Dissolution / merger of associations
If an association has conclusively achieved its purpose or if it can no longer achieve its purpose, it will be dissolved. An association can be dissolved by law or by a resolution of the general meeting for other reasons, too.
The integration of two or more associations into one association is referred to as a merger. It is subject to the provisions of the Merger Act.
Further information on important aspects of this sub-topic can be found at the bottom of this page.
An association in itself cannot be suspended – either the association exists or it is dissolved. In the context of associations, suspension means that the association’s tasks and activities are limited or completely suspended for a certain period of time. A corresponding resolution should be passed by the association’s general meeting. It is important that the elected bodies remain in office for the event that, after a certain period, the tasks and activities are resumed or preparations are made for a dissolution. In the case of a liquidation, it is important that authorised signatories are available to carry out the liquidation process. It makes sense to limit the period of the suspension, e.g. to 6–12 months (until the next meeting).
If an association lacks an executive body, e.g. the committee, a member or a creditor can take legal action. The court can set a deadline for the association to appoint a new committee. If the association fails to do so, the court can appoint a suitable person to perform the function of the committee. This person – the administrator – manages the most important matters, for instance, he convenes a general meeting so that a new committee can be elected. The association must bear the costs for the expenses of the administrator.
If an association becomes insolvent, i.e. it can no longer settle unpaid bills, this can lead to bankruptcy. Bankruptcy proceedings are opened by a judge either at the request of the creditors or at the request of the association itself (declaration of insolvency). If an association is insolvent, it shall be dissolved by law.
If an association has conclusively achieved its purpose or if it can no longer achieve its purpose, it will be dissolved. According to the law, other reasons for a dissolution are insolvency or the impossibility to find new members for the committee. An association that has no members shall be dissolved as well. Such a dissolution is automatic, i.e. without a resolution, if this situation is permanent. For any other reasons that are stipulated in the articles of association, the general meeting may decide to dissolve the association (resolution of the association). If the association has an unlawful or immoral purpose, it can be dissolved as the result of an action brought before the court. An association is also dissolved when it merges with another association and is integrated into the new association.
If an association can no longer meet its financial obligations, it is insolvent. According to the law, this leads to the dissolution of the association. It may have to declare bankruptcy or petition for a moratorium.
The association acquires legal personality with its lawful foundation, i.e. as soon as the founding members have held the foundation meeting and approved the written articles of association. From that moment, the association is a legal person and can establish rights and obligations. It has legal capacity to act as soon as its governing bodies are appointed. The legal capacity of the association ends with the association’s complete liquidation.
Once the dissolution of an association has been decided, its assets will be liquidated, i.e. liabilities and assets will be specified and debts settled or receivables collected as far as possible. The liquidation is usually carried out by the committee. The remaining assets are used in accordance with the articles of association; usually they are passed on to a related institution. In the absence of such provision, the general meeting or the committee shall decide on their use. If this is not possible, the surplus falls to the community or to the public sector. After the liquidation, the legal personality of the association expires. If the association is registered in the commercial register, the entry must be deleted.
Question
Our articles of association state that the approval of two-thirds of members is required for the dissolution of the association. Is it enough if two-thirds of the members present at the general meeting approve the dissolution?
Answer
As is stated in your articles of association, it is clear that all members of the association are meant and not just those in attendance. If an association is considering dissolution, it is often difficult to mobilise enough members and the high quorum can prove to be an almost insurmountable hurdle. The breach of the articles of association - as this would be if only the number of members in attendance was to be taken into account - could serve as a reason for someone to appeal the decision.
In order to handle the matter correctly from a legal perspective, the relevant article in the articles of association would have to be amended at the next (possibly extraordinary) general meeting. At a subsequent general meeting, the dissolution of the association can then be correctly decided on. Both meetings can be held successively. It is important that you communicate how you plan to proceed to members in good time so as not to provoke any surprises. The members should have time to consider the dissolution and the committee should be able to gauge what the mood is. After all, the general meeting is the most senior body of every association and only it can decide on the dissolution.
If an association is no longer able to pay its liabilities or if it can no longer cover its debts with its own funds, it is over-indebted. If it becomes insolvent, this can lead to its liquidation or bankruptcy. Both events result in the dissolution of the association.
