Company formation Germany
Company formation Germany
- Tax planning via a network of international tax advisers and attorneys
- Why form a company in a foreign country with a tax accountant specialized in international tax law?
- Basic Considerations regarding the Formation of Companies in „Zero-Tax Havens“ i.e. in countries that have not entered into Double Taxation Agreements with other countries
- Offshore Company Formation: Tax haven rankings
- Examples for the legal reduction of corporate taxes
- DTA permanent establishment concept – Our services and fees
- Parent companies and their subsidiaries in the European Union
- Beware of cheap founders!
Company Formation in Germany
We – namely our English-German Partner Law Firm within a network of international Tax Accountants and Attorneys offer “Company Formation services in Germany”:
- Company Formation in Germany ((German Limited Liability Company (GmbH)), (Limited Commercial Partnership with GmbH as General Partner (GmbH&CO KG), (Stock Corporation (AG)), (Entrepreneurial Company), (Limited Partnership (KG)
- Branch office of an EU company, Swiss Corporation (AG)/Swiss Limited Liability Company (GmbH) or US Inc. in Germany
- Registration of a representation of a foreign company in Germany
- Registration in the German commercial register
- Tax ID and VAT-ID
- Upon request: Domiciliation of the company in Germany (from virtual office to office)
- Upon request: Nominee General Manager and / or Nominee Shareholder
- Upon request: Provision of agents / representatives at the establishment of a representation of a foreign company in Germany
- Upon request: Provision of a German branch manager at the establishment of a branch office of a foreign company in Germany
- Provision of an English speaking Tax Accounting Firm in Germany for bookkeeping, advance turnover tax returns and financial statements
- Account opening for the company
- Tax advice within the context of “associated companies”
Our fee schedule is based on the services provided. We welcome the opportunity to provide you with an offer detailing our services.
Legal Forms of German Companies
Civil Law Association / Partnership (GbR)
An association of several persons to attain a common purpose constitutes a Civil Law Association / Partnership (GbR), without having to comply with specific formalities or having to enter into an agreement.
The legal relationships of a Civil Law Association / Partnership (GbR) are stipulated in the German Civil Code (BGB). The special provisions of the Civil Law Association / Partnership (GbR) are stipulated in Sections 705 et seqq. German Civil Code (BGB).
The assets of the partnership are “joint property”, i.e. all partners may only dispose of the assets jointly.
Each partner of the partnership is fully liable for the partnership’s debts; this also applies to the partner’s personal assets.
The partners of a Civil Law Association / Partnership (GbR) are not merchants as defined by the German Commercial Code (HGB), otherwise this would constitute a General Partnership (OHG) (General Partnership, Section 105 Commercial Code (HGB)) if a Civil Law Association / Partnership (GbR) engages in trade. For this reason, a Civil Law Association / Partnership (GbR) may not register the partnership in the commercial register. Due to the fact that the partnership cannot be registered in the commercial register, the partners must act under their own names.
Based on the judicial decision of the Federal High Court of Justice (BGH) a Civil Law Association / Partnership (GbR) may also express itself as its own legal personality and as such can sue and be sued. A liability limitation on the assets of the Civil Law Association / Partnership (GbR) is possible in individual cases, based on an individual limitation agreement with the respective client, however not by means of a general liability limitation in a partnership agreement.
It is a recognized fact, that upon joining a Civil Law Association / Partnership (GbR), the joining partner is liable for existing debts. For this reason, one should perform due diligence in examining the business transactions that have already been concluded and with regard to possible liabilities the partnership holds.
- Minimal formation expenditure / effort and low costs
- A partnership agreement is not a legal requirement; we do however strongly recommend that such an agreement is concluded.
- The partners are subject to unlimited liability
- This legal basis is not suited to companies which generate significant business revenues and / or business operations involving risk.
- The Civil Law Association / Partnership (GbR) is suited to small business operations, whose business volume does not warrant registration in the commercial register.
