Do you intend to establish a business in Germany? There are various ways to do so. Our corporate lawyers as well as tax lawyers and company registration attorneys will gladly advise you on all questions related to the setup of your business in Germany. We will also guide you through the registration process of your company in Germany.
Entrepreneurs intending to establish a company will sooner or later want to know under which legal form they should operate their business. The decision depends on many factors, such as:
- the line of business
- tax considerations
- the available capital and capital requirements
- the liability incurred by the company and
- the question of whether and, if so, how many partners there are and whether these participate in business management or would like to function as investors only
- the company’s future development
In particular, if several parties join forces to establish and register a company to pursue a common entrepreneurial objective, the rights and duties of all parties should be recorded in writing. This is necessary if the company shall operate in the form of a corporation, for example, a GmbH (German limited liability company). The contractual freedom given in wide areas of Corporate Law allows to take your company’s nature, your individual situation and that of the other parties involved into account, by appropriately designing the company agreement.
German law distinguishes, in principle, between partnerships and incorporated companies. According to the statutory concept of a partnership, individual partners manage business themselves, while incorporated companies require financial participation. Furthermore, they are differentiated stronger between shareholders and management.
Registering a company with the commercial register is, as a rule, a prerequisite for its coming into existence as a legal entity. The most important incorporated companies in German law are:
- Aktiengesellschaft (AG) [joint stock company] as the basic type,
- Gesellschaft mit beschränkter Haftung (GmbH) [limited liability company],
- and Kommanditgesellschaft auf Aktien (KGaA) [partnership limited by shares], which has a tendency towards partnership.
In addition to capitalist elements, the Genossenschaft [cooperative] has characteristics of an association in particular. The cooperative also comes into existence as such only with registration in the Commercial Register. The Gesellschaft bürgerlichen Rechts [GbR] [partnership under the Civil Code] and the organizationally more distinct offene Handelsgesellschaft (OHG) [general partnership] are regarded as models for the partnership. The Kommanditgesellschaft (KG) [limited partnership] is a partnership with capitalist elements.
Additionally, the partners may - when establishing a company and if necessary also later - combine characteristics of both basic types. Also, hybrid forms can be formed, such as the Publikums-KG [capital investment company] and the GmbH & Co.KG [limited partnership with a limited liability company as general partner].
Partnerships and incorporated companies differ, among other things, in the liability for obligations of the company. In partnerships, at least one natural person is liable to the company's creditors with all of his private assets. In incorporated companies, however, the liability is in principle limited to the corporate assets. Only in exceptional cases, measures are taken against the individual shareholder. The prerequisite for the limitation of the liability to the corporate assets, however, is the "registration of the company" with the commercial register.
Liability may also depend on your arrangements: The raising of a specific capital amount, which serves as collateral for the creditors, is stipulated by law for establishing an incorporated company. The capital stock of a joint stock company is at least EUR 50,000, the nominal capital of a limited liability company must be at least EUR 25,000, while the "entrepreneurial company" (with limited liability) can already be established with a nominal capital of only EUR 1. The raising of nominal capital or capital stock is the condition for registration of the company. In a limited partnership, it is only stipulated that the limited partners have to make contributions; their amounts are not set by law.
Partnerships do not have to provide separate corporate assets in order to establish the company.
Please be aware, that German tax law differentiates between the two basic forms. Income of a partnership is only taxed at the level of the individual partner. The partnership itself is not subject to taxes, i.e. no corporate tax is incurred. This does not apply to property taxes, trade taxes and value-added taxes, which must also be paid by partnerships.
Income of incorporated companies is taxed via the corporation tax at company level and, where distributed, via the income tax at shareholder level. The double burden is in part moderated in that a certain amount of dividends is tax-exempt.
Are you facing the question, which legal form is suitable for establishing your company? We will gladly assist you in finding the legal form consistent with your business plans and will also advise you on the individual steps to be taken when starting your company registration in Germany.
Are you planning to establish a business or thinking about company registration in Germany? Company Registration Attorney Thomas Schwab (Certified Specialist for Commercial and Corporate Law) and Attorney Phillipp von Raven are looking forward to answering your questions on establishing a company and selecting the legal form most appropriate for your case. Please contact us via e-mail (firstname.lastname@example.org) or by phone (+49 (0)69 76 75 77 80).