Austria's new commercial code, Unternehmensgesetzbuch (UGB), came into force as of 1 January this year. It is the codified legal framework applicable to all entrepreneurs and businesses in Austria. In particular, it contains all relevant regulations on the establishment and transfer of businesses, firms, private (limited) partnerships, silent partnerships and the Austrian General Accepted Accounting Principles. The code is still, however, largely based on the Handelsgesetzbuch (HGB), but in its modernisation some very important legal areas have been replaced, amended or even abolished.

The term kaufmann (merchant) has been replaced by unternehmer (entrepreneur) as the main subject of the code. This is more than merely cosmetics. In accordance with the Austrian Consumer Protection Act, the new commercial code defines an entrepreneur broadly as any economic enterprise being performed permanently and independently in an organised manner, even if not aimed at making a profit. This results in the long-overdue harmonisation of the definition of entrepreneur in both the consumer protection and commercial laws. As a consequence, small enterprises now generally fall under the new commercial regime.

The commercial code, unless stated otherwise, is not applicable to certain professions, including attorneys, tax advisers and accountants. In addition, forestry and agricultural entrepreneurs are exempt from the application of the new regime. However, the excluded professions and the exempted entrepreneurs have the right to 'opt in', allowing them to apply for registration in the companies register. Doing this results in their activities being governed by the commercial code and all its provisions can then be enjoyed. Protection of the company name and the right to grant special power of representation are some of the more obvious benefits of opting in.

The new code has liberalised the law of company names, removing the restrictions on company names and significantly increasing the choice. However, the basic principles of prohibition of distinctiveness and deception for company names remain unchanged and must be adhered to by all entrepreneurs registered in the companies register.

Partnerships

Changes have also been introduced in partnership law. The Offene Handelsgesellschaft (OHG) has been replaced with the Offene Gesellschaft (OG), the Offene Erwerbsgesellschaft (OEG) and Kommandit-Erwerbsgesellschaft (KEG) have been abolished. The new forms of partnership are open to all entrepreneurs and can be established for all business purposes.

Under the commercial code, partnerships are now treated in the same way as corporations are. The long-disputed legal capacity of partnerships which existed under HGB has been clarified and explicitly regulated. It is now clear that a partnership is a legal entity and that the partnership can be held liable, rather than just the partners. Furthermore, the commercial code obliges all partnerships to register themselves in the companies register in order to exist in the eyes of the law. This is done through a simple application to the commercial court.

Formerly, the accounting rules of the commercial code only applied to Vollkaufmann ('fully-qualified' merchants). The broad definition of 'fully qualified' merchants under the previous regime led to legal uncertainty. Consequently, the concept of fully-qualified merchants was abolished, and the new regime introduced a fixed threshold – currently annual sales in excess of E400,000 (£271,000) – which applies to all entrepreneurs, as well as clear and objective criteria for the application of its accounting rules.

Transfer of assets/liabilities

The UGB also amended the law regarding the transfer of assets and liabilities with respect to business acquisitions. The purchaser of a business, under the new regime, automatically acquires all business-related legal relationships of the vendor. This includes rights and liabilities existing at the time of the transfer, unless otherwise agreed. However, if a third party files an objection to the transfer within three months of the notification, the contractual relationship remains with the vendor.

Even when the purchaser does not acquire all the business-related legal relationships of the vendor, he remains responsible for the liabilities existing through the relationships which were not acquired. It is important, therefore, to note that an agreement excluding such liability is valid with regard to third parties, provided it is registered with the companies register, publicised or the affected third party is specifically notified.

Irrespective of agreements to the contrary, the purchaser of a business is jointly liable with the vendor for any business-related debts (including arrears of taxes and social security contributions) of which the purchaser had knowledge or should have had knowledge of at the time of the acquisition. Solid due diligence is key to avoid such surprises, as the amount the liability is 'only' limited to the value of the acquired assets.

As the commercial code has now been extended to cover all entrepreneurs, it became necessary to revise some of the provisions carried over from the HGB.

One such revision targets the provisions on Mangelruge (notice of defect) for works and services contracts. Notice of a defect must now be given 'within a reasonable period' rather than 'promptly' under the old regime. In addition, the requirement for written guarantees and sureties has been extended to all entrepreneurs. The new commercial code also provides entrepreneurs with the right to challenge contracts on the grounds of gross inadequacy of value (laesio enormis) unless it has been expressly excluded in the underlying agreement.

The court's right to reduce a contractual penalty has been extended to entrepreneurs. Additionally, the former commercial code's provision regarding the merchant's bona fide acquisition of title or lien, has been removed. The entrepreneurs' bona fide acquisition is now governed by the rules of the civil code.

The reform

The most striking change in the new commercial code, the replacing of the concept of merchant by that of entrepreneur, typifies the drastic modernisation and simplification exercise undertaken by the Government in association with all concerned parties. The new code abolished old concepts and will be applicable to all kinds of entrepreneurs, on one hand and on the other it establishes a clear playfield for undertakings in compliance with modern business necessities. The new regime will ease business decisions with regard to the choice of company names and the application of accounting rules, thereby giving entrepreneurs clear guidance of their undertakings and the legal playfield applicable. Last, the new code abolished various provisions leading to legal uncertainty in the past and not being useful for modern undertakings. The new commercial code answers the needs of modern business and will firmly establish the country in international business, broadening the attractiveness and flexibility of undertakings in Austria.

Thomas Ruhm is a senior associate at DLA Piper Weiss-Tessbach in Vienna.