The GmbH (Gesellschaft mit beschränkter Haftung) is the private limited company in Germany. It is the most popular form of company for small- and medium enterprises. GmbHs are flexible forms of company, as they can be established by an individual or by a company. GmbHs possess legal personality and provide their shareholders with limited liability.
At Schlun & Elseven Rechtsanwälte, our corporate lawyers will support you through the process of registering a GmbH and, from there, will provide ongoing legal support. As a full-service law firm, our lawyers provide expert legal advice across all areas of German law, and our comprehensive support has been invaluable to GmbHs across industries all over Germany. Please, do not hesitate to contact us directly to benefit from our assistance.
The Advantages of Registering a GmbH Company
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.
Registering a GmbH 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.
Drafting and Reviewing the Articles of Association
To register a company with the German Companies Registry, a company must prepare specific documents, including the memorandum and articles of association. The memorandum of association provides the details of the agreement between shareholders to establish a company, and the articles of association outline the rules under which the company is formed. These documents must be notarized to be considered valid. At Schlun & Elseven Rechtsanwälte, our lawyers will examine your documents and ensure they follow the specified requirements.
For the articles of association of a German company to be valid, they need to contain specific information; however, they also include details regarding the company’s internal procedures. The internal rules of the company within the articles of association should incorporate elements regarding share capital alterations, the management of shareholding changes, the obligations of the shareholders, and the procedure for appointing and dismissing directors. Shareholder disputes often arise when there is a lack of clarity within the company’s bylaws and regulations. Carefully drafted articles of association by experienced lawyers can prevent costly legal conflicts.
Within the articles of association, the company outlines the business objective, the scope of the managing director’s power of attorney or the shareholders’ contribution obligations, and the company’s business name and legal address.
At Schlun & Elseven Rechtsanwälte, our German corporate law specialists advise GmbHs and UGs of all sizes in matters of the following:
- Drafting the articles and memorandums of association,
- Reviewing the articles of association and individual contractual clauses,
- Enforcement of claims under the articles of association and defence of shareholders in shareholder disputes,
- Amending the articles of association in cases of restructuring, mergers and succession,
Contact us directly to benefit from our services.
The Mini-GmbH: The Unternehmungsgesellschaft (UG) – The Entrepreneurial Company
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.
Full-Service Support – Comprehensive Services for GmbHs
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 provide:
- Corporate expansion: Should the time come to grow your company, our team will advise and support you throughout the M&A process. Our lawyers will consult with you on the appropriate growth method, carry out the required legal due diligence and structure the deals per German law requirements.
- Intellectual property law advice: Our corporate lawyers can work alongside our experts in the field of intellectual property. Creating a recognisable brand and protecting your trademarks and copyrights is crucial for the growth of your business in Germany. Our team will advise you on your legal rights under German law.
- Employment law: Upon establishing the GmbH, it is important to ensure that your company is fully aware of legal requirements under German employment law. Our team consists of certified experts in employment law, and therefore you can be confident that you will receive advice of the highest quality.
For a complete picture of our services for business clients make sure to contact our firm directly or visit the rest of our website.
An Overview: Frequently Asked Questions about GmbH Company Formation in Germany
The abbreviation GmbH stands for “Gesellschaft mit beschränkter Haftung” (limited liability company).
The GmbH is a legal form for companies in many countries, including Germany. It is a legal entity financed by its shareholders’ equity. It is immensely popular as a company form because of its limited liability. In contrast to a Civil Law Partnership (GbR) or General Partnership (OHG), a GmbH is a capital company, not a partnership. Choosing the proper legal form requires experienced legal advice in German corporate law to avoid unnecessary mistakes with severe consequences.
The centrepiece of the formation of a GmbH is the articles of association. This must be notarized by a notary and contain the following minimum details:
- Company name (name of the company with GmbH suffix),
- registered office,
- object of the company,
- amount of share capital,
- capital contribution of each shareholder.
A managing director must then be appointed. Finally, the GmbH must be entered in the commercial register to finalise the formation.
