GmbH Company Formation in Germany

There are many advantages of the GmbH model. As well as limited liability and certain tax benefits, the GmbH model is firmly established and widely respected in Germany. When seeking new customers, investors, and other opportunities, GmbH status can be beneficial. Here are some advantages associated with the GmbH model.

Advantages of a GmbH

• Limited Liability: The private assets of directors and shareholders cannot be targeted if the company faces financial difficulties. The company is a distinct legal entity; therefore, the directors’ private assets are not considered part of the company.
• Credibility: When enticing potential investors and shareholders, it is valuable to trade as a GmbH as these business models have a long history. A GmbH also requires a minimum of €25,000 in share capital at the time of starting up (a minimum of €12,500 in cash and the rest as equipment, property, and assets (“in-kind”) and this requirement provides a level of confidence that the business has enough assets to keep it afloat.
• Distinct Legal Person: As a separate legal person, the company can enter contracts, take legal cases and own property in its own right.
• Not Limited to German Citizens: When creating a GmbH, there is no requirement for the entrepreneur, directors, shareholders etc., to be German or even European Union citizens. However, it is worth noting that it helps when there are representatives and offices in Germany when dealing with bureaucracy and banks.
• 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 on what can be written off from the company’s tax bill.

Issues to be Aware of:

• 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 to be in cash. Other fees also need to be paid at the stage of incorporation. Our lawyers will guide you through the requirements for GmbH company formation in Germany.
• Legal Requirements: In creating a GmbH, the entrepreneur must contend with more significant legal complexities and extensive paperwork and bureaucracy. Such requirements include the Articles of Association, obtaining notarized certification, and registration with the Commercial Registry. Legal assistance at this company formation can help immensely speed up this process.
• Taxes: Although certain tax benefits regarding assets can be written off when paying tax, there is also a greater variety of taxes regarding companies. There is also a trade tax and a solidarity surcharge as well as corporation tax (at 15%).
• Accountability: Regarding responsibility, a GmbH has to publish its accounts at the end of the year in their “Jahresabschluss”. This shows shareholders and future investors the company’s inner workings and ensures that what it has used in its finances is above board.

In determining whether the GmbH is the correct way to proceed for your company, consider aspects such as:

• The state of the company’s finances.
• Having a sufficiently prepared business plan to deal with the more significant challenges as a GmbH.
• The business landscape for this area – are the competitors also GmbHs?
• The ability of the company to access the necessary share capital requirements.
• The experience and knowledge within the company and whether they are sufficient for it to go down the GmbH route.

Our expert corporate law advisors support entrepreneurs with all matters relating to GmbH company formation in Germany.

Establishing and registering a GmbH is a process our legal team highly specialises in, and they are here to support you throughout the procedure. Founding a GmbH in Germany is open to both German residents and those not residing in Germany. It can consist of shareholders who are German citizens, residents and non-German citizens and residents. With the right support, establishing a GmbH in Germany can be a straightforward process.

Setting up a GmbH consists of the following procedures:

• Having the required share capital of EUR 25,000.00. This can be provided in cash or in-kind. When establishing the GmbH, an initial payment of half the amount is necessary for the GmbH to fulfil its legal requirements.
• Drafting the articles of the association
• Registration with the Commercial Register
• Registration with the Trade Office.

The articles of association of the GmbH are vital in determining the basis and identity of the GmbH. Within the articles of association, the company needs to outline their business name, the company’s legal address, the enterprise’s objectives, and information on the shareholders and the shares held. The company’s articles of association may also provide the company’s bylaws, for example, how the company can dismiss managing directors and rules governing shareholder disputes. At Schlun & Elseven Rechtsanwälte, our legal team supports our clients in all of these matters and more.

The Unternehmungsgesellschaft (UG) is a popular form of limited liability company with Start-Up companies in Germany. The UG company may not have the same reputation level as a more established GmbH, but it also does not have the exact financial requirements at its foundation. The UG was legislated for in 2008 by § 5a Limited Liability Companies Act. Since then, it has contributed to Germany’s growing reputation as one of the best countries to establish a Start-Up company.

Establishing a UG company requires a share capital of only €1. Even with this low share capital requirement, those involved with the UG still benefit from limited liability. Individuals involved with the UG cannot be held personally liable for the company’s debts making the UG model suitable for Start-Up companies and smaller companies looking to establish themselves in the German market. Furthermore, once set, UGs can change their company structure into that of a GmbH. Once the share capital of the UG reaches €25,000, it can transform into a GmbH. Consulting with legal advisors is recommendable before making that step.

Establishing a UG company with only one shareholder is possible, but usually, more is involved. Shareholders play a significant role in the company’s business decisions, particularly in the shareholders’ meetings. The shareholders also appoint the managing director of the UG company. If your company has more than three shareholders, it is necessary to have specific articles of association. At Schlun & Elseven Rechtsanwälte, our corporate lawyers will oversee the drafting of the articles of association. Furthermore, our team can be relied upon to provide ongoing legal advice across German corporate law to ensure that your UG remains compliant with its legal requirements.

Once the company is registered and operational in Germany, our team of specialists will provide you with comprehensive and ongoing legal support. Here are just some of the services our lawyers pr