I. Introduction

On 22 July 2021, the Act on the Unification of Foundation Law (Gesetz zur Vereinheitlichung des Stiftungsrechts) was promulgated, which (with the exception of the provisions on the foundation register) will come into force on 1 July 2023. The new Act will lead to far-reaching changes in foundation law. Previously, foundation law was governed by a combination of federal law and 16 different state foundation laws. This will come to an end in the future thanks to the uniform regulation of foundation law in the German Civil Code (Bürgerliches Gesetzbuch). The foundation laws of the federal states, which are consistent in their basic principles, have so far regularly led to legal uncertainties in the application of foundation law due to their different wording and individual amendments, and to an individual foundation practice of each federal state. The central problems were above all the lack of transparency due to the independent foundation registers of the federal states and the impracticality of representing foundations, since proof of the power of representation of the foundation’s board of directors requires a current certificate of representation issued by an authority (Vertreterbescheinigung).
The long and agile reform process began in June 2014, when the federal-state working group “Foundation Law” was set up under the leadership of the Federal Ministry of Justice and Consumer Protection (BMJV) to develop proposals for “amending the law on foundations”. Based on the report submitted in September 2016 and another discussion draft submitted in February 2018, the BMJV finally published a first draft bill on the “Unification of Foundation Law (Vereinheitlichung des Stiftungsrechts)” in September 2020.
Even in the preliminary stages of the draft bill, experts called for, among other things, the modernization of foundation law and a review of “the extent to which legal principles drawn up in the 19th century still correspond to the image of society and the legal sensibilities of the 21st century.” Foundation law had to be more flexible and liberal and go beyond mere unification. The call for modernization even went so far that individual university professors joined forces in response to the discussion draft and jointly published an alternative draft, arguing that the discussion draft was “in many respects backward-looking, counterproductive and poorly crafted.” Some of the criticisms voiced were eventually addressed in the March 2021 government draft.

II. Amendments

In addition to the obvious innovation of the now uniform regulation of foundation law in the Civil Code instead of, as mentioned at the beginning, also in 16 different state laws, the following significant changes should be emphasized:

1. Amendments to the Articles of Association and Structure

The procedure for amending the articles of association of foundations has been comprehensively revised in §§ 85 et seq. BGB, new version. It essentially corresponds to the basic concept of the legal situation already in force. However, the legislator has now incorporated a new, detailed regulatory concept into the law, graded according to the intensity of intervention.
Also, due to the criticism expressed, the requirement of stringent provisions in the articles of association, which was originally still envisaged in the draft bill, was not adopted in the new foundation law. Instead, it is incumbent on the founder, pursuant to § 85 para. 4 BGB new version, to make the content and extent of the powers to amend more difficult or easier in the articles themselves, insofar as it specifies the prerequisites in a sufficiently definite manner.
In addition, the procedure and admissibility of amendments to the articles of association are regulated in detail in the law. Non-formative components of the articles of association may be amended, provided that this serves to fulfil the foundation’s purpose, so that the foundation can be contemporarily developed in accordance with the founder’s will. In contrast, the amendment of formative provisions of the foundation constitution, for which § 85 para. 2 sentence 2 BGB new version lists a number of examples, is only possible if the circumstances have changed significantly or if such an amendment is necessary in order to adapt to the changed circumstances. § 85 para. 1 sentence 1 and sentence 2, para. 2 BGB new version places the strictest requirements on the amendment, restriction or addition to the purpose of the foundation. The decisive factor for the delimitation in individual cases is always the founder’s will within the meaning of § 83 BGB new version. What is new here is that, contrary to the original draft bill, instead of relying on a historical founder’s will documented in the foundation articles, it is possible to fall back on a presumed founder’s will as an alternative in the interests of modernizing foundation law. This provision is based on the idea that founders usually want the foundation articles to be further developed if an adjustment is necessary due to legal and social developments.
In this context, it is important to mention the new, much more extensive regulations on structural changes, i.e. the merging and absorption of the foundation by another one (Zulegung) of foundations pursuant to §§ 86 et seq. BGB new version or the transformation into a consumer foundation pursuant to § 86 para. 1 sentence 3, para. 2 BGB new version for distressed foundations. As in the case of the provision on amendments to the articles of association, this can be seen as a modernization approach, since foundations do not have to continue to exist in perpetuity, but mergers and additions can also lead to a strengthening of the link between the assets and the purpose of the foundation.
For future founders and for legal practice, particular attention will have to be paid in the future to the formulation of the founder’s intentions in the articles of incorporation. Existing foundations should take advantage of the transitional period until the new foundation law comes into force to include, if necessary, authorizations for amending the articles of association that can be derived from the historical intentions of the founder, taking into account the (state) foundation law still in force. According to the explanatory memorandum, the amendment to the law it represents a significant change in circumstances, so that an adjustment may be possible under the still applicable state law. Future case law should also be kept in mind, as the requirements for the “sufficient determination (hinreichende Bestimmtheit)” of the authorization to amend the articles of association will only be defined in more detail by the latter.

