Association

From Max-EuP 2012

by Thomas von Hippel

1. Object and purpose

An association is a legal form comprised of members which generally has legal personality and typically follows a purpose serving the common good.

An enormous number of associations exist in the various Member States (600,000 are estimated to exist in Germany and France is believed to have as many as 1,000,000), and they tend to be quite heterogeneous in nature. Accordingly, associations may differ significantly with regard to their size, structure, activities and functions. Some associations altruistically promote public benefit purposes and receive considerable tax benefits (eg Greenpeace). Other associations function as lobbyists (eg trade associations) or political parties. Some associations or their subsidiary companies undertake ongoing economic activities, as in the case of mutual-benefit associations (eg the German Automobile Club/Allgemeiner Deutscher Automobil Club (ADAC)), social enterprises (eg the German Red Cross) or professional sporting associations (eg FC Bayern München).

2. Trends of legal development

On account of their heterogeneity, the effective regulation of associations presents a number of challenges: on the one hand, given the range of purposes which they pursue, it seems appropriate that the number of general and rudimentary rules governing the activities of associations be kept to a minimum, thus leaving to the members themselves the formulation of rules which adequately meet the needs of their specific association. On the other hand, special mandatory rules might be needed for particular associations in light of their size and/or activities. However, such rules are not always easy to identify as they may be contained in specific legal regimes (eg commercial law or trade law) or be found in case law developed by the courts.

Considering these problems, it is regrettable but understandable that only rudimentary comparative legal research on associations has been undertaken. The state of knowledge is far less than for most other legal forms (eg stock corporations, the German Gesellschaft mit beschränkter Haftung (GmbH) or even foundations). Accordingly, only general remarks—rather than detailed descriptions—can be offered as regards the tendencies of association law which can be observed in the Member States.

A fundamental tendency of association law relates to the historical rules of establishment. In the era of monarchies and authoritarian regimes, private associations were typically viewed under an aura of distrust as associations were generally suspected of promoting subversive endeavours (eg political associations and trade unions). Thus, the formation of an association usually required an official approval whose grant lay entirely in the discretion of the public authorities. However, this situation has changed as most European countries now acknowledge the freedom of association. Thus, the founders of an association have the right to establish an association once all the general legal requirements for establishment have been fulfilled. In such instances, the public authorities lack the discretion to withhold approval; it is only where an association promotes an illegal or anti-constitutional purpose that its prohibition is contemplated.

Apart from this aspect, it is hard to identify general tendencies across the European milieu. Some Member States seem to have essentially developed extensive regimes for specific associations (eg France, Austria). But one also finds countries that still have only rudimentary rules applicable to all associations (eg Germany).

3. Legal structures

a) General characteristics

A comparative view reveals both similarities and differences in respect of structure: in most countries, an association may have full legal personality (eg Germany and the Netherlands), but there still exist countries where the legal personality of an association is limited (eg in France where la petite capacité juridique restricts the possibilities for an association to receive donations and make purchases). In some countries, one encounters associations without legal personality. In other countries the ultra vires doctrine is applicable (eg United Kingdom, Switzerland). Additionally, there are differences with respect to the role of the state in the establishment of an association (eg regarding authorization or registration procedures), such involvement sometimes being absent even in the case of non-profit associations vested with full legal personality. As a general rule, it seems to be accepted in all countries that only the assets of an association with legal personality are liable for the debts of the association (the personal assets of the association’s members being immune). Regarding the situation of associations without legal personality, the situation is more complex.

b) Purpose serving the common good and economic activities

An association is distinct from other legal entities that have been introduced with the intention of for-profit activities (especially stock corporations and private limited liability companies). Consequently, association law generally contemplates that such activities not be undertaken in the form of an association, but rather as a corporation or a ‘commercial association’ (Handelsverein).

However, the question of how to distinguish the legal form of an association from that of a ‘commercial association’ is a complex one which has, until now, benefitted from only rudimentary comparative study. It is frequently the case that legislation in this regard is marked by a certain imprecision: in Germany, the law provides that the ‘purpose of the association must not be to carry out a commercial business’ or that the association pursues aims in the common good; in France and Austria, an association must not have the aim of generating a profit. The result of such vague wordings is, effectively, that the final determination is delegated to the courts, a determination which typically has both objective (is the association engaged in business-like activities?) and subjective (is there a for-profit aim?) aspects.

