Reform of the foundation law

The reform of foundation civil law came into force on July 1, 2023 and affects not only newly established foundations as of that date, but also the more than 25,000 foundations with legal capacity already existing in Germany.

The background to the reform are the different regulations in the federal state foundation laws and the inconsistent handling by the foundation supervision authorities. The aim of the reform is therefore to achieve a conclusive and uniform regulation of foundation civil law throughout Germany. The main changes as of 1 July 2023 include the following provisions:

Legal definitions

For the first time, the German Civil Code (BGB) contains a nationwide uniform legal definition for foundations with legal capacity and regulates both foundations established for an indefinite period of time (perpetual foundations) and foundations established for a definite period of time (consumption foundations).

The law now also contains a legal definition for the foundation assets, according to which the foundation assets of a perpetual foundation consist of the basic assets, which are to be maintained undiminished in perpetuity, and of other assets, and those of a non-perpetual foundation only of other assets.

Amendments to the articles of association

Up to now, amendments to the articles of association of a foundation were only possible if the purpose of the foundation became impossible or if the common good was endangered. In future, it will also be permissible to amend formative provisions of the statutes if substantial changes in circumstances have occurred (Section 85, subsection 2, BGB) as well as all other provisions of the statutes if this serves the fulfilment of the foundation's purpose (Section 85, subsection 3, BGB). These changes give foundations greater flexibility in adapting their statutes.

Help for small or distressed foundations

An important aspect of the reform concerns the handling of non-performing foundations. To this end, regulations are introduced which make it possible, under certain conditions, to change the purpose of a foundation, to convert foundations into consumer foundations, to terminate them or to merge foundations to form a new foundation or to transfer a foundation to another foundation.

Limitation of liability

With regard to liability consequences, members of a foundation's governing bodies have until now been very uncertain about how to deal with the foundation's assets, especially in the "zero interest" phase. The aim of the so-called "business judgement rule" (Section 84a subsection 2 BGB) is to counteract this. According to this rule, a member of a foundation's governing body does not act in breach of duty if he or she "...could reasonably be expected to act for the benefit of the foundation on the basis of appropriate information, taking into account the legal and statutory requirements".  Thus, under these conditions, the possibility of holding members of governing bodies liable for decisions and measures which in retrospect turn out to be disadvantageous will no longer exist in the future.

Reallocation profits

The property assets were and are to be preserved undiminished (Section 83c subsection 1 BGB). This meant that profits from the sale of items of the basic assets had to be reinvested in them. In future, on the other hand, it will be permissible to stipulate in the articles of association that these profits may also be consumed and that there is thus no breach of the principle of capital maintenance.

In view of the numerous amendments to the law, it is urgently recommended that existing articles of association of foundations with legal capacity be reviewed and adapted to the new requirements and possibilities. Our Private Clients Team will be happy to answer any questions you may have.