In the following we composed an overview of the most common legal forms in Germany and also listed the comparable foreign legal forms. Please be aware of the fact that the company forms may be essentially comparable in their basic arrangements, but due to the different civil law and tax law regulations in each country, there are also significant differences. Thus this list is only intended as a rough overview.
Corporations
German Limited Company (Gesellschaft mit beschränkter Haftung – GmbH)
United Kingdom – private limited company (Ltd.)
France – société anonyme de responsabilité limitée (S.A.R.L.)
Italy – società a responsabilità limitata (SRL)
Spain – sociedad de responsabilidad limitada (SL)
Czech Republic – společnost s ručením omezeným (SRO)
The Netherlands – besloten vennootschap (B.V.)
German Public Limited Company (Aktiengesellschaft – AG)
United Kingdom – public limited company (PLC)
France – société anonyme (S.A.)
Italy – società per azioni (SpA)
Spain – sociedad anónima (SA)
Czech Republic – akciová společnost (a.s.)
The Netherlands – naamloze vennootschap (N.V.)
Entrepreneurial Company Limited Liability (Unternehmergesellschaft – UG)
The UG is a newly established company during the last years and is comparable to the GmbH to a large extent.
Nonincorporated firms (Personengesellschaften)
Sole Proprietor (Einzelunternehmen)
United Kingdom – sole propietorship
France – Microentreprise
Italy – imprenditore individuale
Spain – empresa individual
Partnership under the Civil Code/ General partnership (GbR/ OHG)
United Kingdom – Partnership under the Civil Code
France – organisme à caractère collectif – société civile
Italy – consigliere delegato– società semplice
Spain – sociedad civil
German Limited Partnerships (GmbH & Co. KG)
The GmbH & Co. KG is a special form in German law, which does not exist in most other states.
German Limited Company (GmbH)
The GmbH is the most favorite legal form in Germany. It is also the most preferred legal form by foreign investors when founding a German company, and also by foreign companies when founding a subsidiary in Germany.
Foundation of a GmbH
The basic points for the foundation of a GmbH are the Shareholders, the nominal capital and the Managing Director. Shareholders can be natural persons as well as legal persons. The necessary number of shareholders ranges from one to infinite number. Neither nationality nor residence are decisive factors for being a shareholder. The nominal capital of a GmbH has to amount to a minimum of € 25.000.-. If you found the company by cash, it is sufficient to pay in half (€ 12.500.-) to be registered in the commercial register. An alternative to a formation by cash is an asset-based founding, whereby the contributed economic goods (real estate, company shares, machines etc.) must have a common value of at least € 25.000. The payment has to be verified by bank statement towards the registration court. Each GmbH needs to have at least one Managing Director, who has to be registered in the commercial register. The nationality is not decisive.
Foundation procedures
The following steps are required for founding a GmbH, whereby the company’s location must be in Germany:
- Preparation of Articles of Association that have to be certified by a notary
- Payment of at least half of the nominal capital (minimum € 12.500.-)
- German business address for the GmbH
- Registration in the Commercial Register in the district where the company is located
- Tax registration at the jurisdictional German tax office
- Local business registration at the jurisdictional local business office
Managing Director
A GmbH has to have at least one Managing Director. Just a natural person with unlimited legal capacity may be appointed as Managing Director.
Liability
For obligations which arise before the Articles of Association were certified, the founders shall be personally liable as joint and several debtors.
After registration in the Commercial Register, outside liability for obligations is basically limited to the company assets of the GmbH.
Taxation
The income of a GmbH is subject to corporate tax, the solidarity surcharge, and local business tax.
Tax on turnover (VAT) is done in Germany essentially independently of the company’s form and is explained in more detail on the next page.
German Public Limited Company (Aktiengesellschaft)
Large companies generally prefer the German Aktiengesellschaft (AG). Foreign investors rather prefer a GmbH when stepping into the German market.
Foundation of an AG
Shareholders of an AG can be natural persons as well as legal persons or another company with legal capacity (e.g. OHG, KG). The necessary number of shareholders ranges from one to infinite number. The nominal capital of an AG has to amount to a minimum of € 50.000.- that is divided into shares. An alternative to a formation by cash is an asset-based founding, whereby the contributed economic goods (real estate, company shares, machines etc.) must have a common value of at least € 50.000.- .