A complete prohibition of business activity is untypical and would be particularly problematic to the extent that—in pursuing their aims for the benefit of members and third-parties—most associations offer services for a fee and thus act in an entrepreneurial fashion. However, in all countries it seems to be generally accepted that an association must not distribute profits among its members (some countries accept such a distribution in the case of an association’s liquidation).

In some countries (eg Germany and the Netherlands), business activities must be subordinated to the foundation’s public benefit purpose with the consequence that these activities are allowed only where they directly further or facilitate that purpose and where any resulting profit is merely incidental to the foundation’s main aim in undertaking the activity (the so-called Nebenzweckprivileg in Germany). Of course, these criteria lead to some problems of delimitation which must be solved by the courts. There have been attempts (especially in Germany at the end of the 1970s) to use objective criteria in determining whether an association should be allowed to engage in subordinate financial activities (eg setting limits on the number of association members, the allowable budgetary surplus and the allocation of such funds), but these attempts did not prove fruitful. Most countries allow associations to conduct economic activities through a subsidiary business company which is 100 per cent owned by the association. In Germany, the courts approved such a practice in the early 1980s (ADAC judgment, BGH 20 September 1982, BGHZ 85, 84); however, for a variety of reasons a considerable number of authors continue to criticize this approach. In instances where an association has exceeded the allowable scope of subsidiary activities, it is regularly the case that the association members themselves are not subject to liability in an individual capacity (eg the recent Kolpingwerk decision of the German Federal Supreme Court, BGH 10 December 2007, NZG 2008).

In other countries, by contrast, for-profit aims (Gewinnerzielungsabsicht) are a determinative factor such that an association cannot lawfully promise its members a profitable return (eg Switzerland).

Presently, one also finds in some jurisdictions special rules of a commercial nature for associations that engage in entrepreneurial ventures. With the exception of not demanding a minimum capital investment, these rules for the most part mirror those of a German private limited company (GmbH). Examples here can be observed in the Netherlands and in some of the provisions of the new Austrian rules on associations.

c) Organizational structure

An association must have at least two organs: the annual general meeting and the board of directors. In many countries, the organizational law for associations follows a distinctly laissez-faire approach (eg Germany, the Netherlands). Here, the law chiefly provides for rules of a non–mandatory nature with the association correspondingly left a large degree of freedom to design its own organizational structure through its charter. In such countries, the freedom of scope is a fundamental principle of association law. Thus, the law allows many modifications, varying from an association with an almost powerless board of directors and a powerful general assembly to an association with a powerful board and an almost powerless general assembly. However, it would appear that a debate exists within such countries as to whether certain mandatory rules—deriving from general legal principles—implicitly exist alongside the written rules (eg a principle of association autonomy which precludes the general assembly from irretrievably delegating its duties in regard to important questions to other association organs).

However, it seems that in some of these countries there is a discussion as to whether there exist limitations that are not explicitly stated in the association law (eg stricter limitations for specific associations or limitations for associations with a (legal or factual) monopoly position).

Some countries have stricter mandatory rules for certain types of associations (eg France).

There are only rudimentary limitations in the wording of the law in several countries (eg Germany).

4. Uniform law

At present there are no projects to unify association law. In fact, there is not even a current attempt to introduce a European association as an additional optional legal form. A past initiative of the European Commission led to the drafting of a European Association Statute in 1992 which was unmistakably intended for lobbying groups and social-economic enterprises. However, the draft did not find the necessary support in all the Member States and was, after a final attempt, abandoned subsequent to the failed referendums on the European Constitution in the Netherlands and in France.

Literature

Piero Verrucoli, Non-Profit Organizations: A Comparative Approach (1985); Christian Weisbrod, Europäisches Vereinsrecht (1994); Elie Alfandari and Amaury Nardone, Associations et fondations en Europe (1994); Council of Europe (ed), Associations and Foundations (1998); Jens Wagner, Der Europäische Verein (2000); Carl Hemström, Associations (2002); Thomas von Hippel, Grundprobleme der Nonprofit-Organisationen (2007).

Retrieved from Association – Max-EuP 2012 on 19 May 2022.

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