Question
Our association has been in existence for more than 50 years and organises various activities for senior citizens. In some cases, these are now carried out by other organisations. We now find ourselves in a situation where nobody else wants to join the association and even committee members occasionally want to step down. All of the members have already served on the committee. While individual members want to continue taking on tasks, they have no desire to sit on the committee. What would be your recommendation to us?
Answer
Your association cannot avoid the question of whether it is still needed and what would happen if the association no longer existed. Together with your colleagues, consider which activities you absolutely want to continue with and in what form. What can be given up without issue? Perhaps there is an opportunity to link up with an organisation that pursues similar goals?
Whatever the answers to these questions may be, your association was good and necessary. Without it, these offers that others are now taking on wouldn't have existed in the first place. It would therefore not be true to say that the association had failed if it now had to be discontinued.
If an association is dissolved and liquidated and ceases to exist as a legal entity, it is terminated.
If an association permanently reveals a basically illegal approach through its activities, it has an unlawful purpose. That fact leads to its dissolution, even if the official statutory purpose is admissible.
The association acquires legal personality with its lawful foundation, i.e. as soon as the founding members have held the foundation meeting and approved the written articles of association. From that moment, the association is a legal person and can establish rights and obligations. It has legal capacity to act as soon as its governing bodies are appointed. The legal capacity of the association ends with the association’s complete liquidation.
Once the dissolution of an association has been decided, its assets will be liquidated, i.e. liabilities and assets will be specified and debts settled or receivables collected as far as possible. The liquidation is usually carried out by the committee. The remaining assets are used in accordance with the articles of association; usually they are passed on to a related institution. In the absence of such provision, the general meeting or the committee shall decide on their use. If this is not possible, the surplus falls to the community or to the public sector. After the liquidation, the legal personality of the association expires. If the association is registered in the commercial register, the entry must be deleted.
Question
We are in the process of establishing a new association that wants to launch a new sport in the municipality. Can we write in the articles association that in the event of the association's dissolution, the liquidation proceeds will be handed to the municipality for management. (If a new association with the same objectives is founded.) Should it be stated in the dissolution article that the association records should be handed over to the municipality for archiving?
Answer
Generally speaking, the articles of association should not contain any provisions that also pertain to third parties if they have not provided their express consent to such a regulation. Specifically, this means that associations must enquire with the municipality as to whether it agrees to manage the money and archive the association records.
The integration of two or more associations into one association is referred to as a merger and is subject to specific rules in accordance with the Merger Act. Either one association is integrated into another one, or a new association is formed. The basis for the merger is a written merger agreement; it requires the approval of the general meetings with a qualified majority of three-quarters of the members present. All assets and liabilities shall be transferred to the new entity. The members of the merging associations shall become members of the new or the surviving association, if they wish.
The integration of two or more associations into one association is referred to as a merger and is subject to specific rules in accordance with the Merger Act. Either one association is integrated into another one, or a new association is formed. The basis for the merger is a written merger agreement; it requires the approval of the general meetings with a qualified majority of three-quarters of the members present. All assets and liabilities shall be transferred to the new entity. The members of the merging associations shall become members of the new or the surviving association, if they wish.
If an association becomes insolvent, i.e. it can no longer settle unpaid bills, this can lead to bankruptcy. Bankruptcy proceedings are opened by a judge either at the request of the creditors or at the request of the association itself (declaration of insolvency). If an association is insolvent, it shall be dissolved by law.
The articles of association can state that in addition to the membership fees, members have to inject money into the association in case the funds are insufficient to cover the association’s debts. In most articles of association, the obligation to make additional payments is explicitly excluded. Since 1 June 2005, the obligation to make additional contributions is no longer required by law but it may still be provided for in the articles of association, if necessary.
If an association can no longer meet its financial obligations, it is insolvent. According to the law, this leads to the dissolution of the association. It may have to declare bankruptcy or petition for a moratorium.
If an association is no longer able to pay its liabilities or if it can no longer cover its debts with its own funds, it is over-indebted. If it becomes insolvent, this can lead to its liquidation or bankruptcy. Both events result in the dissolution of the association.
If the association gets into financial difficulties because funds are scarce and the budgeted expenses are higher than the expected income, and if no other means are available, the association has to devise a recovery plan. It has to adjust the budget and/or raise additional funds. The recovery can consist of austerity measures or of measures to collect additional funds.