We are happy to support and advise you in choosing the right legal form for your company. In any case, you should also consult your tax advisor, as the company form has various tax implications. We can prepare all the necessary contracts and documents for your entry in the commercial register (articles of association or articles of incorporation, commercial register application, insurance policies and instructions, lists of shareholders, non-cash formation reports). Please do not hesitate to contact us!
Under German law, the following forms are particularly suitable for your company:
Registered businessman / registered businesswoman
If you run your business alone, you can choose the form of a registered trader. If your business reaches a certain threshold in terms of type and scope, you are even obliged to register it in the commercial register. The law states that your business “requires a commercially organized business operation (...)”. This cannot be assessed schematically, but depends on the complexity of your company and its services, the amount of your turnover, the number of your employees and the extent of your business assets in each individual case. If in doubt, you should register your company with the commercial register in order to comply with your legal obligations. Even if there is no obligation to register, you can always register your business with the commercial register voluntarily. You must then use the company abbreviation “eingetragener Kaufmann”, “eingetragene Kauffrau” or one of the abbreviations “e.K.”, “e. Kfm.” or “e. Kfr.”. As a merchant, you are subject to the provisions of the German Commercial Code for merchants.
Trader without registration in the commercial register
If you run a small business that does not require a commercially organized business operation due to its type or scope, you do not have to register your business in the commercial register. The provisions of the German Commercial Code do not apply to you for the most part. You may not use the company abbreviation “eingetragener Kaufmann”, “eingetragene Kauffrau” or one of the abbreviations “e.K.”, “e. Kfm.” or “e. Kfr.”. However, you are free to voluntarily register your business with the commercial register. In this case, all provisions of the German Commercial Code for merchants also apply to you and you must use one of the aforementioned designations (“eingetragener Kaufmann”, “eingetragene Kauffrau” or one of the abbreviations “e.K.”, “e. Kfm.” or “e. Kfr.”) in legal transactions.
ATTENTION: The classification under commercial law as a merchant or small business is independent of the classification as an entrepreneur or small business (§ 19 UStG) under VAT law. Special turnover limits apply in this case. Please consult your tax advisor regarding the tax treatment of your company.
Limited liability company (GmbH)
In a limited liability company, your liability is limited to the assets of the company. As a shareholder, your risk is therefore limited to the amount of the capital contribution you have made. The GmbH must have a minimum share capital of € 25,000. However, it is sufficient for you to pay in half (€ 12,500) when the company is founded. You can set up the GmbH alone or with several people. As a shareholder, you can become the managing director of the GmbH yourself or appoint an external managing director. The GmbH is treated differently from sole proprietorships and partnerships (GbR, general partnership, limited partnership) for tax purposes. In particular, it is obliged to pay corporation tax. In addition, the GmbH must always pay trade tax, regardless of the amount of profit. Sole proprietorships and partnerships, on the other hand, do not have to pay trade tax up to an annual profit of € 24,500. You should therefore always seek advice from your tax advisor when choosing the right type of company.
If you would like to set up a GmbH, you can find more information about this here here.
Entrepreneurial company (limited liability)
The entrepreneurial company (haftungsbeschränkt) is a sub-form of the limited liability company (GmbH). Unlike the regular GmbH, no specific share capital is required. However, the capital should not be so small that the company falls into insolvency immediately after its formation. In any case, you usually need some start-up capital for purchases. It therefore seems sensible to set aside at least a few hundred or thousand euros as share capital. This should also appear more reputable to business partners.
In the case of the Unternehmergesellschaft (haftungsbeschränkt), the statutory model protocol is very often used for the formation. This reduces the notary costs for your formation. However, the statutory model protocol is very short and does not regulate many frequently occurring issues. This applies, for example, to the following important points: Termination and redemption of shares, compensation for departing shareholders, death, convening and holding the shareholders' meeting, permissibility of disposing of shares, non-competition clause. In addition, the model protocol only provides for the appointment of one managing director. If you wish to appoint additional managing directors at the time of formation, the managing directors cannot be authorized to represent the company individually, i.e. they must always sign jointly. Furthermore, you cannot exempt additional managing directors from the restrictions of § 181 BGB. In particular, they cannot act in legal transactions between one company and another company for which they are also authorized to represent.
The inadequacies of the sample protocol described above are particularly problematic if several people wish to jointly establish an entrepreneurial company (haftungsbeschränkt). You should then consider choosing a more detailed company statute in which all issues are regulated instead of the model protocol. We would be happy to draft such articles of association for you.
Public limited company
As a rule, entrepreneurs will establish stock corporations if a larger group of shareholders is planned, especially if some shareholders have a purely financial interest in the participation. It may also be a good idea to establish a stock corporation if the founders want to raise funds on the capital market, for example by issuing shares or bearer bonds. The provisions of stock corporation law are stricter than those of GmbH law and only allow a few deviations from the statutory requirements in the articles of association. This leads to greater comparability between stock corporations and more security for investors. The formation of a stock corporation is more complex than the formation of a GmbH. The minimum share capital for a public limited company is € 50,000. It is possible to convert a GmbH into a stock corporation at a later date by changing its legal form and, conversely, to convert a stock corporation into a GmbH. The German Stock Corporation Act also regulates the partnership limited by shares (KGaA) as a special form between a stock corporation and a limited partnership.
