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Company founding in Germany
Founding a company in Germany offers many opportunities. First, however, high bureaucratic hurdles have to be overcome. In addition to the question of which legal form should be chosen for your entrepreneurial activity, there are usually a few registrations to be made and approvals to be obtained. Below you will find an initial overview of the most important legal steps involved in founding a company in Germany.
The most important facts in a nutshell:
- When founding a company in Germany, there are a number of legal options
- First, foreign founders must have a residence permit that allows self-employment
- Furthermore, the legal form to be chosen for your company should be carefully examined
- In many cases, additional permits must be obtained or registrations made
Immigration law regulations
First of all, the basis must be created so that you can set up a company in Germany. Foreign nationals are only allowed to pursue self-employment in Germany under certain conditions. To do this, you need a residence permit to take up self-employment (Section 21 Residence Act) or, if necessary, a settlement permit. However, this does not apply to citizens from a member state of the European Union; These are equal to German citizens in many respects and can easily pursue self-employment in the Federal Republic.
Which legal form for my company?
Furthermore, it must be checked which legal form suits your company best. The most important legal forms for companies in Germany include:
one-man business
It is possible to run the company as a sole proprietorship. Then you alone are the owner of the company without any other shareholders and conclude all contracts of your company in your own name. This also means that you are liable for the liabilities of your company with all your private assets. The sole proprietorship offers many advantages, especially for smaller companies: On the one hand, a sole proprietorship can be advantageous from a tax point of view, since, among other things, no corporation tax is due. On the other hand, the organizational and administrative effort is low compared to the other legal forms. It should be noted, however, that above a certain threshold you will be treated as a merchant; then you must observe the regulations of the German Commercial Code, which include, among other things, bookkeeping and accounting obligations. You only meet these commercial obligations if the type and scope of your trade requires a commercial business operation (commercial trade). When this threshold is exceeded, an overall view of your company is required. This includes, among other things, the amount of your turnover, the number of employees and the type and scope of the services you offer.
Society under civil law (GbR)
The partnership under civil law (GbR) is the simplest form of partnership. It only comes into consideration if your company is not a commercial enterprise. Commercial business is any commercial operation that requires a commercial business operation in terms of type and scope. The liberal professions (doctors, engineers, lawyers, etc.), primary production (e.g. agriculture and forestry) and the mere administration of one's own assets do not count as trades. The GbR is therefore often found in smaller companies or in associations of freelancers. The partners are personally and unlimitedly liable and are in principle all authorized to manage the company. The GbR itself is not subject to either income or corporation tax. However, the GbR has to pay trade tax if it runs a trade.
General partnership (OHG)
The general partnership (OHG) is similar to the GbR in its basic features. However, an OHG can only be established for a trade. This means that freelancers cannot set up an OHG. The OHG must act according to the regulations applicable to merchants, i.e. in particular keep commercial books and create balance sheets. Here, too, all partners are personally and unrestrictedly liable and are generally authorized to manage the company. The OHG must be entered in the commercial register. The company itself is also not subject to income tax or corporation tax, but is subject to trade tax.
limited partnership
The limited partnership consists of two types of partners: general partners and limited partners. The general partners are personally and unlimitedly liable. You are also responsible for the management. The limited partners, on the other hand, are not liable insofar as their contribution has been made and are fundamentally excluded from management. A limited partnership is therefore advisable if you need equity but do not want to give up any decision-making powers; The legal form of the KG is also often used by family businesses. The limited partnership must also observe the rules applicable to commercial companies. The KG must be entered in the commercial register and is also subject to trade tax, but not to income or corporation tax.
Limited Liability Company (GmbH)
The GmbH is probably the type of company most frequently encountered in business transactions. The attractiveness of the GmbH is mainly due to the fact that the company is only liable with its own assets and not the shareholders with their private assets. Nevertheless, there are also some disadvantages: First, there is a share capital of €25,000.00. At least half of this must be contributed when the company is founded. Furthermore, it should be noted that the GmbH itself has to pay corporation and trade tax. The GmbH is represented by the managing director. This can come from the ranks of the shareholders, but does not have to. A GmbH can also consist of just one shareholder. Notarial certification is required for the establishment and transfer of shareholder shares. In addition, the GmbH must be entered in the commercial register. If the share capital for the GmbH cannot be raised, the establishment of an entrepreneurial company (UG (limited liability)) can also be considered as an alternative. This can be established with a share capital of just €1.00. Then, however, there are certain special regulations, so that, among other things, 25% of the annual surplus must remain in the company as equity reserves. If capital of €25,000.00 was then saved, the company can finally be converted into a GmbH.
Joint-stock company (AG)
The joint-stock company is also a corporation. In principle, only the joint-stock company itself is liable for its liabilities. The board of directors represents the joint-stock company and manages the management, being monitored by the supervisory board. The shareholders of the AG, referred to as shareholders, can hardly influence the management. Here, too, the company is taxed itself and has to pay corporate and trade tax, for example. A minimum share capital of €50,000.00 must be raised for the foundation. In addition, at least three people and a notarial deed are required to found the stock corporation. The stock corporation is particularly suitable for large companies that are dependent on raising equity.
business registration
In order to start your self-employment, a business registration is usually required. This can be done - often online - at the trade office, which is usually located in the city or municipality where your company is based. You must submit the essential information about your company to the trade office, such as a description of the company's purpose, official documents and permits, as well as a suitable residence permit, if this is required. This obligation does not apply to you if you do not want to run a business with your company, for example because you are a freelancer, are planning an agricultural or forestry company or only want to manage your own assets with the activity.
Other permits
In addition to the business registration and any entry in the commercial register, other permits may have to be obtained. Depending on the object of the company, there may be a variety of government regulations. You may have to have special qualifications (e.g. doctors, lawyers, craftsmen), obtain permits (e.g. restaurant licence) or make other registrations (e.g. entry in the register of craftsmen, entry in the Chamber of Engineers).
Short & sweet
If you are a foreign citizen and want to set up a company in Germany, you have to take a few things into account. First of all, non-EU foreigners must have a residence permit that entitles them to take up self-employment (residence permit according to § 21 AufenthG, settlement permit). In addition, the question arises as to the legal form in which the company should be founded. On the one hand, there is the possibility of founding a partnership (GbR, OHG, KG) in which the partners are personally and unlimitedly liable. On the other hand, there are corporations (GmbH, AG), which have limited liability but are also subject to corporate income tax. In addition, for many companies, additional permits must be obtained, special qualifications must be obtained or entries must be made in professional associations. A knowledgeable lawyer can discuss with you which legal form is best suited to your case and the steps required to set up your business.