Company Formation in Germany

Setting up a company in Germany raises many questions and the process of incorporation of a company in Germany is different then in other countries. Which form should your German corporation have? Which risks and benefits do the different company forms entail? Which conditions need to be satisfied? Our corporate lawyers at Schlun & Elseven can advise you on all these questions and help you to incorporate a company in Germany successfully.

Germany is the ideal country in which to expand a business. Situated at the heart of Europe, Germany is a hugely important market for investors and entrepreneurs. When it comes to setting-up or expanding a business there are many reasons to choose Germany as your enterprise’s location – and its no surprise that so many of the world’s leading companies have already! With its world-famous transport network, impressive infrastructure, its educated and productive workforce, the large domestic market and its connections to other European countries, it really is the smart move to expand to Germany!

However, setting-up a company in a foreign country does raise many questions. Difficulties can arise that may not have occurred in other countries and such problems are often difficult to mitigate for in a new environment. This is why it is important to have a reliable, competent and well-versed legal partner at your side. Our experienced lawyers at Schlun & Elseven are more than capable of handling any issues you may have in the establishment of your enterprise. We advise a wide range of clients including regional, national and international companies on German, European and International Law. With offices in Aachen, Cologne and Düsseldorf as well as meeting rooms in Berlin, Munich, Hamburg, Stuttgart and Frankfurt our company law team are here to ensure that our clients have the legal representation they deserve!

Necessary Steps to Establish a Company in Germany

Business Plan: First of all when establishing an enterprise one should design a detailed business plan. This business plan will be used when seeking investment, tracking progress and to evaluate solutions to potential difficulties in the future. The more detailed and carefully thought through a business plan is the better. A good business plan will outline the unique aspects of an enterprise and where the gap in the market is for this business idea. It will provide investors, potential partners and workers clarity with regards to the company’s aims, direction and the opportunities which the company is seeking to make the most of. We have a team of business consultants and tax advisors and are happy to help you with the preparation of your business plan.

Type of Company: A well-designed business plan will also determine which type of company one should set up to achieve the goals as laid out in the plan. The types of company are outlined further down on this page and the inherent advantages and disadvantages of each are provided. If you are unsure which is the best form of company for your idea it is recommended to avail of legal advice. As a client of our firm we will provide you with the necessary advice so that the type of company established will be suitable to its goals.

Finances: Once the type of company has been decided on the next step is to ensure that the necessary financing is available for the type of company sought to establish. The required finance for setting up a Private Limited Company (GmbH) is very different to that required for a sole proprietorship. This article will later outline in more detail the financial differences in what various types of businesses require in their foundation.

Name of the Company: If the plan, type of company and finances are all available, the next step is the name of the company. Creating a unique and memorable name is not easy but it is vital. During this stage it is worth considering who your target market is when considering the company name. Depending on the size of the company it may be worth seeking to copyright the name of your company. The requirements of copyright law can also be provided to you by this firm during discussions with us. It is worth knowing that the German Commercial Code (in German “Handelsgesetzbuch” or HGB) regulates the manner in which names can be used. It includes provisions such as the non-allowance for misleading names (§18 HGB) and the need for a name to be distinguishable from other companies (§30 HGB).

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Our Corporate Law Services

Our corporate law team offer expertise in dealing with all legal questions arising in relation to establishing companies in Germany and Europe. Our firm has offices in Aachen, Cologne and Düsseldorf with conference rooms in Berlin, Frankfurt, Munich, Stuttgart and Hamburg. Our multilingual legal team can converse with you in German, English, Spanish, Russian, French, Arabic and Turkish to ensure that you are kept informed as regards the legal requirements in relation to any questions you have. If you have any issues as regards establishing a company in Germany, moving your company to Germany or opening a subsidiary in Germany make sure to contact our company law team. A list of our services are provided here:

  • Company incorporation
  • Drafting and amending of articles of association
  • Mergers and Acquisitions (M&A)
  • Insolvency restructuring
  • Assistance with Private Limited Companies
  • Assistance with Public Limited Companies
  • Consultation and mediation
  • Representation both in and out of court
  • Start-Up assistance
  • Comprehensive legal assistance

Your contact for company formation in Germany

Lawyer for company law: Florian Reisser in Aachen, Cologne and Düsseldorf

Aykut Elseven
Managing Partner


Mastering the legal aspects of starting your own business in Germany.

