Umbrella Association in Germany: Founding, Nonprofit Status and Legal Advice

When founding an umbrella association in Germany, the same rules apply as when founding a normal association, i.e. the founding members must, for example, think about

• the exact purpose of the association (e.g. the organization of sports tournaments at national level, lobbying activities for a specific economic sector, etc.),
• the name of the association,
• the entry and exit of members and
• the composition of the management board.

The articles of association determine who can become a member of an umbrella organization. For example, the following constellations are possible:

• Only the individual clubs are members of the association.
• The individual clubs and their individual club members are also members of the association.
• Only the individual clubs are members of the association, but their individual members have the right to speak at association events.

The respective articles of association may provide for further individual and quite complex constellations. Due to the potentially large number of participants in an association and the corresponding fear of disputes, the articles of association of an umbrella association should always be well thought out from the outset. In practice, subsequent restructuring and changes can usually only be implemented at great expense.

In addition to representing the interests of third parties, umbrella associations often also perform a certain service function for their members. This includes, for example, passing on specialist information in the respective field of activity. Not least because of the usually large sphere of activity (member associations and their members), such information should be well-founded in terms of content, otherwise there is a risk of misinformation being spread.

In most cases, umbrella associations also offer assistance with legal and tax issues. However, the provisions of the German Legal Services Act (Rechtsdienstleistungsgesetzes, RDG) must be observed here, according to which advice must always be provided with the involvement of a lawyer qualified under professional law. From a tax perspective, it should be borne in mind in these cases that associations generally establish taxable business operations with their legal advice services. Such services usually also raise VAT issues.

Not every umbrella association is charitable. However, there are two ways in which an umbrella association can achieve charitable status:

• Either it develops tax-privileged purposes itself through its own activities, in which case the usual requirements for charitable status also apply to umbrella associations.
• Or an umbrella organization is recognized as charitable if it consists exclusively of tax-privileged corporations (derived charitable status). In this case, only nonprofit organizations can be members of the umbrella association. However, this derived charitable status is already problematic if even just one member loses its nonprofit status. In such cases, the articles of association should provide for automatic exclusion from the association in order to avoid negative tax consequences for the umbrella association.