The Gesellschaft mit beschränkter Haftung or GmbH, is considered an equivalent to a limited liability company (German LLC), and is the most widely used legal form in Germany. The GmbH can be established quite simple and quick. Shareholders may be either German residents or foreign, natural or legal persons.
The liability is generally limited to the company assets, which makes the GmbH an attractive option for entrepreneurs.
The following steps need to be taken into consideration before establishing GmbH companies in Germany and may require support from a specialized GmbH lawyer:
- Drafting the Articles of Association
- Registration with the Commercial Register
- Registration with the Trade Office
Moreover, a share capital of EUR 25,000 is required for founding a GmbH in Germany. It may be provided either in cash or in kind, i.e. through a contribution of assets to the company. In the case of a formation based on cash, an initial payment of half the amount of the share capital is sufficient for the GmbH to be registered and to come into existence as a fully approved legal entity.
A share capital of just EUR 1 is sufficient to establish an Unternehmergesellschaft (haftungsbeschränkt) or UG also known as entrepreneurial company (with limited liability). The UG must accumulate a reserve at a legally prescribed level. As soon as it is possible to form share capital to the amount of EUR 25,000, the UG can be registered as a GmbH in Germany with the help of a specialized business attorney for LLCs.
The rules for a shareholders' meeting which a GmbH in Germany has to follow are less strict than those for the general meeting of a German stock corporation (Aktiengesellschaft, AG). It applies particularly to the convening of meetings and its resolutions. It also holds additional authorizations. For example, it can influence the ongoing business management.
The general manager of a GmbH in Germany is responsible for the company’s daily business. He/She is appointed by the shareholders’ meeting and can also be dismissed by the same at any time. The general manager of a German LLC must be a natural person. However, it is not necessary for the general manager to be a German citizen. In general, no proof of residency in Germany has to be provided. It is mandatory, nonetheless, to provide a German address, which has to function as the address for services to the GmbH.
Unlike the managing board of a German stock corporation, shareholders of a German GmbH can issue detailed instructions to the general manager by the means of the shareholders‘ resolutions.
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In Germany, the set-up of a supervisory board is not strictly prescribed for GmbHs, which eases the process of the management set-up for the GmbH.
However, if the company employs more than 500 employees, the One-Third Participation Act requests a mandatory formation of a supervisory board, in which the employees have the right of co-determination.
If the company employs more than 2,000 people, there is an obligation to form a supervisory board under the Co-determination Act. Detailed regulations on the composition of the supervisory board of a GmbH in Germany can be found there.
The shareholders in a GmbH are free to create further entities by the means of the Articles of Association. Their authority can also be determined relatively free. For example, the shareholder’s duties can be outsourced or certain transactions by the general manager can be made dependent upon the shareholders’ approval. An advisory board can be equipped with expert third parties or lawyers, who mostly assume advisory roles.
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