The association is regulated as a legal form in the German Civil Code (BGB). Sections 21 et seq. of the BGB represent the applicable law for associations. Usually, an association is entered in the register of associations and then receives the suffix e.V. which means "registered association". As such, it has legal capacity with its own rights and obligations. It can then conclude contracts in its own name etc.
A federation is typically a registered association as well. A federation must therefore observe the same rules and regulations as an ordinary association - both in legal terms and with regard to association taxation. However, the term "federation" indicates that it is an association that has reached a certain size and is active, for example, nationwide or state-wide.
In addition, members of federations are often associations themselves. For example, several regional associations can be members of a national federation. As a result, the legal structure of a federation is far more complex than that of an ordinary association. This also makes it more prone to errors, which usually leads to the fact that changes in the federation's organization can be converted only under substantial legal and communicative effort. As far as possible, the desired and optimal federation organization should therefore be carefully and farsightedly worked out during the founding stage already.
Contents on this page:
- What are the various types of associations and federations in Germany?
- Large associations and federations need special support
- Suitable legal structure for large associations and federations
- Liability risks for board members and managers
- Tax advice and tax law for German associations and federations
- Our services concerning associations and federations
Associations and federations exist in numerous variations. The majority of associations are charitable organizations which promote every conceivable charitable, benevolent and religious purpose in the sense of the tax code. For such charitable associations the German tax law provides for extensive tax privileges.
In addition, there are also many major non-charitable associations. Above all, professional organizations, trade organizations and industry organizations that promote the economic interests of their members and therefore cannot be charitable, hold an important position in the market. There are at least as many different associations/federations as there are different economic sectors. In fact, there is hardly a branch of industry that can afford not to be organized as a federation. These organizations exert enormous influence on public opinion and, as lobby representatives, they are in constant contact with politicians.
As far as their geographical scope of action is concerned, a distinction can be made between locally/regionally active clubs and associations and federations that operate state-wide, nationwide or even on a European or global scale. Associations or federations that operate beyond the borders of Germany, Europe-wide or internationally are subject to completely different legal requirements than locally active associations and federations.
Large associations and large federations are generally no longer run by volunteers but by full-time managers according to business management principles. These large associations and large federations, such as sports clubs or associations with professional departments and other business operations, professional organizations, trade organizations and industrial organizations, but also charitable federal or state associations, require professional legal and tax support.
The basis for a successful and risk-minimized day-to-day business are carefully drafted organizational documents like the association's statutes, its rules of procedure and other association regulations. Also, large federations and associations depend to a much greater extent than small associations on strategic advice on employment law. The same applies to questions of intellectual property rights, trademark law, competition law and antitrust law as well as banking and capital markets law and general tax law.
However, the most important prerequisite for the successful operation of a large association or federation is a suitable internal legal structure of the organization. For example, large associations oftentimes consider spinning off subsidiary corporations (e.g. LLC, nonprofit LLC) or even change its legal form from an association/federation to a limited liability company.
This is for good reason. Sometimes associations have outgrown the typical association structure over the years, both in terms of the number of members and the number of employees working for the association and the potential liability volume. Oftentimes,
- lengthy general assemblies,
- slow decision-making processes in the association's board,
- a lack of business management orientation and
- the uncertainty regarding the possible liability for the work carried out with great personal commitment as an association’s board member,
block further development and present the association with considerable financial challenges.
Conversely, there are cases in which an overly complicated group structure is an obstacle and unnecessarily expensive.
This is why numerous associations in Germany have restructured themselves in recent years for legal, economic, tax and other practical reasons, particularly in the social sector (daycare centers and kindergartens, educational institutions, religious and welfare organizations and other social service providers).
Large associations/federations often also establish foundations. They usually serve marketing and fundraising purposes.
What does that mean in specific terms?
- We develop result-oriented, practical and comprehensible solutions
- From A for approval of nonprofit status to Z for zero-rated activities - we provide advice on every NPO topic
- Life time cycle consulting: We advise NPOs in every phase of their life cycle - from foundation, via expansion to dissolution
- WINHELLER worldwide: We coordinate your legal and tax projects
- The more complex the problem, the greater our ambition - no matter what the NPO problem is, we won't break a sweat
- WINHELLER full service and one-stop-shop: We can do so much more than just "nonprofit" and will take care of all things necessary
- A "no" is not a solution for us
Your organization needs support? We look forward to hearing from you at +49 (0)69 76 75 77 80 or email@example.com.