As a full service law firm, Schlun & Elseven will support you and your business comprehensively.

Types of Companies in Germany

When it comes to establishing a company and deciding on which type of enterprise to be it is worth bearing in mind issues regarding: tax, level of liability, the level of control over the company and the costs involved in setting up the company. In this section, we will examine the different types of companies and their advantages and disadvantages. This page will start off with the Limited Liability Companies such as GmbHs (private limited companies), UGs (entrepreneurial companies/mini-GmbHs) and AGs (public limited companies) as well as explore the KG (limited liability partnership) and the related hybrid business model the GmbH & Co. KG (limited liability partnership with a limited liability company).

Limited Liability Companies:

The GmbH / Ltd. Company

The GmbH (Gesellschaft mit beschränkte Haftung) is the most common form of limited liability company in Germany. It is the German equivalent of a private limited company (Ltd.). This type of company is the most common type of limited liability company in Germany and this comes with certain advantages as well as issues and it is predominantly for small to medium enterprises. An added bonus with the GmbH is that it carries a certain amount of credibility in the eyes of investors that other forms of companies may not have. When it comes to the regulation of the workings of the GmbH, the Gesetz betreffend die Gesellschaften mit beschränkter Haftung – in English “The Limited Liability Companies Act” – has a key role to play.

Advantages of a GmbH
  1. Limited Liability: The private assets of directors and shareholders cannot be targeted in the event that the company faces financial difficulties. The company is in itself a distinct legal entity and therefore the directors’ private assets are not seen as part of the company.

  2. Credibility: When it comes to enticing potential investors and shareholders it is valuable to trade as a GmbH as these forms of company have a long history. A GmbH also requires a minimum of €25,000 in share capital at time of starting up (a minimum of €12,500 in cash and the rest as equipment, property, assets (“in kind”) and this requirement provides a level of confidence that the business has enough assets to keep it afloat.

  3. Distinct Legal Person: As a distinct legal person the company can enter contracts, take legal cases and own property in its own right. This aspect links in once again to the above point about limited liability.

  4. Not Limited to German Citizens: When it comes to creating a GmbH there is no requirement for the entrepreneur, directors, shareholders etc. to be German or even within the European Union. However, it is worth noting that it helps when there are representatives and offices in Germany when it comes to dealing with bureaucracy and with dealing with the banks.

  5. Certain Tax Benefits: Although the GmbH has to pay some extra taxes in the form of the trade tax (Gewerbesteuer) there are benefits in the form of tax breaks. Certain company assets can be written off when it comes to paying tax. It is advisable to seek legal advice as to what can be written off from the company’s tax bill.

Issues to be Aware of:
  1. Higher Establishment Requirements: When establishing a GmbH there is a requirement for a minimum of €25,000 in share capital to get the full benefits of a GmbH. As stated above there is a requirement for a minimum of €12,500 of that to be in cash. There are other fees that also need to be paid at the stage of incorporation.

  2. Legal Requirements: In forming a GmbH the entrepreneur has to contend with greater legal complexities with more extensive paperwork and bureaucracy. Such requirements include: the Articles of Association, the obtaining of notarized certification and registration with the Commercial Registry. Obtaining legal assistance at this point can help immensely when it comes to speeding up this process.

  3. Taxes: Although there are certain tax benefits as regards assets that can be written off when it comes to paying tax, there is also a greater variety of taxes when it comes to companies. As well as corporation tax (at 15%) there is also a trade tax and a solidarity surcharge.

  4. Accountability: When it comes to accountability a GmbH has to publish their accounts at the end of the year in their “Jahresabschluss”. This is to show shareholders and future investors the inner workings of the company and ensure that what the company has used their finances for is above board.

