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Key Takeaways
- There are many legal forms in Germany that you can choose from when starting a business. Each legal form has its obligations, requirements, and rights that impact your company’s operations.
- You can change your legal form anytime based on your company’s growth and goals.
- Sole proprietorship is the most popular category of legal forms due to their low capital requirements and simpler setup process.
- GmbH and UG are popular legal forms in Germany with founders for whom “limited liability” is important.
- Starting a business together is simple in Germany. You can choose one of the “Partnership” legal forms. Setting up a “partnership” legal form is quick and simple.
- GmbH, UG, and AG are separate legal entities of their own.
Table of Contents
What is a legal form (Rechtsformen) in Germany?
A legal form (Rechtsformen) of business determines the formalities when setting up a company and how it will operate. Other factors that the legal form influences are
- Your personal liability
- Accounting and bureaucracy
- Taxes
- External appearance (e.g., company name)
- Legal regulations you must comply with
- Bank or investor’s assessment of the company
The following laws regulate companies in Germany
- German Civil Code (BGB)
- German Commercial Code (HGB)
- German Limited Liability Companies Act (GmbHG)
- German Stock Corporation Act (Aktiengesetz)
Other terms used synonymously with legal form are
- Corporate form
- Company form
- Business form
- Type of company
- Type of business
- Business structures / Types of business structures
- Entity types / Types of legal entities
NOTE: A small business owner regulation (Kleinunternehmerregelung) is not a legal form. It’s a VAT regulation in Germany. As per this regulation, new business owners who earn below a threshold don’t have to collect and pay VAT.
Types of legal forms in Germany
Generally, legal forms of business are divided into three main categories:
| Sole proprietorships (Einzelunternehmen) | Partnerships (Personengesellschaften) | Capital companies (Kapitalgesellschaften) |
| – Freelancer (Freiberufler/innen) – Small business (Kleingewerbe) or sole trader (Kleingewerbetreibende) – Merchant (Kaufmann/Kauffrau (e.K.)) | – Partnership under civil law (Gesellschaft Bürgerlichen Rechts (GBR)) – General partnership (Offene Handelsgesellschaft (OH)) – Limited partnership (Kommanditgesellschaft (KG)) | – Limited liability company (Gesellschaft mit beschränkter Haftung (GmbH)) – Limited liability company (Unternehmergesellschaft (UG)) – Stock corporation (Aktiengesellschaft (AG)) – Non Profit (Gemeinnützige) — gGmbH — gUG – Limited (Limited) |
There are also mixed legal forms (Mischrechtsform), such as GmbH & Co. KG or the partnership limited by shares (KGaA)
The most popular legal forms in Germany
The most common or popular legal form in Germany is “sole proprietor” (Einzelunternehmer). As the team size and the company grows, businesses opt for “Capital companies” (Kapitalgesellschaft) as a legal form.
| Legal form | Total | Percentage |
|---|---|---|
| Sole proprietorships or Einzelunternehmer | 2,048,063 | 59.02 % |
| Partnerships or Personengesellschaften (zum Beispiel: OHG, KG) | 417,526 | 12.03 % |
| Capital companies or Kapitalgesellschaften (zum Beispiel: GmbH, AG) | 833,890 | 24.03 % |
| Other legal forms | 170,439 | 4.91 % |
| Total | 3,469,918 |
How do legal forms in Germany differ from each other?
A legal form in Germany differs based on the following parameters.
- Number of founders (Anzahl der Gründer).
- Choosing a company name (Firmenname).
- Owner’s first & last names. Typically, this is the case for sole proprietorships.
- Commercial or “fantasy names” (Fantasienamen). Businesses that are registered in the Commercial Register (Handelsregister) are allowed to choose a personal, factual, or fictitious name.
- The initials of the legal form (e.g., e.K., GmbH) must always be attached after the selected name.
- Liability (Haftung). This refers to an individual’s, partners’, or company’s responsibility for liabilities (e.g., debts, losses, damages, etc.).
- Limited: You are liable only up to the value of your contribution to the company. You are not personally liable.
- Unlimited: You are personally and unlimitedly liable. This means your private assets (if required) will be used to settle the liability claim.
