Germany is a prime location to expand your business in Europe. It has high spending power, an innovative economy, and sits in the heart of Europe. The country is also a global powerhouse when it comes to technology, manufacturing, and the sciences. Beyond that, Germany provides a ton of support to entrepreneurs through network connections, funding, and mentorship with international entrepreneurs.
Type of business entities in Germany
Limited Liability Company (GmbH or UG [mini-GmbH])
GmbH stands for Gesellschaft mit beschränkter Haftung and is the most common form of company registration in Germany. It is a popular choice for many entrepreneurs because of the limited liability it offers. Shareholders cannot be held liable for their private assets, only to the amount of their capital contribution to the company. The financial risk of an individual shareholder is easier to forecast because of this and poses less risk.
Features of a GmbH:
- A minimum share capital of €25,000, contributed by one or more shareholders. Contribution by each shareholder may vary.
- At least 50% of the capital must be paid upfront.
- If you incorporate with less than €25,000, your assets will be held liable until it forms the minimum amount. For example, you incorporate a company with only €15,000, your finances will be liable up to €10,000.
If you want to launch a company but do not have the minimum share capital required, you can start a UG or mini-GmbH with just €1. Once the share capital reaches €25,000, it will turn into a GmbH.
Stock Corporations or AG
AG, which stands for Aktiengesellschaft, is a corporate structure limited liability based on stock share ownership. Shareholders are only liable up to the amount of their stock in the company. It is a great option for companies looking into a long-term business and aim to raise capital as quickly as possible because shares can be sold without the bureaucratic hassle.
The pros of starting an AG are that shares are easy to transfer, the life of the company is not dependent on a few shareholders, and financial independence from credit institutions.
On the other hand, it requires more stringent financial and business planning and a more complicated corporate structure.
Features of an AG:
- The minimum share capital is €25,000.
- There must be at least one shareholder.
- The three parts that form an AG are the executive board (Vorstand), the supervisory board (Aufsichtsrat), and the annual general meeting (Hauptversammlung).
- This type of entity is subject to heavy regulations.
- While not all AG are listed in the stock market, the listed AG is the more common entity.
Partnerships can either be an OHG or a GmbH & Co. KG. An OHG is a general commercial partnership between two or more entrepreneurs or companies.
In an OHG, all shareholders are fully liable for their business and private assets.
A GmbH & Co. KG is a limited partnership wherein there is a general partner with unlimited liability and one or more limited partners. The GmbH functions as the general partner. This business entity is attractive for founders because damages are limited to the GmbH’s company assets.
A sole proprietorship or Einzelunternehmen is the best option for freelancers or sole traders looking to create a company. It is the easiest to start and the least regulated business entity. It is important to note that you will hold 100% of the profit and 100% of the liability, which includes your private assets.
There is no minimum share capital to start a sole proprietorship and few accounting obligations. You also avoid the hassle of the lengthy registration process for setting up other types of business entities.
If you have an existing business in your home country, you can set up a branch in Germany. Keep in mind that the parent company will retain full responsibility for all legal and tax matters.
Process of incorporating a company in Germany
- Choose a company type – Know what kind of business entity you want to establish. Consider the number of shareholders, the capital available, and the size you want your company to grow.
- Select a company name – Verify the availability of the business name at the local chamber of industry and commerce.
- Create the company deed – The deed is drafted and executed by a German notary. You should also have the Articles of Association, including IDs and signatures, ready. Additionally, you may prepare a document with your management board structure if required.
- Deposit the capital – Open a German corporate bank account under your company’s name. The minimum deposit is based on the type of entity you choose. Keep the bank certificate for the next step.
- Enter the business into the registry – Enter your company into the Commercial Register, then register with the tax authorities. Lastly, apply for any special permits or licenses needed in your field of business.
INS Global in Germany
INS Global has helped hundreds of companies expand across the world over the last 2 decades. As one of the world’s leading Professional Employer Organizations (PEO), we can help you hire staff in Germany without the need of setting up your own entity. We also specialize in recruitment and payroll and tax, ensuring all your administrative needs are taken care of when expanding to Germany. Get in touch with our consultants today and let us help simplify your global expansion.