In determining whether the GmbH is the correct way to proceed for your company bear in mind aspects such as:

  • The state of the company’s finances,
  • Preparing the business plan sufficiently to deal with the greater challenges with a GmbH,
  • The business landscape for this area – are the competitors GmbHs?,
  • The ability to access the necessary share capital requirements,
  • Whether the experience and knowledge within the company is sufficient to go down the GmbH route.

The UG/The Entrepreneurial Company

The UG (Unternehmungsgesellschaft) is a more recent addition to the types of limited companies recognised under German law. This form of company is one that has been designed with Start-Up companies in mind. It is a more flexible form of business and the enterprise does not require the same financial requirements as the more traditional GmbH in its foundation. The UG was legislated for in 2008 by §5a of the Limited Liability Companies Act and since then it has helped contribute to Germany’s growing reputation as one of the best countries in which to found a Start-Up company.

Advantages of the UG
  1. Lower Share Capital Requirements: In starting off there is no requirement for €25,000 in share capital. In fact the required amount is (under the law) only €1. However, it is worth noting that when it comes to enticing potential investors it is advisable to have significantly more invested in order to plan for the company’s expenses etc.

  2. Lower Financial Requirements: Again, with the UG being primarily concerned with Start-Up companies the financial requirements involved in setting up this type of company is much reduced.

  3. Limited Liability/Distinct Legal Person: Like the GmbH, forming an UG allows the directors and shareholders to benefit from limited liability. The company created is a distinct legal person and can engage in signing contracts, court cases etc.

  4. Possibility of Becoming a GmbH: An UG can be transformed into an UG once it has collected the required €25,000 in share capital. This is not a requirement and there is no timeframe in which this needs to be achieved. However, once an UG reaches this stage of its development it is something worth considering as there are some benefits in having a company registered as a GmbH.

Issues to be Aware of:
  1. Reputation: Whereas the GmbH is well-known and established in Germany, the UG is not deemed to be as trustworthy or as financially solid as a GmbH. When it comes to investors and attracting the interest of future shareholders it is worth investing time and effort into the business plan and ensuring that there is a sufficient amount available to deal with the starting costs.

  2. Share Capital Requirements: Although the share capital requirements are much lower for the UG in comparison to the GmbH, the full amount of the share capital must be available in cash. Share Capital in kind is not accounted for which is in contrast to the GmbH.

  3. Savings: It is a requirement that UGs save 25% of their annual profits. This amount cannot be distributed to the shareholders as a dividend. This requirement does not apply to GmbHs. However, it is by saving this amount that UGs can eventually build up the financial reserves in order to re-establish themselves as GmbHs.

In deciding whether the UG is the right path for your company consider the following:

  • The finances and share capital available to the company,
  • The area in which the company is operating as some areas of business are more open to Start-Up (UGs) as opposed to other areas of business,

  • Is the company planning on becoming a GmbH in the future?

The AG – German Public Limited Company

The AG (Aktiensgesellschaft – stock corporation) is the closest equivalent to the Public Limited Company (plc.). The AG is similarly liable for the same taxes (corporation, solidarity surcharge and regional tax) as the GmbH and also grants limited liability to those involved. AGs are not as numerous as GmbHs as AGs are generally much bigger corporations who operate in a variety of markets. In setting up an AG in Germany here are the key considerations to bear in mind:

  • Higher Requirements for Share Capital: AGs requires a minimum of €50,000 in share capital. This includes property, equipment and other assets as well as through direct financing. However, it is worth noting that a minimum of €12,500 must be lodged when registering the company. This is significantly higher than the requirements for a GmbH.

  • Ease of Share Transfer: As shares can be transferred on the stock exchange it is easier for new investors to buy shares of the company. This can help with the financing of new and expensive projects. Access to more finance is generally easier for AGs.

  • Reputation: AGs are companies that tend to carry a weighty reputation both within Germany and outside. These are companies that tend to operate in a variety of countries and have experience in running complex operations. These type of companies can attract the best workers and directors.

