By Markus Hartung.
Introduction
For law firms operating in Germany, a completely new world has started since August 1st, 2022. The Federal Lawyers' Act (Bundesrechtsanwaltsordnung, or BRAO for short), the legal basis for the activities of lawyers and law firms, has been fundamentally reformed. Along with the BRAO, the Tax Advisors Act and the Patent Attorneys Act have also been amended.
This article briefly describes the changes that have been made, particularly in lawyers’ company law, and what significance this has for the activities of foreign (understood as outside the EU) law firms in Germany.
Since foreign law firms have to undergo a registration and admittance procedure in Germany, a lot of paperwork has to be done by these law firms. There is not much time left for planning, preparing and carrying out the individual steps.
Overview of the main regulations
Neutrality of legal form
The new company law for lawyers is neutral in terms of legal form. The BRAO contains only those provisions that are intended to ensure the core values of lawyers as set out in Section 43a BRAO. These are, in particular, the principle of independence, confidentiality and the prohibition of representing conflicting interests. The rules are "neutral" insofar as no legal form-specific requirements are imposed. Firstly, Section 59b only regulates that lawyers may join forces in professional practice companies for the joint practice of their profession. They may also establish a professional practice association that has only one partner, which ensures that the Rechtsanwaltsgesellschaft mit beschränkter Haftung (RA-GmbH, like a German Limited) with only one partner continues to be permissible.
These professional practice companies may adopt the corporate forms existing in Germany, including the corporate forms of commercial companies, i.e. also the GmbH & Co. KG. Although the changes to partnership law will not come into force until 1 January 2024, Section 59b BRAO nF is a special provision to Sections 105, 161 HGB, according to which a commercial business (“Handelsgewerbe”) is a prerequisite for OHG and KG. Pursuant to Section 59b(2)(2) and (3), the European Company (Societas Europaea) as well as such forms of company that are permissible either under the law of a Member State of the European Union or under the law of a State party to the Agreement on the European Economic Area are still possible.
Section 59b does not apply directly to foreign law firms – only Section 207a is applicable, which in turn refers to many, but not all, of the provisions of Sections 59b et seq. BRAO.
No German UK LLP (any more)
The admissibility of the so-called "German LLP" (LLP under English law with administrative seat in Germany) had already ceased with Brexit. The legislator did not want to accommodate the vociferous wishes of many small and large commercial law firms to retain this legal form. However, the legal situation is different for US LLPs: According to the German-US Friendship Agreement, US-LLPs may practise in Germany as LLP even if their administrative seat is in Germany.
However, it is still permissible for UK LLPs with their administrative seat in the UK to practice in Germany through a branch office of the LLP. If it were to move its administrative seat to Germany, this would be permissible under English law, but would be regarded under German law as a civil law partnership with joint, personal and unlimited liability of the partners.
Multidisciplinary partnerships (interprofessional cooperation)
The options for multidisciplinary partnerships (interprofessional cooperation, i.e. cooperation with members of other professions) have been significantly expanded by Section 59c. Lawyers have always been able to join forces with tax advisors, patent attorneys and accountants to jointly practise their profession.
Now, according to Section 59c (1) no 4, it is allowed to associate with members of the professions (“Freie Berufe”). This enables partnerships between lawyers and management consultants, doctors, pharmacists, computer scientists, architects, experts or engineers.
Professional duties of the professional practice company
The new BRAO introduces professional duties for professional practice companies in Section 59e, in addition to the professional duties that have always existed for lawyers. Important is Section 59e (2), according to which professional practice companies are obliged to take appropriate measures to ensure that breaches of professional law are recognised and remedied at an early stage. Thus, if professional practice companies violate their professional duties, the partners are liable for violating their individual duties, but also for violating their duties under company law.
The sanctioning of such breaches of duty is regulated in Section 113. According to this, a lawyer's court measure can be imposed on an admitted professional practice company if either a management person of the professional practice company has culpably committed a breach of duties or such a person who is not a management person has breached duties, if this breach of duties could have been prevented or made significantly more difficult by appropriate organisational, personnel or technical measures. This has not existed in law firms so far, and there are therefore no experiences or role models in law firms as to what appropriate organisational, personnel or technical measures have to look like in order to avoid sanctions by the lawyers' court. However, this will not be a headache for the large and especially the international commercial law firms, because they already work with compliance systems.
Admission to the Bar
According to Section 59f (1) professional practice companies have to be admitted by the bar. Only law firms without limitation of personal liability, in which only professional groups according to Section 59c (1) no. 1 BRAO new version (i.e. PartG or GbR with lawyers, patent attorneys, tax advisors, tax agents, sworn accountants and auditors) are involved, are exempt from this.
With the admission, law firms also receive a special E-Mailbox (“besonderes elektronisches Anwaltspostfach” or “beA” for short) allowing them to comply with the regulatory requirements of electronic communication with the courts since 1 January 2022.
Admission procedure and admission requirements
The admission procedure is regulated in Section 59g with requirements as to which information has to be provided for admission in the admission procedure. The bar may require appropriate evidence, including the articles of association or bylaws, to verify the admission requirements. Whether this means that law firms will actually have to submit their complete articles of association is still unclear. There will certainly be many discussions with bars here until a uniform handling will then eventually emerge.
Shareholder structure, Groups of Law Firms, Trusts
While professional practice companies are in general partnerships whose partners are natural persons, according to Section 59i it is now allowed that admitted professional practice companies may in turn be shareholders of another professional practice company. In addition, company shares may not only be held by individual partners, but by a holding company.