- Registration in the Commercial Register (Handelsregister) provides information about the business’ economic (e.g., balance sheet, income statement, etc.) and legal status. Some legal forms may also be registered voluntarily to gain commercial status.
- Nominal capital (Stammkapital): You must deposit a minimum amount of money in your business bank account to establish certain legal forms, such as GmbH, UG, AG, etc. This minimum amount is called “nominal capital” (Stammkapital). You can use this money for your business operations (e.g., to pay for business permits, rent, etc.).
- Taxation (Steuern). The taxes you or your company pay depend on your chosen legal form. This may include:
- Income tax (Einkommensteuer)
- Trade tax (Gewerbesteuer)
- Corporate tax (Körperschaftsteuer)
- Sales tax (VAT)
- Bookkeeping or accounting (Buchführung). All legal forms must submit documentation of their profits or a financial statement to the tax office. Depending on your legal form, these financial records may include
- Einnahmenüberschussrechnung or EÜR. It is a “net income method” or “profit and loss statement,” which determines profit by subtracting expenses from income.
- Balance sheet (Bilanz).
- Single-entry bookkeeping (Einfache Buchführung).
- Double-entry bookkeeping (Doppelte Buchführung).
NOTE: Irrespective of your company’s legal form, banks usually require a personal guarantee from the shareholders or owners when issuing a loan.
| Parameters | Sole proprietorships (Einzelunternehmen) | Partnerships (Personengesellschaften) | Capital companies (Kapitalgesellschaften) |
|---|---|---|---|
| Types of legal forms in Germany | – Freelancer (Freiberufler/innen) – Small business / Sole trader (Kleingewerbe) – Merchant (Kaufmann e.K.) | – Partnership under civil law (Gesellschaft Bürgerlichen Rechts (GbR)) – General partnership (Offene Handelsgesellschaft (OHG)) – Limited partnership (Kommanditgesellschaft (KG)) – Freelancers partnership (Partnergesellschaft (PartG)) | – Limited liability company (Gesellschaft mit beschränkter Haftung (GmbH)) – Entrepreneurial company at limited liability (Unternehmergesellschaft (haftungsbeschränkt) (UG (Limited liability)) – Stock corporation (Aktiengesellschaft (AG)) – Non Profit (Gemeinnützige) — gGmbH — gUG – Limited. British company form. |
| Number of founders | At least 1 | At least 2 | At least 1 (e.g., one-person GmbH or Ein-Personen- GmbH) |
| Company Name | – Owner’s first & last name: Freelancer, Small business (Kleingewerbe) – Fictitious name: Merchant (e.K.) | – Owner’s first & last name: GbR, PartG – Fictitious name: OHG, KG | A fictitious name is allowed |
| Nominal capital | Not required | Not required | – GmbH, gGmbH: At least 25,000 €. Both cash and in-kind contributions are allowed. – UG, gUG: At least 1 € – AG: At least 50,000 € |
| Liability | Unlimited with private assets | – Unlimited: PartG, GbR, OHG – KG: “General partner” has unlimited liability. “Limited partners’” liability is limited to their initial contribution. | Limited |
| Suitable for investors | No | – Yes: KG – No: GbR, OHG, PartG | Yes |
| Registration | |||
| Business registration (Gewerbanmeldung) | – Not required: Freelancer – Required: Small business (Kleingewerbe), Merchant (e.K.) | – Not required: PartG – Required: OHG, GbR, KG | Required |
| Do you need a notary for business registration | – No: Freelancer, small business – Yes: Merchant (e.K.) | – No: GbR – Yes: OHG, PartG, KG | Yes |
| Registration in the Commercial Register (Handelsregister) | – Not required: Freelancer, Small business (Kleingewerbe)** – Required: Merchant (e.K.) | – Not required: GbR – Required: OHG, PartG, KG | Required |
| Register with IHK | – Not required: Freelancer – Required: Small business (Kleingewerbe), Merchant (e.K.) | – Not required: PartG – Required: OHG, GbR, KG | Required |
| Taxation & Accounting | |||
| Taxation | – Income tax: Freelancer, e.K., small business (Kleingewerbe) – Trade tax: e.K., small business (Kleingewerbe) | – Income tax: GbR, PartG, OHG, KG – Trade tax: GbR, OHG, KG | – Income tax if you pay yourself a salary – Trade tax – Corporate tax |
| Every founder or business pays sales tax (VAT) in Germany if “Small business regulation (Kleinunternehmerregelung)” doesn’t apply. | |||
| Bookkeeping & accounting | – EÜR – Single Entry – Double-entry** | – GbR: EÜR, single-entry, double-entry** – PartG: EÜR, single-entry – OHG, KG: double-entry, annual financial statements | – Annual financial statements – Double-entry |
Let’s learn about each company form in detail.