Company under civil law (GbR)
A civil law partnership is the right legal form for you if you want to run a small business with several people that does not have the scope of a commercial enterprise. Whether you are already operating a commercial business depends on the complexity of your company and its services, the amount of your turnover, the number of employees and the extent of your business assets. If you start with a low turnover and business assets and no employees, it is generally not yet a commercial enterprise.
The civil law partnership is not subject to corporation tax and you do not have to pay trade tax up to an annual profit of € 24,500. The civil law partnership does not have to be entered in the commercial register. However, it is permissible, whereby in the event of entry in the commercial register, the civil law partnership automatically becomes a general partnership (oHG). All regulations of the German Commercial Code regarding merchants then apply to the company.
The advantage of a civil law partnership is the low formation costs, as notarization is generally not required and there is no entry in the commercial register. However, notarization may be necessary in individual cases, particularly if land or GmbH shares are contributed to the company or if the purpose of the company is (also) to acquire a specific property.
The disadvantage of the GbR is that all partners are always personally liable without limitation (i.e. also with their private assets) - unlike the GmbH and the Unternehmergesellschaft (haftungsbeschränkt). You can only avoid this by agreeing an individual limitation of liability with each individual business partner. However, this cannot be enforced against all business partners.
General partnership
A general partnership is also a partnership in which all partners have unlimited and personal liability (i.e. also with their private assets). As with a civil law partnership, you can only limit or exclude personal liability by entering into an individual agreement with the respective contractual partner. If you operate a commercial business with several people, i.e. your business reaches a certain threshold in terms of type and scope, a general partnership automatically exists unless you have agreed otherwise (e.g. you have founded a GmbH or a limited partnership). You are then obliged to register the general partnership with the commercial register. According to the law, a commercial enterprise exists if your business “requires a commercially organized business operation (...)”. This cannot be assessed schematically, but depends on the complexity of your company and its services, the amount of your turnover, the number of your employees and the extent of your business assets in each individual case.
If you only run a small business with several people, i.e. not yet a commercial business, and you do not make any special agreements, there is only a partnership under civil law (see VI. above). You do not have to register this in the commercial register. However, you are free to register the company with the commercial register, which then automatically becomes a general partnership (oHG) (see VI. above).
The partnership agreement of a general partnership does not require notarization or certification; however, notarization or certification is possible. Only the commercial register application requires notarization. Please contact us if you would like us to prepare a corresponding commercial register application and, if necessary, the articles of association for you!
Limited partnership
The limited partnership is a form of company based on the general partnership. Unlike the general partnership, however, not all partners are personally liable. Rather, there are two different types of partners in a limited partnership: The so-called general partners (personally liable partners) always have unlimited and personal liability (i.e. also with their private assets), just like the partners of a general partnership. In contrast, the so-called limited partners (partners with limited liability) are only liable up to the amount of their respective limited partnership contribution, which is entered in the commercial register. Once they have made this contribution in full, they can no longer be held liable. The limited partners are generally excluded from the management and representation of the limited partnership.
The limited partnership is therefore well suited as a company form if some partners want to actively take over the management and representation (general partners), while others are primarily interested in a financial participation (limited partners).
The articles of association of the limited partnership - as with the general partnership - do not require notarization or certification; however, notarization or certification is possible. Only the commercial register application requires notarization. Please contact us if you would like us to prepare a corresponding commercial register application and, if necessary, the articles of association for you!
The German Stock Corporation Act also regulates the partnership limited by shares (KGaA) as a special form between a stock corporation and a limited partnership.
GmbH & Co. KG
The GmbH & Co. KG combines the advantages of the GmbH and the limited partnership. The personally liable partner (general partner) is only a GmbH, so that no natural person is liable for the GmbH & Co. KG, no natural person is personally liable. Third parties can also be appointed as managing directors of the GmbH, and the limited partners can also be natural persons - as with the normal limited partnership. The formation and subsequent (including tax) handling of a GmbH & Co. KG are somewhat more complex than with a pure GmbH or limited partnership, as there are two companies involved. As a rule, the limited partners of the limited partnership are also the shareholders of the general partner GmbH. It is possible and often sensible to make provisions here that ensure that the shares in the limited partnership and the limited liability company can only ever be transferred jointly. If such arrangements are to be made, the articles of association of the limited partnership must also be notarized. A special form of GmbH & Co. KG is the so-called “unitary partnership”, in which the limited partnership itself holds the shares in the general partner GmbH. Regulations on equal participation are then not necessary, as only the limited partnership shares need to be transferred. However, regulations must then be included to ensure that the limited partners also decide on resolutions at the GmbH's shareholders' meeting.
Please contact us if you would like us to prepare the formation of a GmbH & Co. KG and prepare the necessary documents for you!
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