Foundation procedures
The following steps are required for founding an AG, whereby the company’s location must be in Germany:
- Preparation of Articles of Association, that have to be certified by a notary
- Payment of one quarter of the nominal value of each share (minimum € 12.500.-)
- German business address for the AG
- Registration in the Commercial Register in the district where the company is located
- Tax registration at the jurisdictional German tax office
- Local business registration at the jurisdictional local business office
Statutory bodies
The AG has three statutory bodies: Management Board, Supervisory Board and General Assembly.
An AG has to have at least one chairperson. Just a natural person may be appointed as member of the Management Board. The Board of Directors consists of at least three natural persons with unlimited legal capacity. A member of the Board of Directors is not allowed to simultaneously be a member of the Management Board or hold another management position in the AG.
The General Assembly consists of all shareholders. It has the following rights:
- Decisions on changes of the Articles of Association (core business), especially regarding capital measures (increases/decreases in nominal capital, contingent capital, etc.);
- Appointing and dismissing members of the Supervisory Board
- Relieving the Management Board and the Supervisory Board;
- Only if the Management Board and Supervisory Board so decide: determining the annual report; otherwise the General Assembly only accepts the annual report as determined by the Management Board and the Supervisory Board (§ 172, § 173 AktG – German Law on Public Limited Companies);
- Use of the profit balance;
- Appointing year-end auditors, auditors for founding processes, and the Management Board’s management;
- Appointing special auditors (§ 142 AktG)
- Transferring the entire company assets (§ 179a AktG);
- Other management measures which involve the core responsibility of the General Assembly to decide the course of the company, and whose effects can reach all the way to a change in the Articles of Association;
- Dissolving the company.
Liability
For obligations which arise before the Articles of Association were certified, the shareholders shall be personally liable as joint and several debtors.
After registration in the Commercial Register, outside liability for obligations is basically limited to the company assets of the AG.
Taxation
The income of an AG is subject to corporate tax, the solidarity surcharge, and local business tax.
Tax on turnover (VAT) is done in Germany essentially independently of the company’s form and is explained in more detail on the next page.
German Limited Partnership (GmbH & Co. KG)
This legal form unites the tax advantages and company law advantages of a corporation and a nonincorporated firm.
In fact, it is two companies: a GmbH as a German limited company, and a private limited partnership (Kommanditgesellschaft – KG) which has only one fully liable person (the general partner) while the other shareholders (limited partners) have only partial share, with their capital investment, in outside obligations of the KG.
The GmbH functions as the general partner of the KG, which leads to a factually limited outside liability of the entire company unit.
Foundation of a GmbH & Co. KG
First of all you have to found a GmbH. Subsequently you found a KG in which the GmbH is a participating shareholder. For saving costs, it is possible to arrange both foundations at the same appointment at the notary.
Management
Management is regularly taken over by the GmbH as the general partner of the KG. The GmbH itself is represented by its Managing Director. This natural person usually also manages the business of the KG.
Liability
The liability of the general partner differs from the one of the limited partner.
The limited partner participates in the KG but is only partially liable. The level of the limited partners` liability is limited to his share investment.
In contrast, the general partner is fully liable. So he is liable for outside obligations of the KG unlimited with his entire assets. As the GmbH holds the position as general partner, the liability is limited to its own business assets, anyway. Finally, the GmbH & Co. KG is only liable for the amount of the GmbH’s nominal capital plus the share investments of the limited partners.
Taxation
The income of a GmbH is subject to corporate tax, the solidarity surcharge, and local business tax. However, because the GmbH generally has only a relatively low return for taking on the liability (and possibly the management) of the KG), there are normally no tax payments due, or only a low amount.
Taxation on the income of the KG, which maintains the actual business operation, corresponds to the taxation on the income of an OHG, whereby the loss offset for the limited partners is essentially limited to the level of their capital accounts.
Tax on turnover (VAT) is done in Germany essentially independently of the company’s form and is explained in more detail on the next page.
German private partnership (GbR)/ German commercial partnership (OHG)
A GbR is a company consisting of at least two shareholders and is subject to the regulations of the German Civil Code (BGB). The OHG is additionally registered in the Commercial Register. That is the reason why the OHG is a trading company and is governed not only by civil law but also the stricter commercial law regulations of the German Commercial Code (HGB).
