# Handelsgesetzbuch (HGB): The Commercial Code of Germany

## What Is Handelsgesetzbuch (HGB)?

Handelsgesetzbuch (HGB) is the law that governs the primary [commercial code](https://www.investopedia.com/terms/c/commercial-code.asp) for companies in Germany. The law includes a regulation related to the preparation of financial statements and establishes accounting guidelines and best practices. HGB is similar to [generally accepted accounting principles](https://www.investopedia.com/terms/g/gaap.asp) (GAAP) in the United States.

### Key Takeaways

*   Handelsgesetzbuch (HGB) is Germany's commercial code and accounting standards for how companies must prepare and report financial statements.
*   HGB also mandates various corporate ordinances and regulations dealing with the treatment of workers.
*   In many ways, the guidelines spelled out in HGB are similar to GAAP and [International Financial Reporting Standards](https://www.investopedia.com/terms/i/ifrs.asp) (IFRS), with a few notable differences.
*   Germany’s laws and IFRS both use historical costs as the core of accounting, but German law generally does not allow for revaluations as the IFRS does.

## Understanding Handelsgesetzbuch (HGB)

The commercial code of Germany, known as Handelsgesetzbuch (HGB), was first established on May 10, 1897. In 1998, the code was adapted to conform to new laws within the European community.

HGB was also been used in Austria from 1938 until 2007, when it was replaced by a newer unified commercial code called Unternehmensgesetzbuch (UGB). German accounting law was further updated in 2010 with Bilanzrechtsmodernisierungsgesetz (BilMoG).

HGB governs the registration of companies in Germany and the ordinances they must adhere to. For example, HGB includes provisions on the use of commercial [brokers](https://www.investopedia.com/terms/b/broker.asp), agents, and the formation and dissolution of partnerships with third parties.

The mandates of HGB include paying employees’ salaries by the end of each month. Under the law, [non-compete clauses](https://www.investopedia.com/terms/n/noncompete-agreement.asp) in employees' hiring contracts must be outlined in writing. There are also provisions regarding charter contracts for ships and salvage rights.

> **Fast Fact**
>
> HGB is sometimes referred to as "German GAAP".

## Handelsgesetzbuch (HGB) vs. IFRS

Germany’s commercial code and accounting laws share similarities and differences with International Financial Reporting Standards (IFRS). For example, Germany’s laws and IFRS both use [historical costs](https://www.investopedia.com/terms/h/historical-cost.asp) as the core of accounting, but German law generally does not allow for revaluations.

IFRS allows for the revaluation of the fair value of property, [intangible assets](https://www.investopedia.com/terms/i/intangibleasset.asp), investment property, equipment, and inventions within set industries. German accounting law does offer some exceptions to the fair value assessment of [financial instruments](https://www.investopedia.com/terms/f/financialinstrument.asp) from banks and financial institutions that are held for trading.

[Income statements](https://www.investopedia.com/terms/i/incomestatement.asp) are largely similar under either set of accounting laws, but differences do exist. There is no statement of [comprehensive income](https://www.investopedia.com/terms/c/comprehensiveincome.asp) under German account practices. Income statements can be issued by using the cost of sales or total cost methods. Furthermore, income drawn from discounting provisions must be included with other interest and similar income.

With IFRS, a company can decide to show its income or expenses as a single statement of comprehensive income or as two statements. The separate statements can show components of profit or loss, plus another statement for other income.

HGB only requires a [statement of cash flows](https://www.investopedia.com/investing/what-is-a-cash-flow-statement/) for consolidated financial statements and for [publicly traded companies](https://www.investopedia.com/terms/p/publiccompany.asp) that are not required to file consolidated financial statements. IFRS and German accounting practices both classify cash flows by operating, investment, and financing activities.

> **Fast Fact**
>
> HGB is comprised of several books that span merchants, partnerships, trading, commercial transactions, and maritime transactions.

## HGB and International Business

HGB can have relevance and impact on businesses outside of Germany that engage in commercial activities with German entities. For starters, when businesses from different countries engage in contracts or commercial transactions, they often specify the governing law in their agreements.

If a contract involving a German entity designates German law as the governing law, HGB's provisions may apply to the interpretation and enforcement of that contract. Compliance with HGB may also have implications for tax obligations and transfer pricing for international businesses operating in Germany.

As discussed above, HGB contains accounting and financial reporting regulations that may impact the [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp) and disclosures of German entities. HGB also provides rules and standards for commercial transactions, including sales contracts, agency agreements, and other trade-related activities. If international businesses engage in such transactions with German partners, HGB's provisions may influence contract terms and obligations.

HGB regulates various types of business entities, such as partnerships and corporations. When international businesses form [joint ventures](https://www.investopedia.com/terms/j/jointventure.asp), subsidiaries, or other business structures with German entities, the legal framework of HGB may apply to those entities. Plus, HGB includes provisions related to commercial agents which can be relevant when foreign companies appoint commercial agents or distributors in Germany.

## What Does HGB Regulate in the Context of Commercial Activities?

HGB regulates aspects like business formation, management, accounting, financial reporting, contracts, and liability in commercial activities, creating a legal framework for businesses to operate within.

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

Like other codification, HGB is enforced through legal means, including civil lawsuits, administrative enforcement, and potentially criminal charges. Non-compliance can result in fines, penalties, compensation claims, and other legal consequences.

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

HGB primarily focuses on commercial and business matters, rather than consumer protection. Consumer protection in Germany is addressed by separate laws and regulations.

## The Bottom Line

The Handelsgesetzbuch, or German Commercial Code, is a comprehensive legal framework in Germany that governs commercial activities and businesses. It addresses various aspects of commerce, including the formation and management of business entities, accounting and financial reporting requirements, contracts and commercial transactions, and liability of business entities and their officers.

> **Article Sources**
>
> 1.  Germany Federal Ministry of Justice. "[Commercial Code](https://www.gesetze-im-internet.de/englisch_hgb/)."
>     
> 2.  O. Rudorff. "_Handelsgesetzbuch Vom 10_." De Gruyter, 1897.
>     
> 3.  Rechtsinformationsystem Des Bundes. "[Bundesrecht konsolidiert: Gesamte Rechtsvorschrift für Unternehmensgesetzbuch, Fassung vom 03.10.2023](https://www.ris.bka.gv.at/GeltendeFassung.wxe?Abfrage=Bundesnormen&Gesetzesnummer=10001702)."
>     
> 4.  Bundesgesetzblatt. "[Gesetz zur Modernisierung des Bilanzrechts](https://www.bgbl.de/xaver/bgbl/start.xav?startbk=Bundesanzeiger_BGBl&jumpTo=bgbl109s1102.pdf#__bgbl__%2F%2F*%5B%40attr_id%3D%27bgbl109s1102.pdf%27%5D__1696311614207)."
>     
> 5.  Hamburg Chamber of Commerce. "[From the Accounting Duty to the Publication Duty in Germany](https://www.ihk.de/hamburg/en/fairplay/corporate-law/accounting-duty-publication-germany-1159464)."
>     
> 6.  PricewaterhouseCoopers. "[Similarities and Differences: IFRS and German GAAP](https://www.pwc.com/gx/en/ifrs-reporting/pdf/ifrs-vs-german-gaap-similarities-and-differences_final2.pdf)."