Starting your business in Germany made easy

Legal Formations

When establishing a company in Germany, it's crucial to choose the right legal formation that aligns with your business goals, structure, and future plans. Here are the different legal formations available, along with their respective advantages, disadvantages, and requirements:

Sole Proprietorship (Einzelunternehmen)

Advantages:

- Simple and quick to set up.

- Full control and decision-making authority.

- Direct tax benefits, as profits are taxed at personal income tax rates.

Disadvantages:

- Unlimited personal liability; the owner is personally responsible for all debts and obligations of the business.

- Limited access to capital, as funding is reliant on personal finances.

- Limited growth potential due to the sole proprietor's capacity.

Requirements:

- Register with the local trade office (Gewerbeamt).

- Obtain necessary business licenses and permits.


Partnership (GbR - Gesellschaft bürgerlichen Rechts)

Advantages:

- Easy formation with minimal formalities.

- Shared responsibilities and decision-making among partners.

- Profits are taxed at personal income tax rates.

Disadvantages:

- Unlimited personal liability for all partners.

- Potential conflicts among partners regarding decision-making and profit distribution.

- Limited access to external funding compared to other legal forms.

Requirements:

- Draft a partnership agreement outlining the rights and responsibilities of each partner.

- Register with the local trade office (Gewerbeamt) and tax office (Finanzamt).

Limited Liability Company (Gesellschaft mit beschränkter Haftung - GmbH)

Advantages:

- Limited liability protects shareholders' personal assets.

- Separate legal entity, providing credibility and trustworthiness.

- Flexibility in capital structure, allowing for the issuance of shares.

Disadvantages:

- More complex formation process and higher initial capital requirement (minimum €25,000).

- Compliance with stricter regulatory requirements and reporting obligations.

- Double taxation: corporate income tax on profits and personal income tax on dividends.

Requirements:

- Draft articles of association (Gesellschaftsvertrag) and notarize them.

- Deposit the minimum share capital into a bank account.

- Register the company with the local commercial register (Handelsregister) and tax office (Finanzamt).


Stock Corporation (Aktiengesellschaft - AG)

Advantages:

- Ability to raise large amounts of capital through public offering of shares.

- Limited liability for shareholders.

- Separate legal entity with perpetual succession.

Disadvantages:

- Highly regulated formation process and ongoing compliance requirements.

- Higher costs associated with incorporation, including legal and administrative expenses.

- Shareholders may have limited control over the company's operations.

Requirements:

- Draft articles of association (Satzung) and notarize them.

- Minimum share capital of €50,000, with at least 25% paid upon incorporation.

- Approval by a notary public and registration with the commercial register (Handelsregister).

Choosing the right legal formation is a critical decision that requires careful consideration of your business objectives, risk tolerance, and long-term plans. We will consult you with the help of legal and financial professionals to assess the most suitable option for your specific circumstances.