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Form matters. Startups in Germany, done right.

What this article is about:

  • information about legal forms in Germany
  • options for founders with one or more partners
  • options for individual founders


Anyone wanting to register or establish a startup in Germany will at some point face the same question: which legal form is most suitable for my business? In Germany, as in any other EU country, there are lots of options. Each of them comes with advantages and disadvantages. And each meets the needs of certain companies better than those of others. For instance, when launching your startup on your own you will most have other needs and challenges compared to doing so with partners. The amount of experience you have also plays a role in choosing the legal form for your startup. As does the size of your business. Or the amount of risk you are willing to take.


Until now, many British entrepreneurs who have moved their business to Berlin have retained their original legal form. This is possible because you can select your head office freely within the EU. With the Brexit this could change: If similar rules are applied to Britain as to non-EU members such as Switzerland, this would mean that the founder cannot apply the British law anymore. Instead, they must choose among German legal forms.

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For founders with one or more partners, there are several options:

Gesellschaft bürgerlichen Recht (GbR): The “association of civil right” is suitable for at least two persons and is often used for doctor’s offices or law firms. The foundation is simple: an entry into the commercial register is not necessary. An oral agreement among the founders is often already sufficient. A minimum capital is also not necessary. In addition, the GbR is tax-favorable since losses can be expensed against the income of the previous year. Entrepreneurs pay the turnover and trade tax as well as the income tax. The problem: in case of loss, the shareholders are also liable with their personal assets, which is why the form is particularly unsuitable for larger transactions.

Kommanditgesellschaft (KG): If you want to be able to make all decisions on your business but want to involve partners with capital, too, the KG (“limited partnership”) could be interesting for you. It involves a formal agreement between the parties and must be entered in the German commercial register. As a consequence, the founder must submit the annual profits and losses to the tax office. Furthermore, the contract between the parties regulates the profit and loss distribution. A minimum capital is not required at the time of formation. The KG pays turnover and trade taxes and in the case of profits also an income tax. Should the company go bankrupt or accumulate debt, the limited partners are only liable with their investment while the owner’s liability extends to his private assets.

Offene Handelsgesellschaft (OHG): The Open Trading Company is particularly suitable for merchants. In order to establish an OHG, a formal partnership agreement between the parties and an entry in the commercial register is required. A minimum capital is not necessary, whereby in case of debts or bankruptcy all shareholders are liable with their private assets. At the end of a year, the founders also have to present a profit and loss account. OHG pays a turnover and trade tax; the shareholders pay the income tax.

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Gesellschaft mit beschränkter Haftung (GmbH): One of the most common legal forms in Germany. For founding a company of this kind it requires at least one person, whereby the contract determines the shareholders. The contract also describes the position of the managing director, which may be external. After the contract is certified by the notary, the “Limited Liability Company” has to be entered in the commercial register. The advantage with this form is that founders are not liable with their entire private assets, but only with the amount they contributed to the minimum capital. This is at least 25,000 euros, but can also be comprised of non-cash contributions such as machinery. The company pays corporate and trade tax. In the case of a profit distribution to the shareholders, the capital gains tax is added. Because of its entry in the commercial register, it is also obliged to keep double records.

Entrepreneurship (UG): Another popular legal form for startups and smaller businesses is the UG. The important difference is the amount of the minimum capital which the founder have to invest at the start. Shareholders do not need  to provide 25,000 euros, but can already equip the UG with one euro, whereby assets in kind are excluded. On the contrary, the shareholders do not get the profit in full: at least one quarter of the profit is invested in the share capital. This is done until the UG reaches the minimum capital of the GmbH, which is 25,000 euros. Otherwise the same rules apply as with the GmbH.

Small Stock Company (AG): Among small companies, Kleine AG is a rather rare form. It is comparatively complex to realize this: the founders must first determine their statutes in a protocol and, for the sake of form, take over all the shares. Three persons form the Supervisory Board, which controls the activities. In addition, the client has to be certified by the notary and entered in the commercial register. Admittedly, founders do not have their private assets in this form, but they have to make a relatively high minimum capital. This amounts to at least 50,000 euros and can be provided partly by property, plant and equipment. The Small AG is an advantage for all those who want to quickly get to the equity: By selling company shares, founders remain financially flexible.

Kleine Aktiengesellschaft (AG): Among startups, the “Small Stock Company” is rather rare. This is because it is fairly complex to set up. Founders must first determine their statutes in a protocol and, for the sake of form, take over all the shares. At least three persons form the supervisory board, which controls the activities. In addition, the AG has to be certified by the notary and entered in the commercial register. Although founders do not have their private assets in this form, they have to invest a relatively high minimum capital. This amounts to at least 50,000 euros and can be provided in part in the form of non-cash contributions. Nevertheless, the AG is a good choice for all those who want to be able to access the equity capital quickly: By selling company shares, founders remain financially flexible.

These are the options for individual founders:

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Einzelunternehmen (Individual enterprise): The simplest and most favorable form of self-employment. Founders apply for a tax number and communicate their activities to the tax office. Usually, they do not have to register a trade. The founding process for merchants is somewhat different: They have to report their work to the commercial office and be entered in the commercial register. If freelancers gain more than 17,000 euros in turnover, they not only pay income tax, but also turnover tax. The downside: In the case of debts and mistakes the individuals are liable with their private assets. Therefore, for higher sums, experts advise against it.

One-Person-GmbH: All-founders can also set up a GmbH. As with several people, they need a minimum capital of 25,000 euros. Furthermore, a company agreement is also required for Ein-Personen-GmbH, which stipulates the managing director. Because of limited liability, the form is attractive to many founders. The associated effort, however, must not be underestimated.

UG (Limited Liability): Similar to the GmbH, but with a crucial difference: the founder does not have to hold 25,000 euros of capital. One euro is sufficient for the startup. However, the founder must deposit a quarter of the profit into the reserve in order to reach the share capital of 25,000 euros. Liability is assumed by the UG, not the founder personally.