Legal structures for companies in Germany: an overview

Legal structures in Germany: sole proprietorship

Let’s start small: A company doesn’t always have to be more than one person. In Germany, you can also establish a company as an individual. If you want to be active as a sole proprietorship, you have to be entered into the commercial register. This does not apply to freelancers or small tradesmen, however. In this case, registration is optional. When you register, you give the name, the company headquarters, the owner and the legal structure. When the registration is complete, you are considered a sole proprietor, who is also liable with his private assets in the event of damage. The advantage: Unlike other legal structures, you don’t need a minimum capital to be a sole proprietor. It is important, however, that you – as the name indicates – are the only head of the company.

Legal structures for companies: these are the partnerships

Unlike a sole proprietorship, there are various legal structures for companies when it comes to partnerships:

• A company constituted under German law (Gesellschaft bürgerlichen Rechts, or GbR) lends itself for a company established with one or more partners. Unlike a sole proprietorship, this company does not necessarily have to be listed in the commercial register. What is the same is that the founders do not need to produce a minimum capital. Otherwise, as well, the requirements for founding a GbR are relatively low-threshold. A contract concluded among the business partners is, however, strongly recommended as the people involved can be made liable not only with their business assets but also with their private assets.

• A general partnership (offene Handelsgesellschaft, or OHG) is a legal structure for which there is also no minimum capital necessary. However, you can establish a general partnership only as a merchant. In addition, a general partnership has to be listed in the commercial register.

• A limited partnership (Kommanditgesellschaft, or KG) lends itself when you are founding alone or with multiple partners and plan to have additional partners join you later. There are different roles and liabilities here. One advantage of a limited partnership: There is the possibility of founding directly with more starting capital.

• A combination of the limited liability company (see below) and the limited partnership is the GmbH & Co. KG. Several capital investors can be brought into the company as shareholders.

• A partner company (Partnergesellschaft, or PartG) makes it possible to found the company jointly and is especially good for doctors and lawyers.

Corporate legal structures: capital companies

Capital companies are also called shareholding companies. In Germany, there are various forms of capital companies:

• The limited liability company (Gesellschaft mit beschränkter Haftung, or GmbH) is probably the most common legal structure. The major advantage of a limited liability company: The entrepreneurs are not liable with their private assets but with the company’s assets. That is why a minimum capital of 25,000 EUR is necessary to establish a limited liability company.

• A company with limited liability and insufficient share capital (Unternehmergesellschaft, or UG) is also colloquially called a 1 EUR company because there is no minimum capital of 25,000 EUR necessary, but merely of 1 EUR. However, when founding the company, the founder obliges himself to use 25% of his annual surpluses to build up the starting capital. In a UG, as with a GmbH, the liability is the company’s assets.

• A registered cooperative (eingetragene Genossenschaft, or eG) is possible with the establishment by three or more founders. There are various requirements here, like the development of the articles of the company and an entry in a cooperative register.

• The joint-stock company (Aktiengesellschaft, or AG) entails the development of the articles of association and requires 50,000 EUR basic capital for its establishment.

So as the founder, in addition to the objectives behind the company, the questions of minimum capital, founding members or shareholders, and the liability are crucial for being able to decide on a legal structure.