  • Transparency: AGs are companies that operate in a manner that requires them to publish their accounts on an annual basis. This allows outside parties to examine the financial status of the company in greater detail. With this in mind, an AG has to operate at a more professional level than other forms of companies on this list.

  • Administration and Bureaucracy: Operating an AG company is a major operation. The level of complexity involved in such firms requires the very best when it comes to ensuring that they are operating to the highest possible standards. The paperwork requirements for such companies is also extensive. Comprehensive legal counsel and assistance is a necessity for ensuring the smooth running of such enterprises.

  • Shareholders: Such AGs can attract a wide variety of shareholders with the most prominent featuring on the executive board. Delivering a significant dividend to shareholders is the best way of ensuring that they remain satisfied with the company’s business. The AGM of shareholders decides on those who serve on the executive board.

An AG company is one which generally operates as a market-leader with the advantages and disadvantages of being at the top inherent to their nature. This type of company is open to the risks involved in the market place and has to be operating and administered to the highest standards. Depending on the size of the company the GmbH route provides the advantages of limited liability without the same level of exposure. However, if a company is considering moving from a GmbH to an AG model it is strongly advised to obtain individualised legal counsel in order to discuss the individual circumstances surrounding that particular firm.

Mixture of Limited and Unlimited Liability Companies:

The Kommanditgesellschaft (KG) – Limited Liability Partnership

The KG -(Die Kommanditgesellschaft) is a form of partnership with an element of limited liability. In this form of business the partnership has a minimum of two partners with there being limited partners with limited liability (Kommanditist) and general partners with unlimited liability (Komplementär). Under this form of partnership the partners can be natural or legal persons and this is what gives rise to another form of business where a GmbH or an UG can take the role of the Komplementär (general/unlimited liability partner) in the form of the GmbH & Co. KG or UG & Co. KG. In a KG the Komplementär have a more active role in the management of the company. These partners generally make the daily decisions about the direction of the partnership whereas the Kommanditist acts primarily as an investor in the company.

In order to form a KG the partnership agreement must outline the list of shareholders and also distribute the roles of the limited liability partner and the unlimited liability partner. They must also present the name of the partnership, the purpose of the enterprise as well as its planned duration among other aspects.

Establishing a KG

The requirements involved in setting up a KG partnership are much less onerous than those involved in setting up a limited company. Here is how one should set up a KG.

  • Partnership Agreement: This written agreement should outline the role of the partners and establish which partners are the general partners (with unlimited liability) and which ones are the limited partners (with limited liability). The agreement should also outline the aims of the partnership, the distribution of the profits of the partnership and how the KG will contend with the changing of shareholders/partners within the partnership.

  • Registration: The partnership agreement should then be overseen by a notary before the KG is registered with the trade office, the tax office and the registrar.

  • Capital Requirements: Like other partnership arrangements there is no set amount required of capital needed to start a KG. It is recommended to have enough finances to adequately support the partnership in the early stages of business in order to fully establish the business.

Advantages of the KG Company Model.
  • Ease of Establishment: In common with other forms of partnerships, the KG is relatively straightforward to establish. In establishing a KG the partners should draft a partnership agreement which lays out the purpose of the partnership, the business aims, the designation of general partner and limited partner. The requirements within a partnership agreement are less onerous than those on a limited company’s articles of association.

  • Limited Liability Element: Due to the fact that the KG allows some partners to have limited liability serves as encouragement for greater investment in the partnership.

  • Greater Level of Control: Under a partnership arrangement the partners have more control over the aims of the firm than they would in a limited company setting. The share of the company’s profits is also likely to be increased depending on the nature of the KG.

  • Shareholder Turnover: With the right plan in place in the company’s partnership agreement there should be little disruption when it comes to changes of shareholders/limited partners.

  • Flexibility: With the general partners as those in charge of the management of the company there is greater flexibility in how a KG is run compared to a limited company. The general partner makes the operating decisions as to the manner in which business is conducted. Of course they also run the risk due to the fact that they have unlimited liability.