1. Sole proprietorship (Einzelunternehmen) legal forms in Germany
A “sole proprietorship” (Einzelunternehmen) is ideal for individuals who want to start a business alone. While ownership is limited to one person, you may still have as many employees as you like.
A sole proprietorship is popular for the following reasons.
- Minimal start-up effort
- No minimum capital is required
- Losses can be offset against the profits from other types of income
- Simple accounting (EÜR) for profit determination
- Offsetting trade tax against income tax (not applicable to “Freelancers” as they don’t pay trade tax)
- Trade tax allowance (not applicable to “Freelancers”)
However, it also has the following disadvantages.
- Full liability with private assets
- Restriction on the company name
- Your (the founder’s) salary is not a business expense
There are three main types of legal forms under “sole proprietorship (Einzelunternehmen)” in Germany.
- Freelancer (Freiberufler)
- Merchant (eingetragener Kaufmann (e.K.))
- Small business (Kleingewerbe)
The table below gives you an overview of the differences and similarities between the “sole proprietor” legal forms.
| Parameters | Freelancer (Freiberufler/innen) | Merchant (eingetragener Kaufmann (e.K.)) | Small business (Kleingewerbe) |
|---|---|---|---|
| Company name | Founder’s name | Commercial/Fantasy name | Founder’s name |
| Liability | Unlimited: This means that you (the founder) are liable with your private assets. | ||
| Nominal capital | Not required: You can start as a sole proprietor with zero capital. | ||
| REGISTRATION PROCESS | |||
| Tax office | You must fill out “Fragebogen zur steuerlichen erfassung.” You can fill this form online on Elster (German) or here (in English) for free. After submitting this form, the tax office gives you a new tax number for your business. Your business tax number is different from your personal tax number. | ||
| Registration at the “Trade Office” (Gewerbeanmeldung) | Not required | Required | Required |
| Do you need a notary for business registration? | ❌ No | ✅ Yes | ❌ No |
| Registration in the Commercial Register (Handelsregister) | Not required | Required | Required only if your business exceeds 800,000€ annual revenue or 80,000€ annual profit (as of 2025) |
| Registration with IHK | Optional | Required | Required |
| TAXATION AND ACCOUNTING | |||
| Taxes | Income tax | – Income tax – Trade tax (Gewerbesteuer) | |
| Bookkeeping | EÜR, Single Entry | EÜR, Single Entry is enough. You need to follow “double entry” accounting method if your business exceeds 800,000€ annual revenue or 80,000€ annual profit (as of 2025). | |
Fill out and submit “Fragebogen zur steuerlichen erfassung” in English for free
- You must fill out “Fragebogen zur steuerlichen erfassung” to get a tax number for your business.
- You can fill out this form directly on Elster. However, it’s in German.
- Our partner tax software company has created a free tool you can use to fill out and submit the form in English.
Freelancer (Freiberufler)
“Freelancers” (Freiberufler) are entrepreneurs by profession. Their freelancer status is determined by the tax office, not by the individuals themselves, and is assessed upon registration.
Freelance professions are listed under Section 18 of the Income Tax Act and Section 1 of the Partnership Act, which includes professions from fields such as
- science (e.g., doctors, dentists, commercial chemists)
- legal (e.g., lawyers, bar association members, patent attorneys)
- finance (e.g., tax consultants or auditors)
- technical (e.g., engineers, architects)
- education (e.g., teachers)
Additionally, new and similar professions (e.g., web designers, musicians, writers) may also be considered for obtaining freelance status (Freiberufler) at the discretion of the tax office.