German GmbH / German Limited Liability Company
The main characteristics of a German Limited Liability Company (GmbH) include notarized articles of association (Section 2 German Limited Liability Company Act (GmbHG)) and the subsequent registration in the commercial register (Section 7 German Limited Liability Company Act (GmbHG)), it is a legal entity with its own legal status (Section 13 Para.1 German Limited Liability Company Act (GmbHG)) and its liability is limited regarding the companies obligations/liabilities to company assets (Section 13 Para 2 German Limited Liability Company Act (GmbHG)).
Consequently, the shareholder’s liability risk is – apart from exceptions – limited to their initial contributions to the stock capital. The total of the shareholders’ initial contribution to the stock capital must amount to at least 25,000 Euro (Section 5 Para 1 German Limited Liability Company Act (GmbHG)).
The Limited Liability Company (GmbH) generally consists of two organs for operational management: the shareholder’s meeting and management, whereby the member or members of management must not necessarily also be shareholders (Section 6 Para 3 German Limited Liability Company Act (GmbHG)). In the event, however, the Limited Liability Company (GmbH) is formed by a sole founder (so-called “one-man-GmbH”), in this case the founder may perform both functions simultaneously (so-called Shareholder Managing Director).
Entrepreneurial Company (Mini GmbH)
The Entrepreneurial Company (Limited Liability), commonly referred to as a „Mini-GmbH“ or „Ein-Euro-GmbH“, was introduced in the course of the Limited Liability Company Law Reform Rechts der GmbH Gesetz zur Modernisierung des GmbH-Rechts und zur Bekämpfung von Missbräuchen by the Act to Modernize the Law Governing Privat Limited Companies and to Combat Abuses (Gesetz zur Modernisierung des GmbH-Rechts und zur Bekämpfung von Missbräuchen) (MoMiG) existenzgründerfreundliche as a promotional variant of existing Limited Liability Company (GmbH) (§ 5a German Limited Liability Company Act (GmbHG)).
The Entrepreneurial Company is formed in the same manner as the classic Limited Liability Company (GmbH), with the exception of some insignificant deviations. On the one hand articles of association must be concluded and on the other hand the stock capital must be contributed.
Principally, the stock capital is also 25,000 Euro, it can however be contributed in installments. The initial capital stock contribution amounts to a minimum amount of one Euro and a maximum amount of 24,999 Euro. The Entrepreneurial Company must create annual reserves, to save for the stock capital of 25,000 Euro. An Entrepreneurial Company automatically becomes a Limited Liability Company (GmbH) upon attaining capital stock in the amount of 25,000 Euro.
Limited Commercial Partnership with a GmbH as General Partner (GmbH & CO KG)
The particular characteristic of a Limited Commercial Partnership with a GmbH as General Partner (GmbH & CO KG), is the characteristic of a partnership with the limited liability of a corporation.
This hybrid is formed by the fact, that the Limited Commercial Partnership with a GmbH as a General Partner (GmbH & CO KG) is a regular Limited Commercial Partnership (KG), upon which a Limited Liability Company (GmbH) holds interest as a General Partner (subject to full liability). The provisions regarding General Commercial Partnerships in the German Commercial Code (Section 161 HGB) stipulate that only the General Partners of a limited commercial partnership are personally liable subject to full liability, while their limited partners are only liable for their contributions. The legal construct of the Limited Commercial Partnership with a GMBH as General Partner (GmbH & CO KG) described above can result in the exclusion of any unlimited personal liability, in the event the Limited Liability Company (GmbH) is the sole General Partner of the Limited Commercial Partnership (KG).
A “One Person Limited Commercial Partnership with a GmbH as General Partner” (GmbH & CO KG) is formed in the event an individual is simultaneously the Shareholder-Managing Director of the “General Partner Limited Liability Company” (GmbH) and the sole Limited Partner of the Limited Commercial Partnership (KG).
Irrespective of the liability limitation that can be attained via this vehicle, the essence of the Limited Commercial Partnership with a GmbH as General Partner (GmbH & CO KG) is, however, still that of a Limited Commercial Partnership (KG) and as such is, with the exception of some special provisions, subject to the provisions of the German Commercial Code (HGB) and the German Civil Code (BGB). The differences between the German Commercial Code (HGB) and the German Civil Code (BGB) and a Limited Liability Company (GmbH) are largely to be found in the realm of taxation.