Foundation of a GbR or OHG
The shareholders of a GbR (minimum of 2 persons) can be natural or legal persons, as well as other companies with legal capacity (e.g. OHG, KG). Foundation results from the conclusion of a partnership agreement, which can be done informally. To avoid future disputes, it is highly recommendable to fix a written contract to record the concrete details.
An OHG also has to consist of a minimum of two shareholders, who can be natural or legal persons. Foundation as well results from the conclusion of a partnership agreement, but additionally the registration in the commercial register is required.
For both company types no minimum capital is needed. For tax reasons, the GbR as well as the OHG have to be registered at the jurisdictional tax office.
Management
All shareholders are essentially authorized to manage the company’s business, except if something different is agreed upon in partnership agreement. The following may be agreed in the partnership agreement:
- Transfer of management to one or more shareholders
- All-member representation, which means that the shareholders authorized to manage must do so together (e.g. for a purchase decision, all managers must agree to the purchase).
Liability
The shareholders are personally liable for the company’s obligations as joint debtors. Each one is liable directly, unlimitedly, as a joint debtor, and relating to decline and withdrawal (parallel of leadership and liability). If a shareholder leaves, he will be liable for five more years for the obligations existing before his departure. Note that a new shareholder upon entering is also liable for the obligations that exist at his joining.
Taxation
The income of a GbR or an OHG is distributed to individual shareholders according to a profit distribution key determined in the Articles of Association. The shareholders must then submit this income to income tax or corporate tax (depending on whether the shareholder is a natural or legal person) and the solidarity surcharge.
The company itself pays only local business tax on its income and as an independent company, its turnover is subject to VAT.
German sole proprietorship (Einzelunternehmern)
Small companies or persons with an ancillary trade usually chose this legal form.
Foundation of an Einzelunternehmen
For tax reasons, a sole proprietorship has to be registered at the jurisdictional tax office. Additionally, it has to be registered as a local business at the jurisdictional local business office.
Registration in the Commercial Register is voluntary. If a sole proprietorship is registered in the Commercial Register, it is governed not only by the German civil law of the German Civil Code (BGB) but also by the stricter regulations of the German Commercial Code (HGB).
Registration at a Chamber of Commerce or another public institution depends on the activity planned in Germany and the size of the company. It is possible to omit it in some cases, therefore an individual assessment is always necessary.
A minimum capital is not needed.
Management
As the entire business assets are owned by a single natural person, the sole proprietorship is always managed by the owner.
Certainly, it is possible to engage employees, managers or authorized signatories, who can then be entrusted (with parts) of the company management.
Liability
A sole proprietorship has no limitation on liability at all. Therefore the sole proprietor with his entire business assets and private assets is liable for all business obligations. This also applies, for example, if only the business assets are in Germany while the owner’s private property is located in another state.
Taxation
In Germany, profits gained through a sole proprietorship are considered commercial income and as such, are subject to income tax, the solidarity surcharge, and local business tax.
If the sole proprietorship makes income from self-employed activity (e.g. engineers, lawyers etc.) then the obligation to pay local business tax falls away. It is not always possible to differentiate immediately and without doubt between commercial and self-employed activity, therefore it should be tested thoroughly before beginning with the activity.
Tax on turnover (VAT) is done in Germany essentially independently of the company’s form and is explained in more detail on the next page.
Freelancer (Freiberufler)
A freelancer has to submit an application for tax registration at the jurisdictional tax office. The freelancer’s income is subject to income tax and has generally also calculate VAT on his income.
German Small Limited Company (Unternehmergesellschaft)
The Unternehmergesellschaft mostly corresponds to the German GmbH. The chief difference is that it is (theoretically) possible to found it with a minimum nominal capital of one Euro.
This aspect leads to a clear disadvantage: the UG usually has a very low liable capital and therefore a very bad credit rating.
In Germany (unlike Great Britain, for example), a GmbH with a minimum nominal capital of 25,000 Euro is the predominant company form for medium-sized corporations.
So it is generally assumed that the founding shareholders have only very limited financial means. Suppliers presume that there is a significantly higher risk of non-payment than for deliveries to a GmbH, for example.
Consequently, the German Small Limited Company form tends to be avoided when compared to other company types. That is why we essentially discourage from founding such a company.