Small business owners (Kleingewerbetreibenden)
Those who cannot be freelancers fall into the “small business” (Kleingewerbe) legal form. In this legal form, you must fulfill more formalities, such as
- Registering at the local Gewerbeamt (trade office)
- Paying trade tax (Gewerbesteuer)
- Increased bookkeeping efforts as your business grows. You must follow the “Double Entry” accounting method once your business exceeds 800,000€ annual revenue or 80,000€ annual profit (as of 2025) for two years in a row (§241a).
Other terms used to represent “small business owners” are “sole traders” or “tradesperson.” Translating German legal forms into English usually confuses people. Thus, you must check the German term to avoid confusion.
Merchants (eingetragener Kaufmann (e.K.))
“Merchants” (eingetragener Kaufmann (e.K.)) are similar to “small business owner” legal form in Germany. The main difference is
- they must register in the Commercial Register (Handelsregister) and
- they are subject to the rules of the Commercial Code (Handelsgesetzbuches).
You must check if your business qualifies as a “Small Business (Kleingewerbe)” or a “Merchant (e.K.).” You can use the following criteria to determine the same.
- Quantity of products and services you are offering
- Are you offering services/products at home and/or abroad
- Number of business relationships
- Value of your business assets (limit: 100,000€)
- Your annual turnover (limit: 250,000€)
- How high is your loan, if any
- Number of distribution outlets
- Number of employees
If you meet only a few of the criteria mentioned above, you can remain a “Small Business (Kleingewerbe).” Otherwise, you must register as a “Merchant (e.K.).”
2. Partnerships (Personengesellschaft) legal forms in Germany
“Partnerships” (Personengesellschaft) are businesses that must have
- At least two partners to establish the partnership
- A partnership agreement
Similar to sole proprietorships, they are also
- simple
- inexpensive
- informal
There are four main types of partnerships (Personengesellschaft) in Germany.
- Civil law partnership (Gesellschaft Bürgerlichen Rechts (GbR))
- General partnership (Offene Handelsgesellschaft (OHG))
- Limited Partnership (Kommanditgesellschaft (KG))
- Freelancers partnership (Partnergesellschaft (PartG))
The table below gives you an overview of the differences and similarities between the “partnership” legal forms.
| Parameters | Civil law partnership (Gesellschaft Bürgerlichen Rechts (GbR)) | General partnership (Offene Handelsgesellschaft (OHG)) | Limited Partnership (Kommanditgesellschaft (KG)) | Freelancers partnership (Partnergesellschaft (PartG)) |
|---|---|---|---|---|
| What is it? | When 2 or more people want to start a company together | When 2 or more merchants (e.K.) want to start a business together | Similar to OHG. However, only the “General Partner” is liable with their private assets. “Limited Partner’s” liability is limited to their initial contribution. | When two or more freelancers want to start a business together |
| Company name | Owners’ names | Commercial/Fantasy name | Commercial/Fantasy name | Owner’s name |
| Nominal capital | Not required | |||
| Liability | Unlimited: Each partner is liable with their entire private assets. This means you must pay for outstanding claims against the GbR/OHG, even if you are not responsible. | The “General Partner” has unlimited liability with their private assets. “Limited Partner’s” liability is limited to their initial contribution. | Unlimited | |
| Suitable for investors? | ❌ No | ❌ No | ✅ Yes | ❌ No |
| REGISTRATION PROCESS | ||||
| Partnership agreement | Draft and sign a partnership agreement. You can also conclude a contract verbally, but it’s highly discouraged. | Draft and sign a partnership agreement | Draft and sign a partnership agreement. It’s not mandatory, but it’s highly recommended. | Draft and sign a partnership agreement. |
| Notary & Handelsregister | Not required | Register your business in the commercial register (Handelsregister). The registration must be certified by the notary. | Register the partnership in the “Partnership Register (Partnerschaftsregister).” Entry in the partnership register must be made in a notarized form. | |
| Trade Office (Gewerbeamt) | Fill out the Gewerbeanmeldung form at your local municipality. | ❌ No | ||
