What Is Handelsgesetzbuch (HGB)?

What Is Handelsgesetzbuch (HGB)?

Let me explain Handelsgesetzbuch (HGB) directly: it's the law that sets the primary commercial code for companies in Germany. This code covers regulations for preparing financial statements and lays out accounting guidelines and best practices. You can think of HGB as Germany's equivalent to generally accepted accounting principles (GAAP) in the United States.

Key Takeaways

Handelsgesetzbuch (HGB) stands as Germany's commercial code and defines accounting standards for how companies prepare and report financial statements. It also mandates various corporate rules, including those on treating workers. In many respects, HGB's guidelines align with GAAP and International Financial Reporting Standards (IFRS), though there are key differences. Both Germany's laws and IFRS rely on historical costs for accounting, but German law typically doesn't permit revaluations like IFRS does.

Understanding Handelsgesetzbuch (HGB)

The commercial code of Germany, called Handelsgesetzbuch (HGB), was first established on May 10, 1897. In 1998, it was updated to align with new European community laws. HGB was used in Austria from 1938 until 2007, when Austria switched to its own unified code, Unternehmensgesetzbuch (UGB). Germany's accounting law saw further changes in 2010 with the Bilanzrechtsmodernisierungsgesetz (BilMoG).

HGB oversees company registration in Germany and the rules they must follow. For instance, it includes provisions on using commercial brokers, agents, and forming or dissolving partnerships with third parties. The code requires paying employees' salaries by the end of each month. Non-compete clauses in hiring contracts must be in writing under HGB. It also covers charter contracts for ships and salvage rights.

Fast Fact

You might hear HGB referred to as 'German GAAP'.

Handelsgesetzbuch (HGB) vs. IFRS

Germany's commercial code and accounting laws have both similarities and differences with International Financial Reporting Standards (IFRS). For example, both use historical costs as the basis of accounting, but German law generally avoids revaluations. IFRS permits revaluing the fair value of property, intangible assets, investment property, equipment, and inventions in certain industries. German law does allow some exceptions for fair value assessment of financial instruments held for trading by banks and financial institutions.

Income statements are mostly similar under both systems, but differences exist. German practices don't include a statement of comprehensive income. You can issue income statements using the cost of sales or total cost methods. Income from discounting provisions must be grouped with other interest and similar income. With IFRS, a company can present income or expenses in a single comprehensive income statement or as two separate statements—one for profit or loss and another for other income.

HGB requires a statement of cash flows only for consolidated financial statements and publicly traded companies not filing consolidated ones. Both IFRS and German practices classify cash flows into operating, investment, and financing activities.

Fast Fact

HGB consists of several books covering merchants, partnerships, trading, commercial transactions, and maritime transactions.

HGB and International Business

HGB matters to businesses outside Germany that deal with German entities. When companies from different countries enter contracts or transactions, they often specify the governing law. If German law is chosen, HGB's provisions could apply to interpreting and enforcing the contract. Compliance with HGB can affect tax obligations and transfer pricing for international operations in Germany.

As I mentioned, HGB sets accounting and reporting rules that influence financial statements of German entities. It provides standards for commercial transactions like sales contracts and agency agreements. If you're an international business transacting with German partners, HGB might shape your contract terms and obligations.

HGB regulates business entities such as partnerships and corporations. When you form joint ventures or subsidiaries with German entities, HGB's framework applies. It also covers commercial agents, which is relevant if foreign companies appoint agents or distributors in Germany.

What Does HGB Regulate in the Context of Commercial Activities?

HGB regulates elements like business formation, management, accounting, financial reporting, contracts, and liability in commercial activities, establishing a legal framework for businesses.

How Is HGB Enforced, and What Are the Consequences for Non-Compliance?

HGB is enforced through legal channels, including civil lawsuits, administrative actions, and possibly criminal charges. Non-compliance can lead to fines, penalties, compensation claims, and other legal repercussions.

Does HGB Cover Consumer Protection, or Is It Primarily Focused on Businesses?

HGB mainly focuses on commercial and business issues, not consumer protection. Germany handles consumer protection through separate laws and regulations.

The Bottom Line

The Handelsgesetzbuch, or German Commercial Code, provides a comprehensive legal structure in Germany for commercial activities and businesses. It covers business entity formation and management, accounting and financial reporting, contracts and transactions, and liability for entities and officers.