Any natural person, partnership, or other legal entity can be a founding member. It is also possible to establish a “one-man GmbH” so that a single founding member is sufficient, see Section 1 of the German Act on Limited Liability Companies (GmbHG). The nationality of the founding member is also irrelevant for the formation of the GmbH. Foreigners can form a GmbH in Germany under the same conditions as nationals.
A starting capital of €12,500 is necessary and sufficient. However, this is only the amount considered enough to enter the German commercial register, see Section 7 Para. 2 GmbHG. The share capital of the GmbH must be at least €25,000, as this is the minimum liability amount of the company. However, this money can be spent for the company’s benefit after entry into the commercial register and does not have to remain in an account.
In addition to the share capital, the formation costs must be paid. These include all the expenses required to set up the company, particularly the notary’s fees, the court’s fees, and the charges of publicising the company.
The commercial register is open to public inspection and provides your business partners with information about your company’s key economic circumstances. Registering your company with your company name protects it against other names. The entry also shows that you or your company are subject to the regulations for merchants (HGB). These regulations simplify legal transactions between merchants and make them less time-consuming than between non-merchants.
The following information is always entered in the commercial register:
- Company name,
- names and dates of birth of the management,
- registered office, branches, and subsidiaries with details of the respective address,
- object of the company,
- authorised representatives (Prokura), their names and dates of birth,
- special powers of representation,
- legal form,
- amount of share capital, limited partnership capital or nominal capital,
- date of first registration,
- opening balance sheets,
- annual financial statements.
It is advisable to consult a lawyer specialising in German corporate law to avoid unnecessary formal errors in this step.
There is no general answer to this question, as it depends entirely on your individual goals, needs and the nature of your business. Relevant differences between the company forms that you should include in your considerations are in particular
- liability,
- equity capital and formation costs,
- image and external perception,
- company size,
- taxes.
It is advisable to seek legal and tax advice, especially when choosing the proper company form, to ensure that you make the best possible decision for your company.
The most obvious difference lies in the name of the company. In the case of a GmbH, the suffix “GmbH” appears after the chosen company name. In contrast, the suffix “UG (haftungsbeschränkt, limited liability)” or “Unternehmergesellschaft (haftungsbeschränkt)”/”Entrepreneurial (company limited liability)” appears after the company name of a UG.
A significant difference lies in the amount of the minimum share capital. While this is €25,000 for a GmbH, a UG can be founded with as little as €1. The UG form was introduced to make it easier for founders with limited financial resources to start. It is, therefore, well suited for start-ups. However, due to the lower share capital, the UG may be perceived as less serious than a GmbH. The creditworthiness can also be rated lower. Over time, however, a UG must increase its share capital if the financial circumstances permit this, as noted in the German commercial register, so that the respectability and creditworthiness could be equalised over time.
Another key difference is the appropriation of profits. This is very flexible in the case of a GmbH. In the case of a UG, there are fixed guidelines on how the profit is to be utilised.
The managing director of a GmbH has a special position and responsibility. For this reason, he is liable following Section 43 GmbHG if he violates his obligations – with his personal assets. As liability towards a GmbH is likely to involve large sums in the event of liability, the managing director can protect himself with so-called D&O insurance (Directors and officers liability insurance).
The taxation of a GmbH in Germany is subject to various types of tax. Firstly, corporation tax is payable. This is based on the GmbH’s profit and amounts to 15% plus the solidarity surcharge, resulting in a total tax rate of 15.825%. VAT and capital gains tax are also due. The GmbH is also liable for trade tax. As this is a municipal tax, the amount depends on the city or municipality in which the GmbH has its registered office.
The company name of a GmbH, as with all companies entered in the commercial register, serves the purpose of appearing under a specific name in legal transactions. It is crucial that the chosen company name is individual, does not mislead and contains a clear addition to the legal form (such as “GmbH”).
Usually, a company name comprises a particular fantasy term and/or a memorable combination of letters. The careful selection of a unique and appropriate company name is of significant importance, as this characterises the company’s identity and must comply with legal requirements. A review of the planned company name by a trademark lawyer can ensure that all requirements are met, and potential legal problems are avoided.
Practice Group: German Corporate Law
Practice Group:
German Corporate Law
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