Issues to be Aware of:
  • Bookkeeping and Records: The bookkeeping requirements for KGs are not as high as those for GmbHs and AGs but like all companies they need to ensure that they keep their records. At the end of the year it is a requirement that they submit their profit-and-loss account and balance sheet to the Trade Register.
  • Taxes: A KG is not liable for corporation tax in its own right however, if the partner of the company is a limited company (Gmbh & Co. KG/UG & Co. KG) the tax liable for the partnership will be part of the corporation tax paid by the partner company. Otherwise, for natural persons, the tax liable will be calculated as part of their income tax requirements.
  • Unlimited Liability of the General Partner: It is worth keeping in mind that the General Partner faces a risk when operating under this model as if the partnership faces legal or financial issues their personal assets (not just those invested in the company) can be at risk.

  • Purpose: A KG partnership is a partnership with a commercial purpose as opposed to a more general purpose (such as those which can be registered under the GbR/Civil Law Partnership). This means it is subject to the requirements within the HGB (German Commercial Code) and subject to commercial registration.

The GmbH & Co. KG/UG & Co. KG

This model of business is proving to be a popular form of business in Germany. It combines the limited liability aspects of the limited company with the features of the partnership model. Under this model, the limited partner and the general partner present in the KG model is still applicable with one small difference. The role of the general partner is taken by a limited company. This results in the partner with unlimited liability being the directors of a limited company. As such their personal assets are not at risk as is usually the case in a partnership arrangement. In this piece the company model will generally be referred to as a GmbH & Co. KG but the same rules apply to UG & Co. KG business models as well. Here are some advantages and issues to be aware of when considering this model of business:

Establishing a GmbH & Co. KG

Establishing a Gmbh & Co. KG is easier than creating a GmbH or other forms of limited company. It follows the rules of creating a KG and other forms of partnership.

  • Partnership Agreement: The partnership agreement outlines the roles of the different partners within the organisation as well as the purpose of the enterprise. In the case of GmbH & Co. KGs the directors of the GmbH take the role of the general partner. The partnership agreement requires less onerous establishment necessities than is the case for limited liability companies generally.

  • Share Capital: Unlike liability companies there is no requirement to have a set amount of share capital in place to establish this business model. The only requirement when it comes to share capital is that the requirements for a GmbH have been made available to set the parent company up in the first place.

  • Registration: The business needs to be notarised and registered with the relevant bodies such as the Finanzamt (tax office), the local trade office and the registrar of businesses. KG companies are commercial in nature and thus subject to requirements under the HGB (German Commercial Code).

Advantages of a GmbH & Co. KG

There are a number of advantages associated with this mode of business as can be seen here.

  • Ease of Establishment: The requirements to set up this model of business are far less complex than those involved in setting up a limited company.

  • Changes of Shareholder: Should a change in shareholder arise it is generally easier to accommodate such a change under this model of business compared to the paperwork requirements for a standard limited liability company.

  • Tax Benefits: A GmbH & Co. KG model has a trade tax allowance up to the limit of €24,500. There are other tax benefits under this model as well in terms of how profits and losses are distributed. As partners of the enterprise the GmbH has their tax calculated on their profits and this is charged to the corporation tax of the company. The tax returns of such enterprises are also scrutinised to a far lower degree than would be the case for a limited liability company.

  • Control: The control of this partnership in terms of its business decisions is made by the managing director which is in this case the GmbH. However, the GmbH of course needs representation and in this case it is the managing director of the GmbH. In its decision making such an enterprise follows the rules of partnership and thus there is far more freedom granted to the managing partner than would be the case under a limited liability company arrangement.

Issues to be Aware of

When establishing a GmbH & Co. KG just take note of the following issues:

  • Administration Issues: Ensuring that this form of company operates in tandem with the original GmbH can be complicated and costly. Organising two forms of companies operating with different tax, bureaucratic and other requirements can cause issues if the parent company is not big enough for the extra administration issues arising. This issue is of course dependant on the nature of the company involved and is based on an individual case basis. It is worth receiving assistance and advice of the legal and other issues involved when deciding on this form of business model.