| Tax office (Finanzamt) | Fill out “Fragebogen zur steuerlichen Erfassung” to get a tax number for your partnership. | |||
| Register with IHK or HWK | Yes, if any of the partners is not a freelancer | ✅ Yes | ✅ Yes | Optional |
| Register with Transparenzregister | ❌ No | ✅ Yes | ✅ Yes | ✅ Yes |
| Employment agency (Agentur für Arbeit) | Yes, register with the employment agency to get the company number (Betriebsnummer (BBNR)). You need this number to hire employees. | Optional | ||
| Register with Professional associations (Berufsgenossenschaft) | ✅ Yes | ✅ Yes | ✅ Yes | Optional |
| TAXATION AND ACCOUNTING | ||||
| Taxation | – Sales tax (VAT) – Income tax (Lohnsteuer) – Trade tax (Gewerbesteuer) | – Sales tax (VAT) – Income tax (Lohnsteuer) | ||
| Bookkeeping and Accounting | EÜR is sufficient. However, you must prepare financial statements and follow the “double-entry bookkeeping” accounting method if your business exceeds 800,000€ annual revenue or 80,000€ annual profit (as of 2025) (§ 141 AO). | – Double-entry bookkeeping – Opening balance sheet at the time of founding the partnership. – Must prepare annual financial statements. No need to publish the financial statements unless your annual revenue is more than 100 million euros. | – Double-entry bookkeeping – Opening balance sheet at the time of founding the partnership. – Must prepare annual financial statements. No obligation to publish the annual financial statements if the “General partner” is a natural person. | EÜR is sufficient |
Fill out and submit “Fragebogen zur steuerlichen erfassung” in English for free
- You must fill out “Fragebogen zur steuerlichen erfassung” to get a tax number for your business.
- You can fill out this form directly on Elster. However, it’s in German.
- Our partner tax software company has created a free tool you can use to fill out and submit the form in English.
Partnership under civil law (Gesellschaft Bürgerlichen Rechts (GbR))
“Partnership under civil law” (GbR) is considered one of the simplest forms of partnership. This partnership type should consist of at least two partners with a common purpose stated in a partnership agreement. The agreement may be done orally or in writing, but it is advisable to have a written record of the key points.
General partnership (Offene Handelsgesellschaft (OHG))
“General partnership” (OHG) is a partnership where all the partners are merchants (e.K.). It works similarly to how a sole merchant (e.K.) works concerning, registration, taxation, and accounting.
The only difference between OHG and e.K. is you need a written partnership agreement when setting up the partnership.
Limited Partnership (Kommanditgesellschaft (KG))
The “limited partnership” (KG) is one of the rarest forms of business. It is a special form of OHG that follows its laws and regulations but puts a distinction between the two partners:
- General partners (Komplementär). Their liability is unlimited, including their personal assets. Typically, they also have the power to manage and represent the company externally.
- Limited partners (Kommanditist). Their liability is limited. They don’t manage or represent the company externally.
Freelancers partnership (Partnergesellschaft (PartG))
A “freelancers partnership” (Partnergesellschaft (PartG)) is formed when freelancers register for a partnership. This gives them the advantage of each freelancer being liable for their professional errors.
3. Capital companies (Kapitalgesellschaft) legal forms in Germany
“Capital companies” (Kapitalgesellschaft) are popular among founders for whom limited liability is important. These companies are characterized by:
- Time-consuming & costly business setup
- Limited liability of shareholders
- Founders are not required to manage the company directly
NOTE: Some companies may also be established by one person only (e.g., One-man-GmbH, One-man-UG, or One-man-AG”)
Capital companies (Kapitalgesellschaft) are the most suitable legal forms for individuals who want to raise money via investors. This is often because of
- the limited liability of the shareholders, and
- voting rights in company decisions.
Capital companies (Kapitalgesellschaft) are legal entities on their own and can perform functions such as:
- Managing business transactions
- Acquiring assets and property
- Suing or being sued
- Paying its taxes
There are three main types of capital companies (Kapitalgesellschaft) in Germany.
