One of the most important legal forms among nonprofit organizations in Germany is the charitable limited liability company (gemeinnützige GmbH, gGmbH). It combines the advantages of the legal form of the commercial GmbH, which has always been extraordinarily well established in Germany, with the tax advantages offered to charitable organizations by the German nonprofit tax law. This is made possible by the fact that the statutes of a charitable LLC provide for the pursuit of exclusively charitable purposes and that it also observes all other requirements under German nonprofit tax law.
Those who set up a German charitable LLC enjoy the following advantages:
- The charitable LLC is "just as" charitable as, for example, a charitable association. It is fully tax-privileged and may also issue donation receipts.
- In contrast to an association and unlike in many other jurisdictions, the (foreign) shareholders maintain extensive possibilities to influence their charitable project. They can establish a German charitable LLC and hold up to 100% of its shares which enables them to manage the German subsidiary according to their will. This is the reason why foreign NPOs oftentimes use their German charitable subsidiary as the headquarters for their entire European affairs.
- As a legal form, the charitable LLC is suitable both for new projects and for restructuring (spin-offs, transformations etc.) in existing company/association structures.
- Charitable limited liability companies are characterized by a clear and tight internal organization that follows business management rules.
- The charitable LLC excludes any personal liability of the shareholders.
- The charitable LLC offers easy access to companies as cooperation partners, donors, social investors or sponsors.
- The increasingly strict handling of the register of associations with respect to associations engaging in economic activities can be avoided: In a gGmbH, economic activities that serve charitable purposes can be implemented with ease.
- The charitable LLC's obligation to prepare balance sheets is the basis for transparent and conclusive accounting.
- In the charitable LLC, the statutes can be structured relatively flexibly and adapted to the needs of the shareholders.
- Charitable limited liability companies are usually managed by full-time managing directors. Shareholder-managing directors of a gGmbH can of course pay themselves a salary. However, the amount of the salary should be appropriate.
Charitable limited liability companies can pursue a variety of charitable purposes. They can often be found in the education sector, for example. However, this legal form is also suitable for purposes such as the promotion of research, science, environmental protection, culture and art or health care. Numerous gGmbHs in Germany have also been established in social settings (day-care centers, kindergartens, youth welfare institutions, schools, socio-educational services, etc.). Even some of the most important and financially strongest German foundations are organized in the legal form of a charitable limited liability company (so-called Stiftungs-gGmbH).
Also foreign organizations, which intend to realize their projects in Germany, use the gGmbH as a legal form because it ensures them the greatest possible influence - no matter what charitable purposes the gGmbH is to pursue. Frequent examples of this are religious and benevolent purposes. There are also purely supporting gGmbHs (Förder-gGmbHs), which merely raise donations and other subsidies or receive funds from their parent company abroad and then pass them on to other recipient organizations. Conversely, foreign organizations use German charitable LLCs to raise donations in Germany and forward them to their parent company abroad.
In any case, the statutes of the charitable LLC must specifically state the objectives pursued and the way in which they are to be achieved. Only then the statutes of the charitable LLC will meet both the requirements of the law on charitable organizations as well as the law on limited liability companies.
What does that mean in specific terms?
- We develop result-oriented, practical and comprehensible solutions
- From A for approval of nonprofit status to Z for zero-rated activities - we provide advice on every NPO topic
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Your organization needs support? We look forward to hearing from you at +49 (0)69 76 75 77 80 or firstname.lastname@example.org.
The formation of a gGmbH does not always necessarily mean that the LLC has to take up its business in the sense of a newly founded company. In fact, the charitable limited liability company is by far the most popular legal form for spin-offs and other restructuring measures of nonprofit organizations. Associations often change their legal form entirely to that of a gGmbH because they find that they are becoming increasingly economically active and have outgrown the legal form of a registered association, or because the responsible register of associations reports a failure to comply with the legal form. On the other hand, foundations, clubs, associations, but also other nonprofit organizations like to outsource economic business operations bearing a high level of liability to separate charitable LLCs, partly also to commercial subsidiary LLCs.
Such restructuring measures must be carefully planned in terms of corporate law, employment law and nonprofit (tax) law. If done correctly, they offer many advantages to the (parent) institution: they protect tax benefits, reduce liability risks of the persons in charge and optimize the internal distribution of responsibilities. Restructuring measures using commercial and charitable limited liability companies can thus result in significant increases in overall efficiency.
Not only do we help you determine whether a charitable LLC is actually suitable for your project and assist you incorporating your charitable LLC. We also support numerous charitable limited liability companies that have been successfully operating on the market for years and provide them with all kind of legal services (employment law, privacy law, corporate law, contract law, etc.) as well as comprehensive tax consulting services including bookkeeping and the necessary annual financial statement procedures.
Would you like to know whether the establishment of a charitable LLC is the first choice or whether a different legal form would be the more suitable vehicle for your project? Would you like to establish a charitable LLC or have an experienced attorney provide you with advice on the law and taxation of charitable LLCs? Do you need assistance when exiting from your charitable status or selling shares in a charitable LLC?
No matter what questions you have about German charitable law and the law on charitable LLCs, we are happy to assist. Your contact persons are attorney Uwe Müller and attorney Johannes Fein (Certified Specialist for Tax Law) as well as certified tax advisor Joern Maus. The easiest way to reach us is by e-mail (email@example.com) or by telephone (+49 (0)69 76 75 77 80). We are looking forward to hearing from you!
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