  • Accountability: The accountability requirements for a GmbH & Co. KG are not as strong as those placed on a standard limited company. However, it is worth noting that this partnership is obliged to prepare double-sided accounts, keep its financial records for up to ten years and must publish its accounts to show some transparency in its business dealings.

  • Investment: Banks and other groups may be less willing to invest in the operations of such a company due to the awareness that the partner with unlimited liability is a limited liability company.

Company Forms With Unlimited Liability

When it comes to companies with unlimited liability there are also quite a few options in Germany which we will examine now in some detail. When it comes to unlimited liability, the contractual partners are not insulated from the fortunes of the enterprise. If the company gets into financial difficulty the personal assets of the entrepreneur/partner can be used as collateral. The forms of unlimited liability companies are: sole trader (Einzelunternehmer/eingetragener Kaufmann (- e.K.), general commercial partnerships (OHG), civil law partnerships and being the general partner in a KG (limited liability) partnership. In this section these forms of enterprises will be outlined and presented with their inherent advantages and disadvantages.

Einzelunternehmer – Sole trader

This form of business involves a person working generally under their own name. There is no legal distinction between the company and the individual running it. This type of business is the easiest to get started and it is one in which the founder has most control. Within the framework of the Einzelunternehmer in Germany the distinction is also made between sole traders and freelancers. However, this type of enterprise has certain advantages and disadvantages attached to it and is only suitable for small businesses.

Advantages of e.K.
  1. Reduced Paperwork: It is comparatively easy to start an e.K. compared with other forms of businesses.

  2. Independence: As a sole trader the entrepreneur can make the important decisions for the enterprise without needing to consult with shareholders and other parties.

  3. Profit Dividend: The lack of other parties in the enterprise also means that the profits made by the enterprise are those of the entrepreneur themselves and is not given out to others.

  4. Disclosure of Income: The accounting requirements for sole traders are much reduced in comparison to other forms of business. There is also no requirement for the sole trader to publish their reports for public scrutiny. In general, the legal requirements for e.K. businesses are very much reduced compared to other forms of businesses.

  5. Low Starting Costs: Compared with other forms of business the financial burden for starting an e.K. is much reduced. The fees for registering the company tend to be in the double digits and there is no minimum requirement for share capital or reserves. However, it is to be noted that when starting such a business that one should have finances available to get the company off the ground.

Disadvantages of e.K.
  1. Risk: Unlimited Liability: As the enterprise is not distinct from the individual entrepreneur they are liable for the survival of the company. The level of risk taken by the entrepreneur is far greater. If the company should face financial difficulties, the private assets of the individual can be targeted as part of the repayment phase.

  2. Investment: Receiving outside investment from banks and other third parties can prove to be difficult due to the nature of such companies and the acknowledgement of the risk involved in such businesses. These businesses also tend to be small so the attractiveness of them as investment opportunities is greatly reduced.

  3. Responsibility: The independence point above refers to the benefits of being your own boss, however the level of responsibility inherent in such an enterprise can also be a disadvantage. When going down this route the entrepreneur may have fewer voices with which to discuss ideas about the direction of the company. They are responsible for every aspect of the company.

  4. Financial Management: In an e.K. arrangement the entrepreneur is solely responsible for ensuring that the relevant taxes are paid for at the deadlines proposed. They also need to ensure that they are keeping the record books up-to-date and do not have specific people within the company who can look after these aspects of the business.

This form of business carries the most risk as regards liability. However, it is also noteworthy that it is the easiest form of business to establish. Setting-up an e.K. type business can be a good way for an entrepreneur to start a business in Germany but other forms of individual business models can also be found such as one-person GmbHs and one-person UGs. If you are not sure which route best suits your business or business idea make sure to contact Schlun & Elseven for advice when it comes to establishing a business.

