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Formation of a company in Germany – which legal form?   arrow

Formation of a German company? Which legal form would suit you?

In the last few years, INDIPA has successfully supported far more than 100 company formations in Germany. The formation of a company is very much still a formal and paperwork-intensive process in Germany which means a lot of effort for the founder. INDIPA has optimized all the steps so that the effort for the expanding company is minimal.

Before the actual founding process begins, however, it must first be clarified which legal form is the most suitable for the founder. The decisive factor here is who will be the shareholder of the German company. There are other options for private individuals than for companies.

1. Foundation by an American company

If the American company only wants to open a subsidiary in Germany, then there are two possibilities. One can open an independent subsidiary (“selbständige Zweigniederlassung”) or a dependent subsidiary (“unselbständige Zweigniederlassung” or “Betriebsstätte”). If however, one wishes to form an independent German organization, then one can choose between various legal forms. The most common legal form is the “GmbH”. The bigger “AG” is not an option for most small to medium sized American companies because its foundation costs and the running costs are much higher compared to a GmbH. For the UG, only a share capital of one euro is required, which on the one hand represents a low entry hurdle, but on the other hand has contributed to an extremely poor image of the UG, which is why INDIPA does not support the establishment of a UG.

The GmbH (Company with limited liability)

The GmbH is comparable to the LLC. in the USA. A GmbH is not publicly owned, but rather privately held. In other words, the shares of a GmbH are not freely tradeable but rather are bound to a person. The shareholder has limited liability. To form a GmbH a starting capital of at least 25,000 € is necessary. Of this 25,000 €, at least half has to be deposited at the time of the formation (normally paid into a bank account).
The GmbH is formed in front of a notary and is based on a deed of formation (“Gesellschaftsvertrag”) where e. g. place of business, business purpose, shareholders and directors are mentioned. Here is an overview of the three most common types of foreign company establishment described above:

2. Formation by an independent entrepeneur

If the founder is a private person, rather than an American company, it is also possible to form a sole proprietorship as well as a GmbH, an AG or an UG.

The significant difference between a GmbH and a sole proprietorship is that as an Einzelunternehmen one is liable with all personal assets. A further difference is that with a sole proprietorship a notary does not need to be employed and a start capital of 25,000 € is not necessary. Also an Einzelunternehmen has to be a real person. This means that an American company cannot form a German company as a sole proprietorship.

The sole proprietorship must be registered in the town where it has its place of business. As the sole proprietorship is directly linked to the business owner, they should genuinely carry out their business at the registered office and should be mainly on-site there. It is not necessary to register in the Company Registry, but it is possible. In this case, the company name would be supplemented with “e.K.” (“eingetragener Kaufmann”/registered sole trader) . This gives a reliable and professional impression.

INDIPA’s Role

Are you considering to do business as an entrepreneur in Germany? Then you are faced with a lot of questions and decisions. INDIPA can help you with this. With our long years of experience, we already have answers for a lot of your questions. For the other questions we will definitely find a solution together.

INDIPA would be happy to support you with the formation of your German company! We know all steps as well as possible shortcuts!

If you would like, you could use our office address as the place of business for your German company. Are you interested? Then read more at : https://indipa.com/starting-business-in-germany/

Finally INDIPA also has an appropriate offer for the establishment of an unselbstständige Niederlassung/dependent subsidiary. We would be happy to provide you with a German business address. Read more at: https://indipa.com/starting-business-in-germany/

Even after the formation of a GmbH, we are on hand as a professional partner with help and advice for you. We can take over, for example, the internal sales of our customers. Or we can support your company in Germany with the administration so you don‘t get stuck in the “German paperwork jungle”!