In the daily activities of an association/federation, countless legal regulations have to be observed, which are laid down in the law of associations and federations, but also in numerous other legal fields. For example, if associations or federations aspire to achieve tax-exempt charitable status or are already recognized as a charitable organization, they are subject to the requirements of German nonprofit law and tax law in addition to association law. Similarly, trade organizations also enjoy certain tax privileges and have to comply with specific criteria.
There are also hidden liability risks, for example in antitrust law or employment law, especially in the case of legally flawed staff leasing. The larger an association or federation is, the greater the risks of liability for those involved.
In order to avoid having to defend yourself personally in court against claims for damages, appropriate precautions should be taken like designing your statutes in a way that even full-time employees only have to be liable for gross negligence and intent. Sometimes the courts even accept when association statutes exclude liability for gross negligence. A clever distribution of responsibilities, which is reflected in the statutes and bylaws, can also reduce liability risks considerably. Furthermore, taking out D&O insurance (directors & officers insurance) can help.
Tax issues play an important role in the day-to-day management of associations and federations - both for charitable associations and non-charitable trade organizations.
Typically, associations have to deal mainly with corporate income tax and VAT issues related to
- legal or fiscal aspects of fundraising activities,
- questions regarding the law on donations,
- differentiation between non-taxable activities and taxable economic business operations,
- taxability of governmental subsidies and membership fees, and
- tax treatment of transactions within the association's group structure.
We will be happy to take care of the ongoing bookkeeping of your association and filing of the required tax returns and annual financial statements, including all necessary negotiations with the tax authorities. Our attorneys for association law and our tax advisors experienced in the field of association and federation taxation will make sure that you are on the safe side as far as taxes are concerned.
- Establishment of your association or federation (charitable association/federation, non-charitable association, professional organization, trade organization etc.) taking into account all requirements under association law, including the drafting of the statutes and coordination with the tax authorities as well as the responsible register of associations
- Drafting, reviewing and revising the statutes of associations, bylaws, internal rules of procedure and other organizational documents, in particular with regard to issues relating to nonprofit law, association law, tax law, antitrust law, competition law, liability and privacy law
- Optimization of the liability of associations and federations and their board members
- Planning of optimal legal and tax structures as well as planning and support of restructuring measures, e.g. conversions and spin-offs (subsidiary German LLCs, spin-off of professional departments, change of legal form from e.V. to charitable LLC or charitable stock corporation etc.) and cross-border relocation of the association's registered office
- Establishment of foundations for marketing and fundraising purposes for the association's benefit including the necessary coordination with the authorities (register of associations, tax office, foundation supervisory authority)
- Development and implementation of suitable (tax) compliance systems in the association/federation
- Taxation of associations: ongoing accounting and tax consulting for associations and federations and representation in tax audits and other disputes with the tax authorities including individual tax advice on problems like the distinction between taxable and non-taxable operations as well as difficult VAT issues
- Defense of the tax-privileged status in case of imminent withdrawal of the charitable status or other tax-privileged status (e.g. the tax-privileged status as a professional association) – in and out of court
- Trademark protection for associations and federations including the drafting of corresponding contracts (e.g. license agreements)
- Employment law advice and representation, including the drafting of appropriate contracts (employment contracts, managing director agreements, etc.), also on the special topic of staff leasing within the association's group structure
- Advice on antitrust law to business and industry organizations
- Clarification of issues concerning public procurement
- Other comprehensive and ongoing strategic legal and tax advice to charitable and non-charitable associations and federations
Since its inception, WINHELLER has been highly focused on the successful all-round consulting of all kinds of associations and federations. Our attorneys are here to support you in all legal matters related to the establishment of an association or federation and its ongoing day-to-day business. In addition to our legal advice, our nonprofit tax team takes care of all required bookkeeping, accounting and tax consulting work.
Your contact persons on the subject of association law and the law on federations are attorney Uwe Müller and attorney Johannes Fein (Certified Specialist for Tax Law). If you want to talk to a nonprofit tax advisor, Jörn Maus will be happy to assist. You can reach our attorneys and tax advisors by e-mail (firstname.lastname@example.org) or by telephone (+49 (0)69 76 75 77 80). Feel free to get in touch with us. We will be pleased to assist you with advice and support and to accompany you in all your charitable and non-charitable projects.