Stock Corporation (AG)
A Stock Corporation (AG) is, like the Limited Liability Company (GmbH), a commercial company, which has its own legal personality (so-called “legal entity”). The Stock Corporation’s stockholders, the shareholders hold interest in the company by means of their contributions to the capital stock; which is divided into shares. As in the case of the Limited Liability Company (GmbH), the Stock Corporation is only liable up to the amount of the Stock Corporation’s capital stock to the creditors.
The Stock Corporation (AG), like the Limited Liability Company (GmbH) comes into existence upon its registration in the commercial register.
The minimum paid-in stock capital of a Stock Corporation (AG) is 50,000 Euro.
The share/stock embodies the equity interest and may be transferred without any restrictions. There are two kinds of Stock Corporations (AGs): Public Stock Corporations, listed, and privately held Stock Corporations, not listed. The shareholders as equity holders receive their profit shares in the form of dividends. The shareholders enjoy different rights, for example the participation at shareholder’s meetings, the right to vote, the right to demand information and the right to dividends.
The Stock Corporation’s organs (AG) consist of the Board of Directors, the Supervisory Board and the shareholder’s meeting.
– The Board of Directors is charged with managing the business and assume full responsibility. The Board of Directors is appointed by the Supervisory Board for a period of no more than five years. The Board of Directors reports to the Supervisory Board, for example it submits the annual financial statement (and the management report).
– The Supervisory Board appoints, dismisses and supervises the Board of Directors. However, the supervisory board has no right to give instructions. (In contrast to the Limited Liability Company (GmbH): In this case, the shareholders have the right to give instructions to the Managing Directors!). The supervisory board audits the annual financial statement (and the management report) and calls the Shareholder’s Meeting.
– The Shareholders’ Meeting is composed of the Stock Corporation’s shareholders. The shareholder’s meeting elects the members of the Supervisory Board and adopts resolutions regarding the direction of the Stock Corporation. For example: Amendments to the articles of incorporation must be adopted by resolution of the shareholders’ meeting. The shareholders also adopt resolutions regarding the utilization of the profit as shown in the balance sheet (distribution or retention of earnings).
In the interim, corporate law permits the formation of a Stock Corporation (AG) by an individual (one-person) (Section 2 German Stock Corporation Act (AktG), revised version). However, the minimum stock capital is 50.000 Euro. In the event, the minimum capital is not paid in upon formation, a surety must be furnished which guarantees the full amount of the stock capital. In the context of One-Man Stock Corporations, the fact that shareholder’s meetings have been simplified and the utilization of funds has become more flexible must be noted.
Tightened liability terms apply to Stock Corporations according to Stock Corporation Law, as is the case with other areas of corporate law. According to the tightened liability terms, the standard is no longer that the company’s board of directors has no knowledge of transactions in its own company; rather the new standard is based on the principle of “due care”. For example: in the event a company utilizes software in its company, which is not properly licensed, this situation can result in the board of directors / members of the board being liable, if it / he has failed to establish a corresponding information system.
- A corporation or stock-market listing is possible because of the unrestricted transferability of shares. As such, this provides for equity financing on a broad basis and minimizes the dependency on loans.
- The company’s continuity is safeguarded by the free and unfettered trade of shares.
- The strict division of responsibilities, asserted by the organs, provides for distinct structures regarding management and responsibilities. The roles and rights with regard to obligations are clearly regulated by law.
- The replacement of the Board of Directors cannot be enforced by a minority of shareholders. Such measure requires a Supervisory Board resolution.
- “Small entrepreneurs” may have difficulties raising the stock capital.
- The stock corporation’s construction is relatively complex due to the numerous provisions regarding capital preservation and codetermination. The “Small Stock Corporation” provides for some easing of the terms.
Branch Office of an EU Company in Germany
Based on the EU freedom of establishment companies from the European Union may establish themselves in Germany without having to form another company. For example: a English Limited may transact business via a branch office in Germany and is entered in the commercial register in Germany as Limited. Net income generated in Germany is taxed in Germany. The Double Taxation Agreement (in this case Germany/England) prevents double taxation.