A German charitable limited liability company (gemeinnützige GmbH, gGmbH) offers many advantages, especially in terms of taxation. However, it must comply with numerous requirements of the German law on nonprofit organizations. When founding a gGmbH, serious mistakes can therefore occur, which might later lead to the loss of its charitable tax-exempt status.
The charitable LLC is not an independent legal form, but a regular commercial GmbH. However, it differs from the commercial GmbH above all in its objectives.
The formation of a charitable LLC in Germany is therefore largely similar to the formation of a commercial LLC:
- Draft of the gGmbH statutes
First, the shareholders draft and establish the articles of association, which are often referred to as the gGmbH statutes.
- Coordination with the tax office
The next step is to coordinate the articles of association with the responsible tax office in order to ensure that the regulations in the articles of association comply with the requirements of the German nonprofit tax law.
- Appointment of the managing director(s)
Via a shareholders' resolution, the shareholders then appoint the managing director(s). The cooperation with the managing director(s) should be based on a suitable managing director service agreement from the outset in order to avoid unnecessary disputes in the event of a conflict.
- Provision of the original capital contributions
The shareholders must now provide their respective capital contributions. At least half, i.e. EUR 12,500, must be paid in on the minimum share capital of EUR 25,000.
- Entry in the commercial register
Finally, the LLC must be registered for entry in the commercial register. The registration is important because it is only then that the LLC comes into existence legally. The limitation of liability takes full effect from this point on.
During the incorporation process of a charitable limited liability company, particularities arise mainly with regard to the statutes. These must comply with the requirements of German nonprofit tax law. The basic prerequisite for the recognition of the charitable status is the inclusion of a tax-privileged purpose in the statutes. The law distinguishes between charitable, religious and benevolent purposes. In addition, it must be determined in what specific way this purpose is to be achieved.
In Germany, when drafting the statutes, also the principles of exclusivity, immediacy and selflessness must be observed:
- According to the principle of exclusivity, the organization may only pursue its charitable, religious and benevolent purpose(s) specified in the statutes. If further purposes are to be added at a later time, the statutes must be amended accordingly in advance.
- According to the principle of immediacy, the charitable LLC must itself pursue the realization of its purpose(s). This must be expressed in the statutes themselves. As an exception to this principle a charitable LLC can also be active in the way that it (financially) supports other charitable organizations.
- Selflessness presupposes that the charitable LLC acts altruistically. Of particular importance for the charitable LLC in this regard is the principle of asset commitment: The resources of the charitable LLC are available exclusively for the promotion of the charitable purpose(s). Distributions to the shareholders or other benefits in favor of the shareholders are strictly prohibited (“non distribution constraint”).
If the managing director is to receive a comparatively high salary, it is also advisable to get the salary assessed and to prepare a so called salary report at an early stage. Managing directors of charitable LLCs may not receive an unreasonably high remuneration, if the tax-exempt character of the company is not to be jeopardized.
There are some alternatives to the charitable LLC: For larger projects the charitable stock corporation (gAG) is a suitable option, whereas for small start-ups the charitable entrepreneurial company (gUG) may be of interest. The latter can already be established with a share capital of only EUR 1. For certain projects the charitable cooperative (Genossenschaft) could also be taken into consideration.
The nationwide incorporation of charitable LLCs in Germany is part of our daily work. We would be pleased to support you fully in setting up your charitable GmbH, e.g. by:
- drafting legally compliant statutes,
- negotiating with the tax authorities,
- coordinating the formation with a notary and
- handling with the commercial register.
Once the gGmbH has been founded, we will continue to be there for you: Our tax department will be happy to take care of the LLC's tax registration and ongoing accounting. And our legal team will draw up all individual contracts for you and your charitable LLC: Managing director service agreements, complex license agreements, tax-optimized sponsoring contracts as well as cooperation agreements with your domestic or foreign partner institutions - all of course individually tailored to your charitable LLC's needs.
You would like to establish a charitable LLC or receive advice from an experienced attorney on the law and taxation of German nonprofit LLCs? Your expert partners for the establishment of charitable limited liability companies in Germany are attorneys Uwe Müller and Johannes Fein. The easiest way to reach us is by e-mail (firstname.lastname@example.org) or by telephone (+49 (0)69 76 75 77 80). We are here to assist.