- Limited Liability Company (Gesellschaft mit beschränkter Haftung (GmbH))
- Entrepreneurial company (Unternehmergesellschaft (UG)) – Also known as mini-GmbH
- Stock corporation (Aktiengesellschaft (AG))
The table below gives you an overview of the differences and similarities between the “capital companies” legal forms.
| Parameters | Limited Liability Company (Gesellschaft mit beschränkter Haftung (GmbH)) | Entrepreneurial company (Unternehmergesellschaft (UG)) | Stock corporation (Aktiengesellschaft (AG)) |
|---|---|---|---|
| Suitable for | Individuals who want to limit their liability. Not suitable for freelancers who want to avoid “Trade tax.” | Individuals who want to limit their liability but don’t have the 25k nominal capital. Not suitable for freelancers who want to avoid “Trade tax.” | People who want to raise money via investors |
| Company name | Commercial name | Commercial name | Commercial name |
| Nominal capital | At least 25,000€. Both cash and non-cash contributions are allowed. Minimum capital contribution of each shareholder is 100€. | At least 1 € UG must retain at least 25% of the profits till it reaches the nominal capital of 25,000€. | At least 50,000 € |
| Legal basis | – GmbH-Gesetz (GmbHG) – German Commercial Code (Handelsgesetzbuch (HGB)) | – German Stock Corporation Act (Aktiengesetz) – German Commercial Code (Handelsgesetzbuch (HGB)) | |
| Liability | – Liability of the shareholders: Limited to their share in the company. They are also liable for outstanding share payments. – Liability of the company: The company (GmbH or UG) is liable with its entire assets. – Liability of the Managing Director: The managing director is liable without limitation for liabilities to the tax office, social insurance, and shareholders. | Limited to the company’s assets | |
| Suitable for investors | ✅ Yes | ✅ Yes | ✅ Yes |
| REGISTRATION PROCESS | |||
| Partnership agreement | Draft and sign a partnership/shareholders agreement. You should consult a lawyer for personalised advice, otherwise you can use “model protocol” as a partnership agreement. | – Establish the articles of association of the company (Satzung des Gesellschaftsvertrags). – The founders must subscribe to their shares in the AG, which involves paying their contributions into the AG’s business account. – Appoint the supervisory board and the auditors. – The supervisory board appoints the management board (board of directors). – Make the partial payment of the capital to establish the AG. – Submit the founding report (Gründungsbericht). – The supervisory board and the management board review the company formation process (Gründungsprüfung). – In certain cases, AG formation process must be audited by external, court-appointed auditors. – Register in the commercial register (Handelsregister), trade office (Gewerbeamt), transparency register (Transparenzregister), and tax office (Finanzamt). | |
| Notary & Handelsregister | Register your business in the commercial register (Handelsregister). The registration must be certified by the notary. | ||
| Business account | You need a business account for your company. You must pay the nominal capital in this account. Notary registers your company in the commercial register (Handelsregister) after the receipt of the payment. | ||
| Trade Office (Gewerbeamt) | Fill out the Gewerbeanmeldung form at your local municipality. | ||
| Tax office (Finanzamt) | Fillout “Fragebogen zur steuerlichen Erfassung” to get a tax number for your company. | ||
| Register with IHK or HWK | ✅ Yes | ||
| Register with Transparenzregister | ✅ Yes | ||
| Employment agency (Agentur für Arbeit) | Yes, register with the employment agency to get the company number (Betriebsnummer (BBNR)). You need this number to hire employees. | ||
| Register with Professional associations (Berufsgenossenschaft) | ✅ Yes | ||
| Setup cost | – Legal fees for individual statutes – Notary fees – Fee for Entry in the Commercial Register (Handelsregister) – Costs of Business Registration (Gewerbeanmeldung) | ||
| Setup time | up to 4 weeks | 6 to 8 weeks. It may also take longer, depending on your needs and setup. | |
| TAXATION AND ACCOUNTING | |||
| Taxes | Company – Corporate tax on profits – Trade tax – Sales tax – Income tax Shareholders – Capital gains tax on dividends – Personal income tax Managing director – Personal income tax | Company – Corporate tax on profits – Trade tax – Sales tax Shareholders – Capital gains tax on dividends | |
| Bookkeeping and Accounting | – Annual financial statements – Double-entry bookkeeping – Opening balance sheet when you set up the company | – Create and publish annual financial statements (must be audited by an auditor) – Double-entry bookkeeping | |
Fill out and submit “Fragebogen zur steuerlichen erfassung” in English for free
- You must fill out “Fragebogen zur steuerlichen erfassung” to get a tax number for your business.
