De facto corporation and corporation by estoppel

The doctrine of the faulty company (also: de facto association ) is used to settle ineffective closed society contracts. The invalidity, for example, on a procedural defect, a challenge or a breach of public policy based. Under general civil law, for example, the legal consequence of a legal challenge would be the retroactive invalidity of the contested declaration ( § 142 para 1 BGB). The settlement would have to be completed after the law of unjust enrichment. In the event that the Company has already taken part in legal transactions and / or the shareholders among themselves contributions made, this would be not only impractical, but would also lead to inappropriate results. A retroactive settlement does not do justice to the character of a society as a risk community or association. And creditors of the failed company must be protected in its abstract faith in the existence of the company. Therefore, the challenge to a declaration of intention to conclude the social contract has exceptionally only ex nunc. Apart from this, a partnership organized under § 723 faulty paragraph 1 BGB be denounced by all the shareholders (in case of commercial partnerships resolution action is required, however, § § 131 Paragraph 1 No. 4, 133 HGB).

The faulty society is accordingly treated in the past to be effective for this period company law is applicable. Internally, rights and duties of the partners depend on the ( erroneous ) association, the external relationship apply in favor of third parties, the principles of each form of society.

Conditions for the application of the doctrine of erroneous Company are:

  • There must be a social contract. ( This differs from the shell company in which a social contract just missing. )
  • An error result in the invalidity of the social contract.
  • The company has already been put into execution. This is always the case when it has received legal relations with third parties.
  • The error has not been retroactively cured.
  • Spoke no overriding interests protection against the treatment of faulty society to be effective. Example: In a society that was founded on the illicit trade in narcotics, the principles of de facto company shall not be applied. Even with a minor shareholder faulty society is not applied because of the primacy protection of minors ( st. ). To satisfy society judgment of the Supreme Court of 19 July 2004 ( Az: II ZR 354/ 02). Thereafter, the application of the principles of the defective society does not lead to a reduction of the claim of the silent partner, if the owner of the trading business is required to provide the shareholder as he would if he had not joined (Source: Judgment of the Supreme Court of 19. July 2004, II ZR 354/ 02)
  • Company Law ( Germany )
Voidable
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