The reform of the foundation civil law - A consideration

Author Marcel Werner (Email)

Government draft for the reform of the foundation civil law

Progress is being made regarding the implementation of the reform of the civil law on foundations. After a long wait, the government draft for the reform of the civil law on foundations has been available since February 2021, three months after the draft bill of the Federal Ministry of Justice. The government draft is thus the provisional culmination of a project that has been ongoing for more than six years. The German government would like to pass a corresponding law before the end of this legislative period. In the following, this article would like to provide a brief overview of the status of the reform effort and outline some of the changes.

The new version of §§ 80 ff. BGB, this area of law, which has so far been regulated only in rudimentary form, is to be codified conclusively and more comprehensively in the Civil Code in the future. The scope of regulation is quadrupled from nine to 36 paragraphs. In addition to the provisions of the BGB, the federal states have their own additional provisions in their respective state foundation laws. These are not uniform and are often interpreted differently, because each federal state has developed its own foundation practice based on the respective state law. This coexistence of federal and state law regularly leads to legal uncertainties both for foundations and for legal counsel. 

Towards a more uniform federal foundation law

The draft presented is supported by those who have long advocated a uniform federal foundation law and hope that this will lead to uniform legal and advisory practice. The government draft contains new regulations, on the name, registered office and assets of the foundation, as well as on amendments to the foundation statutes and the merging of foundations. In addition, it also addresses business judgment rules and the establishment of a central foundation register with publicity effect, which is to be maintained by the Federal Office of Justice and ensure greater transparency.

The foundation register

Unlike most other legal entities under private law, there was previously no register with publicity effect for foundations, but only foundation directories kept by the foundation authorities. However, the foundation directories of the Länder, which have no publicity effect, do not create the same transparency for foundations as is ensured by the commercial register and the register of associations for other legal entities under private law. A central foundation register will be helpful in practice, as the representatives of the foundations will benefit in their day-to-day work from the facilitated proof of an authorization to represent the foundation.

The founder's will

The central importance of the founder's will is now also reflected at a central point in the draft: the newly worded Section 83 (2) stipulates that the foundation bodies, in their activities on behalf of the foundation and the foundation supervisory authority, must observe the will of the founder expressed at the time of the establishment of the foundation, or alternatively his presumed will. Thus, in addition to the constitution of the foundation, the will of the founder determines the foundation transaction. The previous § 85 of the German Civil Code (BGB) has thus been extended in a welcome way. Although the founder's will be also previously considered decisive, the fact that the provision will now be reflected in the law should ensure legal clarity.

The founder's will as the primacy of foundation law. In everyday use, the founder's will is the supreme guideline for all foundation activities and binds the foundation bodies as executors of the founder's will as well as the foundation authorities in every decision. However, anyone who deals with foundations and their statutes in practice also knows that the historical founder's will often no longer appears up to date in everyday handling or cannot reflect certain constellations, since in a constantly changing world certain decisions were simply not foreseeable. For the foundation to survive the times, it needs a certain degree of flexibility. The draft bill was not very flexible in this respect: only the historical, and no longer the presumed, founder's will was to apply.

This can sometimes lead to foundations being less able to respond dynamically to current and future challenges. The government draft now takes this problem into account and therefore allows the presumed will of the founder to be taken as a basis. The foundation's governing bodies must therefore ask themselves how the founder would have acted or how he would have reacted to certain developments if he had foreseen them.  Documents from the foundation's formation phase, e.g. the executors' report or other founding documents, should also be consulted.

Amendments to the articles of association

The new Section 85 conclusively and comprehensively regulates the prerequisites for changes to the foundation constitution through amendments to the articles of association and thus replaces the previous Section 87 BGB. As a result of the now uniform regulation, there is no longer any need to have recourse to the different regulations of the federal states.

The provision enables changes to the foundation constitution by amending the articles of association, which are tied to different prerequisites. The requirements for amendments to the articles of association are all the stricter the more they interfere with the constitution of the foundation and thus change the core of the foundation.

Pursuant to Section 85 (1) and (2) BGB of the draft, amendments are also possible to the foundation purpose set out in the articles of association, i.e., the supreme guiding principle of the foundation's activities in general, which acts as a compass, so to speak, for the foundation's activities. Amendments to the articles of association may be necessary if the day-to-day work of the foundation changes due to its asset situation or other general conditions, for example because funding activities no longer seem appropriate or because real circumstances have changed.

The founder's will must be considered in any amendment to the articles of association. The amendment to the articles of association must not counteract the founder's will. This dynamism enables foundations to open new fields of activity and to react dynamically to new developments in society, while preserving their essence. The standardization of the requirements creates clarity and provides a uniform guideline for the circumstances under which an amendment of the foundation constitution appears possible.

Outlook

On the other hand, there are also numerous critics from academia and practice who feel that the reforms do not go far enough. They criticize that the reform sees the perpetual foundation as the ideal, but that especially in economically turbulent times, e.g., due to the low-interest phase, only the large foundations can pursue their purposes sustainably and permanently, that the incentives for establishing a new foundation are therefore less attractive and that the foundation law would merely be unnecessarily inflated. Critics also say that the hurdles to changing the articles of association are too high. It would be almost impossible for living founders to restructure their articles of association after formation based on newly gained experience and knowledge.

In principle, the necessary and overdue reform is to be welcomed, as it promises more legal certainty through uniform federal regulations. By conclusively standardizing in the German Civil Code the content previously regulated in the laws of the German states, the reform provides the supervisory authorities and the consulting practice with uniform regulations. It remains to be seen whether the reform will achieve the desired effects.

However, the fact that after more than six years a reform law is now finally being passed should please all those who deal with foundation law daily.