In practice, legal transactions by minors frequently require more effort in terms of their justification and organisation. The reform of guardianship and care law will make several aspects of this easier. Other legal transactions will require approval for the first time.

Minor children and their parents need to be aware of various restrictions and hurdles when carrying out legal transactions. These are intended to protect minors from legal transactions that are to their disadvantage and from liability risks that can arise, for example, in real estate transactions or when participating in companies. When a legal transaction is to be conducted by a minor, one should always check cumulatively whether the appointment of a supplementary guardian and the family court's approval are required. As the legal transactions that are typically risky for minors are the same as those for wards and guardians, essentially the same regulations apply. The new guardianship and care law, which has been in force since 1 January 2023, therefore also has an impact on legal transactions of minors.

Overview of the changes

The German Act on the Reform of Guardianship and Care Law [Gesetz zur Reform des Vormundschafts- und Betreuungsrechts, VBRRefG] has no effect on supplementary guardianship. If a legal transaction only brings the minor a legal advantage, they can act for themselves from the age of seven. They otherwise require representation, to which the parents are fundamentally authorised. However, parents cannot effectively represent their child, among other things, if they themselves are their child's contractual partner. When parents are excluded from representation, minors must be represented by a supplementary guardian. Such guardian is appointed by the competent family court.

In addition, the law requires the approval of the legal transaction by the family court in specific cases. The amendment of the law has led to many minor changes, clarifications and restructurings. However, in terms of content, the majority of the previously existing approval requirements has been adopted unchanged. The new regulations combine the individual reservations into paragraphs that belong together thematically, making them clearer overall.

Legal transactions under company law

Trade or business

The regulations on the need for approval of legal transactions under company law have in some cases changed considerably, especially in their wording. The changes primarily affect companies that operate a trade or business. Companies that operate a trade or business act in a professional capacity and on a long-term basis with the intention of generating profit. This always entails an abstract liability risk for the minor.

According to the new legal situation, not only the initial conclusion of a partnership agreement of partnerships and corporations that operate a trade or business requires approval. The acquisition and sale of individual shares in such a company also require the approval of the family court.

Until now, joining a partnership (which is not expressly regulated) that operates a trade or business was treated as the initial conclusion of a partnership agreement and thus required approval. This is because the risk associated with the operation of a trade or business exists regardless of whether such business is newly founded or already exists. Joining a corporation was previously considered to be partly exempt from approval. Here, it is the legally independent corporation as a legal entity that operates the actual trade or business and not the minor. However, the family courts often affirmed the need for approval if there was a liability risk for the minor, e.g. of having to make up for deficits or make additional contributions. The new wording therefore now covers more legal transactions than was previously the case.

Gifts of shares

In addition, with the new wording, the legislator has now also explicitly covered gratuitous acquisitions in order to avoid liability risks arising despite the gratuitousness. Thus, gifts of business and company shares also require approval. Previously, some courts rejected the need for approval in the case of a gift of a limited partner's share. However, the prerequisite for this was that the share was fully paid up and the transfer was subject to the condition precedent of its entry in the commercial register. In this case, namely, the liability of the joining limited partner is limited to the contribution that has already been made; any further personal liability of the minor in the period between joining the partnership and the entry in the commercial register is excluded. According to the new version of the law, however, these cases also require approval. It remains to be seen whether the courts will adapt their case law in view of the now unambiguous wording and require the approval of the family court for every transfer of a business or company share.

Asset management companies

As before, legal transactions relating to purely asset management partnerships are exempt from the approval requirement; these do not operate a trade or business. According to the wording of the law, the transfer of limited partners' shares in purely asset-managing limited partnerships to minors continues to be fundamentally possible without family court approval. The appointment of a supplementary guardian is also not required. Nevertheless, in the past the courts have assessed differently when a trade or business exists and whether the legal transaction is merely legally advantageous. Depending on the court district, the appointment of a supplementary guardian and family court approval were sometimes also deemed necessary in the case of typical asset-managing family companies. It remains to be seen whether the new version will finally create clarity and put an end to the inconsistent treatment.

Until the amendment of the law, according to the wording the requirement of approval existed only for "contracts". The underlying transaction in which the minor is obliged to make a subsequent disposition (obligation transaction) was clearly subject to approval. However, it was disputed whether actual dispositions were also covered by the approval requirement, i.e. the subsequent transfer of the business or company share. Due to the new wording, both (i.e. both obligation and disposal transaction) must now be expressly approved.

Property-related legal transactions

The acquisition of residential property and part-ownership against consideration was already subject to approval. In supplementation of this, the acquisition of residential or part-ownership without consideration is now also subject to approval. This is because joining a community of condominium owners gives rise to extensive liability risks (irrespective of the question of any consideration).

The acquisition of real estate by way of a gift is generally not subject to approval. If a reservation of a recovery claim is agreed in connection with an acquisition of real estate by way of gift by the minor, this requires approval. This is because the minor is being obliged to (re)dispose of the acquired real estate. Approval is not necessary if it is ensured in the agreement that the liability of the minor receiving the gift remains limited to what has been given gratuitously.

As before, dispositions of liens on real property as well as obligations to make such dispositions do not require approval.

Contracts for recurring services

As before, contracts obliging the minor to make recurring payments require approval if the contractual relationship is to continue for more than one year after the child has reached the age of majority. This can be relevant if, for example, insurance or building society contracts are to be transferred to a minor.

Furthermore, the conclusion of training, service or employment contracts is exempt from the approval requirement.

In addition, contracts are exceptionally not subject to approval if the minor can withdraw from the contract without economic disadvantages until the age of 19. Although this has not been embodied in law so far, it has been standard practice.

In addition, a new exception to the approval requirement has been created: contracts that are of only minor economic importance for the minor do not require approval. These include transactions of daily life that are typical for the minor's age, the counter-value of which the minor has already received or regularly receives, such as mobile phone contracts, gym memberships or subscriptions to streaming services.

It is not possible to circumvent the approval requirements by using the "pocket money paragraph" (Sec. 110 of the German Civil Code [BGB]). Parents cannot give their underage children the means to carry out a transaction that requires approval in advance without giving such approval. This is because the parents’ consent to the legal transaction requiring approval that is given through the transfer of funds is in itself already subject to approval.

Approval procedure

The approval procedure has essentially remained the same.

The time limit for subsequent approval of a legal transaction by the family court upon request by the contracting party has been extended from four weeks to two months.

Unilateral legal transactions carried out without the required approval of the family court are generally invalid. What is new is that unilateral legal transactions carried out without the required approval vis-à-vis a court or an authority are only "provisionally invalid". Although they initially have no legal effect, they can subsequently be approved by the family court. Such unilateral legal transactions are, for example, disclaimers of inheritance or applications for partition auctions.

Conclusion

On the whole, the changes to legal transactions by minors made by the German Act on the Reform of Guardianship and Care Law can be welcomed. Although more legal transactions now require approval, the changes are often of a clarifying nature and, through the restructuring, simplify the application and examination of the approval requirements.

We would be happy to advise you on the preparation and execution of transactions involving your minor children.

Malte Menken, Johanna Matheis

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