Incorporate a company in Germany
Formation of a german AG, GmbH, GmbH & Co. KG, GbR, KG or OHG
When several persons merge to form a german company, many questions are raised, the answers to which mostly concern structural, i.e. german corporate law, tactical and tax aspects. The decision between the legally prescribed corporate forms is not always easy.
One of our core competencies is the elaboration and examination of overall concepts under german company law and tax law. We focus on the individual drafting of simple, but also highly complex articles of association and participation agreements, as well as on the review of corresponding contracts. Our lawyers specializing in german corporate law also have extensive practical experience with shareholder disputes. This provides them with the necessary foresight in the differentiated drafting of regulations in connection with the formation of a company.
For a non-binding inquiry, please contact one of our lawyers directly by phone or e-mail or use the contact form at the bottom of this page.
Legal services in connection with the establishment of a company
- Comprehensive advice on the choice of the right corporate form
- Tax burden comparison and tax optimization
- Strategic advice and preparation or review of accompanying shareholder agreements, VC agreements, participation agreements and other side letters
- Preparation of other documents relevant to the formation of a company, e.g. managing director agreements
- Advice to start-ups and founders, in particular also on the financing of start-ups
- Other business law services, e.g. trademark applications or entrepreneurial marriage contracts
Common types of companies in Germany
- GmbH - limited liability company
- GmbH & Co. KG - limited partnership with a GmbH as liable general partner
- UG - entrepreneurial company (limited liability), UG & Co. KG
- GbR - partnership under civil law
- AG - joint stock company
- Silent partnerships in typical or atypical form or sub-participation (as a financing model)
In general, a distinction must be made between german corporations and partnerships. Whereas from the point of view of the german legislator the capital participation is in the foreground in the case of corporations, the persons involved are decisive for partnerships. This results in differences, particularly with regard to the position of the partners, the obligations incumbent upon them (among themselves), liability issues and the taxation of the companies and their partners.
It is advisable to pay attention to the choice of the right form of the company and to making the decisive contractual arrangements already at the time of the formation of the company in Germany. In this way, the emergence of conflicts, which could endanger the existence of the company or even the personal economic existence, can be effectively prevented by exerting influence at an early stage.
For special company forms or purposes, in particular the administration and transfer of assets within the family, we provide detailed information separately:
- Family pool, family foundation
- Asset-managing real estate company
Simplified formation procedure for UG and GmbH in Germany: sample protocol
As an alternative to the classic formation of a GmbH or UG in Germany, the legislator allows for formation using the so-called simplified procedure. For this purpose, a so-called model protocol is provided, which must be filed with the commercial register in the same way as the individual articles of association. However, the model protocol may only be used if the company is founded in cash, has no more than three shareholders and no more than one managing director is to be appointed. This means that german corporations formed by means of a standard protocol are subject to tight restrictions. Furthermore, the statutory minimum content of the standard protocol does not do justice to the interests of the company founders.
Important topics to be regulated that belong in every partnership agreement (e.g. termination and exclusion of partners, succession, settlement amount in the event of withdrawal) are not taken into account in the standard protocol and can lead to legal uncertainty and later to disputes among the partners. The use of the standard protocol in Germany is therefore only recommended for single-member limited liability companies (GmbHs or -UGs). Only in the case of a one-man company is the simplified procedure and the associated cost savings useful.
Important aspects of the articles of association
The various forms of german company law give rise to the following aspects with regard to which there is an urgent need for regulation in the articles of association:
- Contributions of the partners to the company (money, material objects, labor)
- Delimitation of the area of competence between shareholders and managing directors
- Conflict management between shareholders and managing directors
- Conflict management among partners
- Withdrawal and exclusion of shareholders and managing directors
- Severance regulations and restrictions for the withdrawal of a shareholder
- Non-competition clauses for shareholders and managing directors
Tax considerations when setting up a company in Germany
When it comes to the important issue of taxation, there are drastic differences between corporations and partnerships in particular, with considerable financial implications. Tax optimization is of great importance when founding a company in Germany.
In principle, german corporations are subject to a tax burden of approx. 30%, of which the corporate income tax is subject to a tax rate of 15% and the trade tax to a tax rate of 15-20% - depending on the assessment rate. Thus the form of the corporation is recommended above all if the intention and expectation of high profit retention and reinvestment exists. It is also important to avoid the taxation of so-called hidden profit distributions in the case of corporations. In simplified terms, these are payments made by the company to a shareholder which a prudent and conscientious manager would not have made to a person who is not a shareholder, and which (are intended to) transfer profit appropriations that are irrelevant for tax purposes into tax-effective operating expenses.
In the case of partnerships, each partner has to pay tax on the partnership profit on the basis of his individual income tax (up to a maximum rate of 45%) after distribution of the result, whereby the trade tax to be paid is to be credited against the income tax.
Whether a partnership or a corporation in Germany is to be preferred for tax reasons for a specific business model cannot be assessed in the abstract, but only on the basis of a concrete comparison of tax burdens. For tax reasons, it is often even advisable to convert one form of company to the more tax-efficient form. The legal form shell can be changed according to the german tax law weather.
Special case: founders of startups in Germany
For the founders of young startups in Germany, special criteria often apply when choosing the appropriate legal form. Founders face a multitude of economic, strategic and legal questions at the beginning of their involvement. They enter into contractual ties with investors, employees, customers and suppliers. Only with the optimal legal and tax framework can an entrepreneurial venture be successfully implemented and risks minimized.
We offer comprehensive advice in all entrepreneurial matters and accompany many startups through the four phases: from founding and building the company, through successful financing, through the hurdles of corporate management and structuring, to a possible sale or a merger with other companies. Even at the founding stage, it is important to consider future financing models and the anticipated development of the company when choosing the appropriate corporate form for the startup.
An overview of our range of services for founders of startups and young entrepreneurs can be found here: Foundation of Startups