- You can fill out this form directly on Elster. However, it’s in German.
- Our partner tax software company has created a free tool you can use to fill out and submit the form in English.
Limited Liability Company (Gesellschaft mit beschränkter Haftung (GmbH))
A “limited liability company” (Gesellschaft mit beschränkter Haftung (GmbH)) is the most popular legal form in Germany for founders who want to limit their liability. You need at least 25,000€ as nominal capital (minimum share capital) to set up a GmbH.
Entrepreneurial company (Unternehmergesellschaft (UG))
An “Entrepreneurial company” (UG) is a special form of GmbH that operates under similar regulations. It is also called mini-GmbH,
A UG (limited liability) is ideal for start-ups for whom limited liability is important, but they don’t have a large starting capital. This is because you can set up a UG with a nominal capital (Stammkapital) of only 1€.
Once the required share capital for a GmbH is reached, the founders usually transition from UG to GmbH.
Stock corporation (Aktiengesellschaft (AG))
A “stock corporation” (Aktiengesellschaft (AG)) is a legal entity that is governed by the German Stock Corporation Act (Aktiengesetz (AktG)). It is also called a joint-stock company or a public limited company (AG), mainly because its share capital is divided into shares distributed to its shareholders.
It is ideal for large companies for the following reasons.
- You can raise higher capital to fund the company’s operations.
- Shareholders are not personally liable for company debts.
- Company shares are easily transferrable.
- It is easy for investors to invest in an AG.
A stock corporation (Aktiengesellschaft (AG)) operates under three key bodies:
- Board of Directors. It may consist of one or more persons who handle the management, decision-making, and representation of the corporation. They are not required to be stockholders.
- Supervisory Board. It should be made up of at least three members who oversee the management of the Board of Directors. They are not required to be stockholders.
- General Meeting. It is a regular gathering where the shareholders exercise their decision-making rights.
4. Non-Profit legal forms in Germany
Non-Profit GmbH (gGmbH)
A “non-profit GmbH” (gGmbH) operates similarly to a GmbH, but it exists to serve a non-profit or charitable purpose which must be clearly defined. A gGmbH may also accept donations & grants from public sources. However, these funds may only be used for the non-profit you are serving.
Non-Profit UG (gUG)
A “gUG” is a subcategory of a UG and a gGmbH.
- Similar to a UG, it may be established more easily with a nominal capital of at least 1 €.
- Similar to a gGmbH, it must also serve a purpose that is either
- non-profit
- charitable
- ecclesiastical
Limited by Shares (Ltd.)
“Limited” (Ltd.) is a British legal form. The companies that use this legal form operate similarly to a UG. You can set up a “Limited” company in Germany if you have a registered business or headquarters in the United Kingdom.
More topics
- How to save taxes in Germany?
- Tax allowances and flat rates in Germany
- Tax ID and number
- Tax classes
- Change tax class
- Deduct relocation costs from taxes
- Types of taxes you pay in Germany
- How much money does the German government collect in the form of taxes?
- Is filing a voluntary tax return worth it?
- What income-related costs can you deduct from taxes in Germany?
- Avoid double taxation in Germany
- Do you pay tax on income from outside Germany?
- Deduct medical expenses from taxes in Germany
References
- https://www.ihk.de/rhein-neckar/recht/wirtschaftsrecht/gesellschaftsrecht/unternehmensformen-rechtsformen-938792
- https://www.weiterbildung.ostwuerttemberg.ihk.de/produktmarken/seminare/assistenznetzwerk/fachwissen-kompakt/unternehmensformen-5084232
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- https://www.fuer-gruender.de/wissen/unternehmen-gruenden/unternehmensformen/gesellschaftsformen
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- https://www.lexware.de/wissen/unternehmerlexikon/kommanditgesellschaft/
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- https://www.fuer-gruender.de/wissen/existenzgruendung-planen/recht-und-steuern/rechtsform/gmbh/
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- https://www.lexware.de/wissen/unternehmensfuehrung/gmbh
