How to Establish a Company in Germany
This page will present an overview of the appropriate company forms a temping company in Germany can take. When it comes to establishing a company in Germany, a business must have the required share capital and have the correct paperwork and bureaucratic requirements completed. Our firm provides assistance with preparing business plans and with the filling of paperwork. Our immigration team also specialise in helping those from outside of Germany in applying for the the entrepreneurial visa for those who need it to set up their temping agency.
When it comes to setting up the temping company, there are several options one can adopt. In Germany, the most prominent form of limited liability is the GmbH. The Gmbh (Gesellschaft mit beschränkter Haftung) is a limited liability company similar to a private ltd. Company in the UK. These companies do not list their shares on the stock market, making them different from the AG (Aktiengesellschaft) or plc businesses.
Should the temping agency go down the route of GmbH, they should be aware that this type of company requires a minimum starting share capital of €25,000 when being founded and also has more extensive bureaucratic requirements in the form of the Articles of Association, obtaining the required certifications and licences and in how accountable the company is. The benefit of the GmbH is that this form of company is widely respected in Germany. It provides limited liability so that the private assets of those involved in the company cannot be sought for should the company face financial difficulties.
However, the GmbH is not the only option available for temping companies, as we will outline now.
The Unternehmersgesellschaft (UG) / Startup Company
The UG is a popular form of a business model for newer businesses entering the German market. These companies also go by the name of the “mini-GmbH” and largely follow the same rules. Such rules include:
- Limited liability,
- Separate legal person,
- Similar tax and set-up bureaucracy,
- Use of share capital without the ability to sell on the stock exchange.
The real difference between the UG and the GmbH is that the UG does not require €25,000 starting share capital. For this reason, the UG is open to new companies on the market. However, it should also be noted that UGs carry a little bit less respect in terms of their reputation for this reason. Due to their accessibility, it can take a bit longer for these companies to convince investors and other partners to work with them or view them as genuine business prospect. Therefore, it is unsurprising that many UGs become GmbHs once they have established themselves on the market.
Are There Any Other Options for my Temping Agency?
There are, of course, other options when establishing the temping agency. These options will not have full limited liability. Therefore, establishing such companies brings the problem that the company will not be recognised as a fully independent body from the founder. This means that the private assets of the founders may be at risk should the company suffer financial difficulties. Here are some of the unlimited liability options available for starting the agency:
Sole Trader / Einzelhandler: This option allows the entrepreneur to be the sole person in charge of the company’s direction. However, this option comes with the most risk as they have to perform the tasks involved with running the business.
General Commercial Partnership / OHG (offene Handelsgesellschaft): This form of business allows two or more entrepreneurs to work together to pool their resources for the benefit of their business idea. Once again, there is more control given to the partners about how the company will develop, but they also face the risk of unlimited liability.
The KG (Kommanditgesellschaft): Under this model, the partnership has a minimum of two partners, with there being limited partners with limited liability (Kommanditist) and general partners with unlimited liability (Komplementär). The partner with unlimited liability has more of a say regarding how the company is run. This form also allows for the GmbH & Co. KG model, where the GmbH takes the partner’s role with unlimited liability.
What Other Requirements are Needed for Temping Agencies?
When the form of your business is chosen and your business plan has been prepared, it is time to register the business. This involves registering with the Gewerbeamt / trade office and registering for tax with the Finanzamt (Tax office). Depending on which model your company has taken, there will be more or less paperwork involved. If the company is a GmbH or a UG, it must be registered with the commercial register (Handelsregister), and registration with the Chamber of Commerce and Industry is also required. As can be seen, there are quite a few hurdles to overcome when setting up a business in Germany.
Furthermore, a temping agency in Germany must be given an AUG License by the German government (Federal Employment Agency) to enter the industry. This area of work is quite strictly regulated to ensure that it is not exploited. This licence is originally granted for a one year period, but over time and once the company has shown itself to be reliable, it can be obtained without limit. The licence ensures that the company pays its workers fairly, treats them correctly, and shows transparency in how it operates.
What Regulations Should my Temping Company be Aware of?
Germany values workers’ rights and ensuring that workers are treated fairly. This applies in the case of temporary workers as well as for more traditional workers. In the field of temporary workers, it is worth knowing that the Temporary Workers Act legislates many of the key issues. This Act outlines what is allowed for in the field and what is not allowed for. For example, under the § 2 Temporary Workers Act, it is not permitted that temporary workers work directly in the field of construction. Furthermore, under the § 9 Temporary Workers Act, the agency is permitted from entering elements into the contract, which would prevent a company from hiring the worker full-time.
As can be seen on our page about temporary agency workers and their rights, many laws coincide in this field. For example, the agency worker also has employment rights regarding notice periods, severance payments and protection against unfair dismissal. All of these factors need to be taken into account when establishing a temping company.
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