2. Clarification on Reallocation Profits

The classification of so-called reallocation profits (Umschichtungsgewinne) was previously handled differently in some of the state foundation laws. This is now clearly regulated to the effect that the so-called basic assets of a foundation are in principle to be maintained undiminished and the purpose of the foundation is to be achieved with the help of the benefits within the meaning of § 100 BGB from the basic assets. Reallocation profits, i.e. increases in value from investments, pursuant to § 83c para. 3 BGB (new version) are expressly not subject to the obligation to maintain capital, unless otherwise stipulated in the articles of association. As a result, the foundations already in existence retain their flexibility in this respect due to state laws or even obtain new leeway in states in which the use of reallocation profits was previously not possible. In the latter case, however, compatibility with the founder’s will should be ensured.

3. Foundation Organs

The independent codification of the law governing the organs of foundations, which was previously linked to the law governing associations, brings few innovations. Pursuant to § 84 para. 4 BGB (new version), in addition to the executive board, which represents the foundation externally, other bodies may be expressly provided for in the foundation’s articles of association.
Members of governing bodies must exercise the due care and diligence of a prudent businessman when managing the business. Their liability is limited by the so-called “business judgement rule”, originating from stock corporation law, without specifying the investment strategy of the foundation’s assets. In addition, the liability of honorary board members can be limited on the basis of a reference to the law governing associations pursuant to § 84c para. 3 sentence 1 BGB (new version) in conjunction with § 31 BGB. A conclusively regulated power of intervention for foundation authorities to take emergency measures in the absence of board members pursuant to § 84c BGB (new version) is a new feature. As a result of these powers of intervention, there may be a need to adapt existing foundation articles to supplementary regulations on the adoption of resolutions in order to avoid an emergency appointment by the authority and the associated intervention in the management of the foundation.

4. Foundation register

Probably one of the biggest innovations is the public register of foundations, which will commence operations on 1 January 2026 and is intended to provide greater transparency for all foundations. The previous foundation registers of the federal states do not have any publicity effect, as is the case, for example, with the commercial register or the register of associations. In the absence of any publicity effect, it was therefore previously necessary to obtain up-to-date written certificate from the respective foundation supervisory authority in order to prove the power of representation of a foundation’s executive board in business transactions. The introduction of a public foundation register – similar to the commercial register – will facilitate legal transactions with foundations for third parties due to the negative publicity effects with regard to the power of representation of foundation boards. Since the foundation articles are also published, foundations should review in good time whether they contain confidential information which, in accordance with the founder’s intentions, should not be disclosed in the foundation register; if necessary, foundation articles should be amended, insofar as this is legally permissible.

III. Assessment and Outlook

As noted in the individual amendments, in consideration of the change in the law, each foundation should review its foundation articles to ensure that they are compatible with the new foundation law before it comes into force. The new foundation law should also already be taken into account in the application and interpretation of the state foundation laws.
The changes to the foundation law, which will in future be regulated uniformly throughout Germany, are expressly to be welcomed, as they bring many simplifications to foundation practice and represent a first step towards modernizing foundation law. However, it would be desirable for the legislator to take the planned evaluation of the “unification of foundation law” two years after the amendments come into force as an opportunity to press ahead with the modernization of foundation law. Topics for further development could include, for example, closer coordination with non-profit law (Gemeinnützigkeitsrecht) or the improvement of legal protection options against state supervisory authorities. There are also few far-reaching proposals for modernizing foundation law to make it a form of enterprise geared to sustainability, such as the “GmbH im Verantwortungseigentum” (limited liability company with responsible ownership) currently under discussion. In conclusion, it can be said that the new foundation law goes beyond mere unification, but that there is still great potential for more far-reaching reforms.