Posted by: Susanne Hermsen
Just like the Netherlands, Germany has a number of legal forms to choose from when starting a business. These legal forms can be divided into roughly three categories: the ‘Einzelfirma’ (sole proprietorship), ‘Personengesellschaften’ (partnerships) and ‘Kapitalgesellschaften’ (capital companies). This article briefly explains the different legal forms.
‘Einzelfirma’ (sole proprietorship)
A sole proprietorship is created when a private individual establishes a business. The owner has unlimited liability for obligations entered into and damage or loss caused and his entire (personal) assets can be at stake. The profit or loss of the business established is to the benefit or at the expense of the entrepreneur.
Gesellschaft bürgerlichen Rechts (GbR)
A GbR is comparable to a Dutch partnership (maatschap). The GbR can be set up in a free form and does not need to be entered in the commercial register. The profit and loss are divided equally between the partners, regardless of the nature and size of the partners’ contributions.
The GbR has – limited – authority to act; for instance a GbR is authorised to participate in external legal relationships, conclude contracts and take part in legal claims. A GbR can also be sued and prosecuted.
Offene Handelsgesellschaft (oHG)
The oHG is comparable to the Dutch general partnership (vennootschap onder firma). It can be set up by two or more natural persons or legal entities who conclude an agreement with each other. The object of an oHG is to operate a trading company under a common company name. An entity of this form is required to use the designation oHG. An oHG is entered in the German commercial register. Just as for a GbR, there is no minimum capital prescribed and the liability is the same. All partners of an oHG are liable to an unlimited extent to creditors of the company.
The KG is a variant of the oHG and is comparable to the Dutch limited partnership (commanditaire vennootschap). In contrast to an oHG, a KG has two types of partners:
– the general partner (Komplementär), who has unlimited liability;
– the limited partner (Kommanditist), who is only liable for the investment he has contributed and not for debts incurred by the KG.
The limited partner may not perform any acts on the company’s behalf. A KG is interesting for Dutch entrepreneurs who only want to provide capital.
GmbH & Co. KG
A GmbH & Co. KG is a Kommanditgesellschaft in which a GmbH participates as personally liable (complementary) partner. So there is no natural person who has unlimited liability for the company’s debts. This legal form is very common in Germany because it yields a tax advantage in certain situations. Limited partnership profits are only subject to income tax and not corporation tax.
‘Kapitalgesellschaften’ (capital companies)
Gesellschaft mit beschränkter Haftung (GmbH)
The GmbH is the most popular legal form in Germany and comparable to the Dutch private limited company (besloten vennootschap, B.V.).
The establishment of a GmbH requires ‘Stammkapital’ and at least one ‘Geschäftsführer’ must be appointed. This must be a natural person. For more information on setting up a GmbH, see my article entitled ‘Incorporating a GmbH’.
An AG is comparable to the Dutch public limited company (naamloze vennootschap, N.V.). This legal form is mainly attractive for large undertakings because the original capital is divided into shares which are allocated to the shareholders. Each shareholder is only liable for his share. A minimum ‘Stammkapital’ of 50,000 euros is required. An AG is represented by a board and has a supervisory board as supervisory body.
Unternehmergesellschaft mit beschränkter Haftung (UG)
Since 2008 there has also been the possibility of setting up a so-called UG. A UG can be seen as a mini GmbH and can be incorporated with starting capital of 1 euro or more. Each year, however, 25% of the profit must be reserved for accruing capital. Once an amount of 25,000 euros is reached, the UG is converted into a GmbH.
When a business is incorporated in Germany, it must be reported within one month to the ‘Gewerbeamt’ or ‘Ordnungsamt’ of the municipality where the company is located. The incorporated company must also be entered in the commercial register. This is done by a German civil-law notary. The commercial register is managed by the ‘Amtsgericht’ (subdistrict court).