—dissolution is only possible under stringent legal conditions, such as impossibility of fulfilling the purpose or a lasting loss of the economic basis. Upon deletion, the legal capacity of the corporation expires permanently.
What liability rules apply to officers of a free corporation?
Officers (e.g., board, management) of a free corporation are generally liable under general civil law provisions (§ 280 BGB) for any damages they cause to the corporation through culpable breach of duty. For honorary officers, however, the BGB (§ 31a) provides for limited liability, meaning they are only obliged to pay compensation in cases of intent or gross negligence. In external relationships, liability towards third parties (for example, in cases of tortious acts) may exist, whereby the corporation is generally responsible for the actions of its officers (§ 31 BGB). Tax or social insurance liabilities can also arise, for example, if contributions are not paid. The articles may provide for limitations or exclusions of liability, but these usually only apply internally to the corporation itself.
What tax law provisions apply to free corporations?
For tax purposes, free corporations are treated differently depending on their area of activity. Non-profit corporations within the meaning of the Fiscal Code (§§ 51 et seq. AO) benefit from significant tax advantages, such as exemption from corporate and trade tax, preferential VAT rates, and the ability to issue donation receipts. The prerequisite is that the corporation pursues exclusively and directly non-profit, charitable, or religious purposes and can properly demonstrate this. Non-charitable corporations are generally subject to full taxation of their income. There are also specific rules on the use of funds, formation of reserves, and binding of assets in the event of dissolution. The tax office regularly reviews compliance with these requirements through tax assessments or external audits.
How can the articles of a free corporation be amended in a legally secure manner?
An amendment to the articles generally requires a resolution by the responsible body, usually the general meeting, with a qualified majority as specified in the articles. Unless otherwise provided by the articles, the BGB in § 33 para. 1 requires a three-quarters majority of votes cast for changes to registered associations. The proposed amendments must be communicated to members in a timely and complete manner before the vote. After the resolution, the amended articles must be submitted to the registry court for entry, whereby often only certain changes—especially those affecting the purpose or representation authority—are subject to registration. The amendment only becomes legally effective vis-à-vis third parties upon entry in the register. Defective amendments may render them invalid or lead to formal objections by the registry court.
