Definition and fundamentals of substitute organizations
Die Substitute organization is a central term in German law that describes various legal scenarios in which an institution, group of persons, or corporation wholly or partly assumes the role or tasks of an originally designated organization. The term is particularly used in different areas of law, such as association law, foundation law, social law, and tax law. A substitute organization usually becomes relevant when a previously statutory, contractual, or organizational structure ceases to exist, is unable to act, or can no longer fulfill its original tasks.
Areas of application and legal basis for substitute organizations
Association law and substitute organizations
Im Association law the substitute organization often appears when an association is dissolved or banned and its tasks or assets, according to the bylaws, are to be transferred to another organization. In such cases, the substitute organization assumes the purposes and obligations of the original association. The legal basis is found in §§ 55 to 68 of the German Civil Code (BGB), in particular § 45 BGB, which states that the assets of a dissolved association may be assigned to an organization specified in the association’s purpose.
Example: Substitute organization when dissolving an association
If, for example, a charitable association is dissolved and its bylaws provide for a substitute organization for the use of the association’s assets, this organization takes over the assets with the obligation to use them for the previous purpose. If no such provision exists, the assets are transferred to the state, which then acts as the statutory substitute organization.
Foundation law and substitute organizations
In foundation law, the concept of the substitute organization frequently arises in connection with the dissolution or amendment of foundations (§ 87 BGB). If a foundation is dissolved or its purpose becomes unachievable, the foundation assets may be transferred to a substitute organization that pursues the previous or a closely similar purpose.
Function in terms of purpose pursuit
This transfer to a substitute organization ensures that the foundation’s capital continues to serve a social, cultural, or charitable purpose, as originally intended by the founder.
Substitute organization in social law
The term substitute organization is of particular importance in social law und social insurance law. For example, in statutory health insurance, substitute funds (§ 4 SGB V) are defined by law as substitute organizations and take the place of or compete with primary funds.
Protective and representative function
Substitute organizations in social law mainly assume protective, representative, and benefit-oriented functions for policyholders or certain social groups, especially if the originally responsible agencies no longer exist or are incapable of acting.
Tax law aspects of substitute organizations
The function of substitute organizations is also relevant in tax law. For example, in the case of nonprofit corporations, it is required that, in the event of dissolution or change of purpose, the assets are to be transferred to a tax-privileged substitute organization (see § 61 para. 1 AO, Fiscal Code of Germany). This provision is intended to ensure that privileged assets are not used for improper purposes.
University law and the academic sector
In the context of public law foundations and universities, substitute organizations may, according to federal or state laws, assume tasks and assets when, for example, university institutes are dissolved, merged, or otherwise reorganized.
Legal requirements and preconditions
Preconditions for the establishment of a substitute organization
The establishment of a substitute organization is subject to specific legal requirements. Usually, a corresponding provision in the bylaws, foundation charter, or direct application of the law (for example, by government order) is required.
Bylaws provision and government order
In many cases, the bylaws must already specify which organization shall act as a substitute; otherwise, the responsible registry court or supervisory authority may designate a substitute organization.
Legal status and obligations of substitute organizations
Obligation to purpose binding
The assumption of tasks or assets is usually linked to a binding to the previous purpose. The substitute organization may use the resources or tasks assumed only within the limits of this purpose binding. Violations of this binding are inadmissible and may lead to claims for restitution.
Supervision and oversight
The activities of the substitute organization are subject to supervision by the competent authorities (for example, foundation supervisory authority, tax office, registry courts).
Practical significance and function
Ensuring continuity and the common good
Substitute organizations regularly serve to ensure continuity in fulfilling tasks, particularly in areas with social, cultural, or charitable concerns. They prevent charitable assets from being used for unrelated purposes or diverted for state use.
Protection of third parties
Third parties, for example members of an association, beneficiaries of a foundation, or insured individuals in social security, are to be protected from the loss of their claims or benefits by the establishment of substitute organizations.
Distinction from related terms
Difference from successor organizations
While successor organizations often merely continue the activities of a former institution in practice, a substitute organization is always a legally effective and usually statutorily or legally legitimized entity established or provided explicitly in the event of the disappearance of the original organization.
Relationship to liquidation and rescue companies
Substitute organizations differ from liquidation or rescue companies due to their specific binding to the continued pursuit of the previous purpose and the legal requirements related to the use of assets.
Summary
The substitute organization is a clearly defined legal term with broad significance in various fields of law. It serves the function of ensuring continuity of purpose and the binding of associated assets in cases where the originally responsible organization ceases to exist, is dissolved, or changes its purpose. The legal framework specifically regulates the requirements, functions, and duties of substitute organizations in order to protect the common good and the rights of third parties. The selection and establishment of substitute organizations is closely tied to statutory and bylaw provisions and is subject to appropriate oversight mechanisms.
Bibliography
- German Civil Code (BGB)
- Fiscal Code (AO)
- Social Code (SGB)
- State foundation law
- REICHERT, M.: Die Ersatzorganisation im deutschen Recht, NVwZ 2014, 1245-1252
- MüKoBGB/Leuschner, § 87 BGB, paras. 18-32
See also
- Foundation
- Association
- Purpose binding
- Nonprofit status
- Corporation under public law
Category: Organization (Law), Nonprofit status, Association law, Foundation law, Social law, Tax law
Frequently asked questions
What legal requirements must be met for the recognition of a substitute organization?