GbR – Civil Law Partnership

Another form of partnership under German Law is the GbR – Gesellschaft bürgerlichen Rechts or Civil Law Partnership. The legal regulation of partnerships can be found under Title 16 of the German Civil Code (§§705 – 740 BGB). This form of partnership is more flexible than the OHG (General Commercial Partnership) as it can also be concerned with charitable, artistic and other non-commercial aims. It is also not regulated by the German Commercial Code (HGB) but rather the BGB. This form of partnership is suitable for start-up companies, freelancers who wish to work together and those who wish to work together on a project where the aim is not strictly financial profit.

Establishing a GbR/Civil Law Partnership

When establishing such a partnership one should bear in mind the following steps.

  1. Capital Requirements: There are no formal requirements as regards having a set amount to start the partnership. However, it is worth bearing in mind that there are loan schemes and grants available in some cases when it comes to starting off a new company. Even if there are no formal requirements it is worth ensuring that the partnership has enough finances to keep it going through the first few months.

  2. Partnership Agreement: Partnership Agreements can be made orally but then become quite difficult to enforce without written evidence. A written partnership agreement specifying the aims of the partnership, the responsibilities of the individual partners and the rules of the partnership as regards voting procedures, distribution of shares and management of profits/losses made. Receiving legal advice in how to draft such an agreement so to make it clear and binding is recommended.

  3. Registration: In contrast to the OHG the GbR does not need to be registered with the company registrar. However, it does need to be registered with the Finanzamt (tax office).

Advantages of the GbR/Civil Law Partnership
  • Flexibility: The GbR partnership is more flexible than the OHG in terms that it is regulated for by the German Civil Code – BGB – and not the stricter German Commercial Code – HGB. The GbR also does not need to be registered with the commercial registrar but can do so voluntarily. The purpose of the GbR does not have to be focused primarily on making a profit and can instead be concerned with other aims.

  • Division of Costs: This is a general advantage of partnerships for entrepreneurs and freelancers and applies also for OHGs. By establishing a partnership the costs of establishment and running the business are divided between the partners. This reduces the financial burden on any one entrepreneur.

  • Expertise/Division of Labour: By establishing a partnership the partners can also focus more on the aspects of the business that they specialise in. Under an e.K. the entrepreneur is solely responsible for the workings of the company but in a partnership there is less of a requirement to oversee every aspect of the firm.

  • Capital Requirements: Establishing a GbR is quite straightforward as in contrast to other forms of companies in Germany there is no set requirement for the amount of capital needed.

  • Ease of Establishment: As can be seen above the requirements as regards setting-up a GbR are the quire straightforward. In comparison to limited liability companies the requirements are much reduced.

Issues to be Aware of:
  • Unlimited Liability: GbR partnerships are unlimited liability companies and can therefore form a risk to the partners. It is worth noting here that should one partner (Partner A) find themselves in legal/financial difficulties Partner B can also be found to have to answer for those difficulties. The partners are not separated when it comes to unlimited liability. In the event of there being a legal or financial difficulty within the firm the private assets – and not just what has been invested in the company – of the partners can be sought after.

  • OHG: Should the GbR partnership become more commercial in nature it may be obliged to become an OHG partnership. There is no set requirement when this comes into affect, but generally it is held as when the partnership has a turnover of €250,000 per annum and when there are five or more employees working for the partnership.

  • Name choice: A partnership is restricted in their choice of business name as the company should include the name of at least one of the partners. The business name can also include information about the purpose of the company.

  • Tax: The shareholders pay tax on behalf of the company under their own income tax declarations. In the event of a partner being a limited company the tax paid is in their corporation tax. The partnership itself pays local business tax and may have to pay VAT depending on whether it is a mercantile business.

OHG – General Commercial Partnership

The general commercial partnership is another form of unlimited liability company. This type of partnership is one strictly for commercial activity and is thus more limited than the Civil Law Partnership. The OHG (offene Handelsgesellschaft) involves two or more partners coming together for a commercial activity. The partnership is then registered with the commercial registrar. Again, should the partnership face financial difficulties it is the partners themselves who can be targeted as regards the liability.