It is also allowed that a professional practice association establishes a subsidiary law firm for certain work and then takes over the company shares of these subsidiaries. This was not permissible until now.
However, this does not apply to foreign law firms. The legislator only wanted to allow foreign activity through a German branch office, but not a holding in German companies.
Management, supervisory bodies
Section 59j provides details on the requirements for management and supervisory bodies. In general, only lawyers or members of certain other professions may be members of the management body or the supervisory body. In inter-professional companies, persons who are not lawyers may not give instructions to other lawyers on professional matters. In order to ensure the independence of lawyers, it is expressly provided that influence by the partners is inadmissible.
Authority to provide legal services (“Rechtsdienstleistungsbefugnis”)
Section 59k stipulates the authority to provide legal services. Professional practice companies are as such authorised to provide legal services.
In the case of interprofessional companies providing legal services, the professional practice companies act through their partners, who in turn have to be lawyers. This ensures that inter-professional practice companies can conclude mandates for legal services, but that the provision of these legal services is only permitted by lawyers.
Right of being heard in court (“Postulationsfähigkeit”)
Section 59l regulates the right of all professional practice companies (not only PartG and RA-GmbH as before) to appear before courts and authorities and to have the rights and duties of a lawyer there (postulation capacity). A law firm can therefore be an authorised representative in court, so that the exemption from liability under the mandate also applies to those persons who appear in court.
Law office (“Kanzlei”)
According to Section 59m, professional practice companies have to maintain an office at their seat in which at least one managing lawyer works. Mere virtual law firms are not permitted. It is also inadmissible to assign the management of an office to a salaried lawyer. It always has to be a partner.
Professional liability insurance
The provisions on professional liability insurance as well as the minimum insurance sums are regulated in Sections 59n and 59o. Now professional practice companies as such and irrespective of their admission are obliged to take out professional liability insurance. According to the previous law, such an insurance obligation only existed for RA GmbH and PartGmbB. However, the personal insurance obligation of lawyers in a law firm remains.
For foreign law firms, changes follow insofar as the insurance of the German branch has to comply with the stricter requirements of German law. This concerns minimum sums insured, maximisation of benefits and the limitation of the so-called deductible (own contribution in the event of a claim).
Branding as a “Rechtsanwaltsgesellschaft”
According to Section 59p, professional practice companies may only call themselves "Rechtsanwaltsgesellschaft" if lawyers hold the majority of voting rights and if the majority of the members of the management body are lawyers. This means that large tax consultancy firms or auditing firms, where lawyers are regularly in the minority, have no chance of appearing on the market with the title Rechtsanwaltsgesellschaft.
Foreign law firms
The central provision for foreign professional practice companies is Section 207a. According to this provision, foreign law firms may provide legal services through a branch office in Germany if the purpose of the English law firm is to provide advice and representation in legal matters and they are authorised to provide legal services according to the law of the state of their seat. Section 207a BRAO essentially refers to the regulations for German law firms outlined above, but provides some special features.
For example, the question of who may be a partner is restricted. Foreign law firms are also not allowed to participate in German law firms, as Section 59i BRAO new version is excluded in this respect. Furthermore, the German branch office needs its own management, which can represent the company and has sufficient rights to ensure that professional law is upheld. In addition, foreign law firms have to apply for admission to the bar at the location of their German branch office.
Some questions are still unresolved for foreign law firms - for example, the question of whether all partners worldwide have to be registered in Germany, even if they are neither admitted nor established here. Also, the question of the number of partners according to which the maximisation for the professional liability insurance is calculated is still open (but should be clarified in time).
The foreign law firms are authorised to provide legal services in Germany for public international law and the law of the respective lawyers' home state.
These foreign law firms are only entitled to provide legal services for German law and EU Community law as well as the ability to postulate before German courts if they also have German lawyers as partners (this also applies to those partners who are admitted to the bar in another EU member state and are allowed to practise here through the Act on the Work of European Lawyers in Germany (EuRAG)).
Transitional periods
Applications for admission can be submitted since Aug 1st, 2022. German and foreign law firms existing at that time have a transitional period until Nov 1st, 2022. Until the decision on admission, they are deemed to be authorised to provide legal services and can act in court. If they have not submitted an application for admission by then, they lose the right to provide legal services and also commit a breach of professional law. However, such law firms that are not subject to admission (PartG and GbR) have to take care of an insurance for their law firm if they do not want to expose themselves to supervisory proceedings by the bar and personal liability risks. Only RA-GmbHs, RA-UGs and RA-Aktiengesellschaften that are already admitted according to today's law and have liability insurance for the law firm do not need to do anything.
Note
The issues related to professional indemnity insurance are dealt with in detail in Zimmermann/Hartung, NJW 2022, 1792. The numerous legal questions regarding the admission of foreign law firms according to Section 207a BRAO nF and what has to be considered in the application procedure are outlined in Hauptmann/Hartung, AnwBl Online 2022, 376.
This article was published at The Law Society on 15 May 2022. You can find it here.
About the Author
Markus Hartung, lawyer and mediator, was the first German Managing Partner of Linklaters and has been the founding director of the Bucerius Center on the Legal Profession at Bucerius Law School since 2010. His areas of legal expertise include legal professional and liability law. He is a member of the Professional Law Committee and the Committee on Legal Professional Ethics of the German Bar Association. With his consultancy The Law Firm Companion, founded in 2009, he advises law firms on strategy and management issues and regularly lectures and publishes on these topics.
Other publication by Markus Hartung