Strict legal requirements apply to the recognition of a substitute organization, which may arise from specific laws depending on the area of application, for example, from tax law, association law, or political party law. Crucial is that the substitute organization, both in its objectives and in its actual management, assumes the essential tasks of the original, regular organization. For instance, it must have its registered office in Germany, possess its own legal personality, and its bylaws must clearly and bindingly set out its objectives as well as certain minimum requirements for internal will formation and management. Furthermore, it is regularly verified whether the substitute organization meets the requirements for nonprofit status (according to § 52 AO, where applicable), does not pursue unconstitutional aims, and demonstrates democratic structural principles. In addition, state authorities monitor actual management to ensure that it meets not only nominal but also day-to-day legal requirements. If these criteria are not met, recognition as a substitute organization may be refused or withdrawn.
What legal consequences result from being classified as a substitute organization?
Classification as a substitute organization entails far-reaching legal consequences. On the one hand, recognition can form the basis for tax privileges or eligibility for state funding, provided legal requirements (e.g., nonprofit status and pursuit of designated purposes) are met. On the other hand, substitute organizations are subject to intensified state scrutiny to prevent so-called substitute organizations of extremist or unconstitutional associations from gaining a platform. Liability aspects are also affected, especially if existing obligations are transferred from the original organization to the substitute organization. Furthermore, classification may lead to restrictions or bans being extended to the substitute organization that have already been imposed on the original organization (so-called piercing of the corporate veil). Courts and authorities therefore carefully examine whether an organization merely serves to circumvent statutory provisions.
Can a substitute organization be held legally liable for previous violations of the parent organization?
As a rule, a substitute organization is an independent legal entity. However, in certain cases, circumstances allowing for piercing the corporate veil may apply, especially when it is apparent that the substitute organization was deliberately established to avoid the legal consequences of banned, dissolved, or challenged original organizations. According to established case law (e.g., regarding § 8 VereinsG and the Political Parties Act), a substitute organization can be held liable for legal violations of the parent organization where there are personnel, organizational, and/or material continuities. In such cases, court bans, asset confiscations, or other sanctions can be enforced. This presupposes that, for example, the same members, identical purposes, and identical structures were largely adopted, and there is a recognizable intent to circumvent the law.
Which authorities are responsible for supervising and monitoring substitute organizations?
Different authorities are responsible for supervising and monitoring substitute organizations, depending on their field of activity and the relevant legal area. In association law, this is often the competent association authority or the registry court; in the case of substitute organizations for political parties, it is the federal or state electoral commission as well as the Federal Constitutional Court when bans against parties or similar organizations are imposed. Tax authorities monitor compliance with tax law requirements, especially for nonprofit substitute organizations. In addition, police authorities, domestic intelligence agencies, and public prosecutors may become involved, particularly if there are doubts about the organization’s constitutional loyalty, nonprofit status, or legality. The authorities have extensive powers of inquiry, supervision, and, if necessary, intervention.
To what extent are substitute organizations subject to transparency and disclosure requirements?
By law, substitute organizations are subject to the same transparency and disclosure requirements as the original organizations whose tasks they assume. This means, depending on the legal form and field of activity, they must keep records on how they use their funds, pursue their statutory objectives, inform external bodies—such as the general assembly for associations, the foundation board for foundations—and regularly present annual financial statements. In the context of tax law, substitute organizations must prove to the tax office that they meet the requirements for nonprofit status. For political substitute organizations, there are also further accountability requirements regarding the origin of funds and donations. Disclosure obligations are intended to prevent abusive structures, asset shifting, or covert legal succession.
How can a substitute organization legally challenge government actions?
Substitute organizations may appeal government actions in court if they feel their rights have been violated. This includes, for example, withdrawal of nonprofit status, registration or deletion from the association register, banning of the organization, or denial of funding. The procedures are governed by the respective sectoral laws: In association law, administrative litigation (usually objection procedures followed by actions before an administrative court) is possible, as is recourse to the fiscal courts in tax law. If the Federal Constitutional Court rules on whether a substitute party is circumventing a party ban, only the highest bodies (parties, federal government, Bundestag, Bundesrat) may initiate proceedings. Affected substitute organizations may also enjoy limited legal protection here but must always prove that countermeasures were not taken in abuse of rights.
What typical case scenarios are recognized as substitute organizations by the courts?
Typical case scenarios recognized by the courts include associations that are immediately re-established after being banned for unconstitutional activities and reappear with almost identical names, purposes, members, and activities. The establishment of a substitute party is also examined for political parties when, after a party ban, a new entity is formed within a short period of time with essentially identical structures and the same personalized leadership. In tax law, foundations or nonprofit GmbHs are regarded as substitute organizations when it is clear that they pursue exactly the same purpose as a previously deprived organization and there is an appearance of circumvention. Courts assess the motivation, personnel and material continuity, and actual management to exclude abuse.