Advantages and Issues to be Aware of

Advantages: Similarly to the e.K./sole trader the advantages here arise in issues such as the ease of establishing this form of company, the level of independence under which the partnership operates and that the profits are those of the partners without much outside interference. It is worth noting that when it comes to commercial activities the OHG is a more reputable form of enterprise than the Civil Law Partnership. This means it is easier to obtain financial support from banks and outside parties.

  • Independence: The partners are the owners of this enterprise and do not have to satisfy the requirements of a board of management.

  • Ease of Establishment: In terms of bureaucracy a OHG can be established with a Partnership Agreement as opposed to issuing Articles of Association and other forms of paperwork. The cost of establishing a OHG is also greatly reduced in comparison to other forms of companies. There is also no requirement for an amount in share capital.

  • Reputation: OHGs have a stronger reputation than both e.K. and GbR forms of unlimited liability enterprises when it comes to dealing with obtaining additional finace.

  • Legal Entity: Although not fully a separate legal entity from its partners the OHG does have certain legal attributes. For example cases can be taken by and against the partnership itself as opposed to its individual partners.

  • Public Disclosure: There is no requirement for the OHG to publicly publish their accounts.

Issues to be Aware of

The issues to be aware of are those generally associated with unlimited liability companies. The partnership may have certain aspects of a legal identity but it does not grant the partners any protection as regards liability. The issue of liability can affect the individual partners even after the partnership as an entity has been dissolved. It can also impact the partners to a degree that exceeds what is stated in the Partnership Agreement. For example, if the Partnership Agreement states that Partner A is responsible for 60% of the enterprise and that Partner B is responsible for the other 40% Partner B can still be held accountable in the event of Partner A declaring bankruptcy and inability to pay off liabilities.

  • Unlimited Liability: The assets of the partners can be targeted in the event of financial trouble.

  • Taxes: The taxes involved are those of income tax of the partners. Their enterprise is not recognised as one in which corporate tax rates apply to.

  • Records and Financial Statements: The OHG must keep records and up-to-date financial statements in profit-and-loss accounts. These must be made available to the registrar at the end of the financial year.

  • Dissolution of Partnership: It is quite easy to dissolve an OHG as it merely requires agreement between the partners to dissolve the enterprise. However, as stated above the partners need to be aware that the mere dissolution of the company does not prevent them from paying debts owed.

  • Turnover Requirements: This form of partnership is one formed for strictly commercial issues as opposed to the more flexible GbR (Civil Law Partnership). If a GbR partnership reaches a certain turnover limit, or demonstrates itself to be commercial in its nature, it is obliged to register as an OHG. This requirement is generally held as when the turnover is over €250,000 and/or when it employs five or more people.

An OHG is a respectable manner in which two or more entrepreneurs in the same line of work can cooperate together to pool their resources and talents. There is a degree more control and ease of establishment in comparison to a limited company but the issue of unlimited liability indicates the risk involved with such an enterprise. It is worth considering whether an UG or a GmbH model would better suit the company. However, these kinds of considerations is dependant on case-by-case scenarios. When it comes to deciding on such issues it is valuable to receive legal advice in determining what is best for your business.

Locations & Contact

Office Hours

Mon. – Fr:
09:00 – 19:00 o’clock
24h Contact:
+49 211 882 84196

Appointments only after
telephone arrangement.


Schlun & Elseven Rechtsanwälte PartG
Von-Coels-Straße 214
52080 Aachen (Eilendorf)
Tel: +49 241 4757140
Fax: 0241 47571469


Schlun & Elseven Rechtsanwälte PartG
Kyffhäuserstr. 45
50674 Köln
Tel: +49 221 93295960
Fax: 0221 932959669


Schlun & Elseven Rechtsanwälte PartG
Königsallee 60F
40212 Düsseldorf
Tel: +49 211 882 84196
Fax: 0221 932959669

Conference Rooms

Munich 80339
Theresienhöhe 28

Hamburg 20354
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Berlin 10785
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