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Legal Information: The result received is not considered a legal advice and does not guarantee that your company will be successful in the chosen form in Germany.
The most important to do before the German company establishment is to choose the right legal form. A premature decision or one not considered thoroughly may cause major difficulties later.
In Germany, more than 10 different company types are available to those winshing to establish a company. In the following summary we present the most popular legal types and seek to help with it to choose the ideal company type.
Their common feature is that they are stand-alone legal persons in which the owners and company managers are different who may be separate persons. The company has its own assets which it can manage on its own. For the foundation, notary and registration at the commercial court is needed and the minimum prescribed corporate share capital is to be made available for the company by the owners.
One of the most popular company type in Germany is the “Gesellschaft mit beschränkter Haftung”, abbreviated as GmbH. This company type is essentially the German equivalent of a Limited or Ltd. The owners and Executives of a GmbH usually have limited liability and are not responsible with their personal wealth for the possible debts of the company. There are only a few exceptions, when the owner of a GmbH can be held personally responsible.
For the establishment of a GmbH, at least 25,000 EUR share capital is needed, from which a minimum of 12,500 EUR is to be made available for the company. The best case is if the 12,500 EUR is directly paid to a German bank account newly opened for the enterprise. As an alternative, material contribution is also possible. This, however, makes the establishment more complicated and also increases its costs.
It is essentially identical to the GmbH, thus it is nicknamed colloquially as “Mini-GmbH” Its advantage is that it can be founded from a symbolic founding capital of 1 EUR. During foundation, it is possible to use the so-called “Musterprotokoll” which is a sample articles of association defined by state. Up to 60-80% of the notary fee may be saved using it. In case of UG it is important to make clear that the primary “objective” of the company type is to transform into GmbH. For this, at least 25% of the annual profit of the enterprise is to be kept in the company, it cannot be paid to the owners as dividend. Here you can read more about how to start a UG in Germany.
The „Aktiengesellschaft” (AG) is a German joint-stock company. For its establishment at least 50,000 EUR share capital is required. Few knows that an AG may be founded even by 1 person. Since the administration of an AG requires legal knowledge from the management and the processes are very complex, an AG is rather recommended only if the company wants to go public.
At the partnerships, due to their names, the emphasis is put not on the joining of the corporate capital but rather on those taking a role in the company. The owners of the partnerships in the majority of cases are also the Executives of them and undertake personal pecuniary liability for the possible debts of the company.
Although the German sole proprietorship (“Einzelunternehmen”) is usually classified under a separate category, for the sake of clarity we categorized this company type under the personal companies. The owner of the sole proprietorship is also the Executive of the company who undertakes personal pecuniary liability for the debts of the enterprise. Its foundation and liquidation is quicker and easier than that of a GmbH, UG or AG. Both the foundation and liquidation of the company consists of one official notification which can be done the founder or a person authorised by him/her. These notifications can be made in smaller towns at the local government, in larger towns they are made at the “Ordnungsamt”.
The GbR is an extended sole proprietorship which differs from the sole proprietorship in that not one but at least two persons are required for its foundation. Statistically, the entrepreneurs having chosen the GbR company type are faced with most of the conflicts within the company. The reason for it is that all persons in the company have full authority, is responsible for the possibly occurring debts (even if he/she had nothing to do with or had known nothing of the situation developed, for example taking up an extra loan). And in the absence of obligatory prescribed articles of association the conflict management usually ends up in anguish or at the court. I do not want to discourage anyone from the foundation of a GbR, it is important, however, to choose our business partners with extra care. The best is to make a contract together which includes the most important and delicate company issues. (Note: the personal liability, however, cannot be avoided even this way.)
The “Offene Handelsgesellschaft” (OHG) is the German equivalent of the limited partnership (bt.) also known in Hungary. To establish one, a visit to the notary is required. The company is registered at the local commercial court. For the establishment of an OHG, at least two founding members are required. The members undertake personal liability and share the management of the company.
The “Kommanditgesellschaft” (KG) is an enhanced version of the OHG legal type. A minimum of two members are required for its establishment. Here, however, the internal and external members are differentiated. While the internal member performs the management of the company and has personal liability for its possible debts, the external member(s) contribute to the business risk only to the extent of their investment, for which they will benefit from the annual profit to an extent defined at the establishment.
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