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Rose & Partner

Law firm for limited liability company (GmbH) law in Germany

Foundation, Management, Shareholder dispute, Sale of company

Information for Shareholders and Managing Directors

The german limited liability company (GmbH) is the most popular form of business in the german middle class. The law of the GmbH concerns in particular the german company law as well as the tax law. If you want to successfully assert your interests as a shareholder or managing director of a GmbH, you should not only be familiar with the legal provisions, but also and above all with the relevant german case law on GmbH law.

Legal Services in german GmbH Law

Our certified specialists advise shareholders and managing directors of GmbHs throughout Germany on all german business and tax law issues.

  1. Formation of GmbHs and alternative corporate forms
  2. Preparation and review of GmbH partnership agreements and lists of shareholders
  3. Representation of shareholders in shareholder disputes, in particular in the event of termination and exclusion
  4. Advising managing directors on dismissal, termination, remuneration, liability and social security obligations
  5. Assistance in the purchase and sale of GmbHs or GmbH shares (M&A)
  6. Advice on individual issues in GmbH law, for example on capital increases.
  7. Representation and criminal defense in the case of accusations of breach of trust in a GmbH (limited liability company)

For a non-binding inquiry, please contact one of our experts directly by telephone or e-mail or use the contact form at the bottom of this page.

The most important facts about the german GmbH at a glance

The german limited liability company is (like the AG) a legal entity under german private law and both a corporation and a trading company. Management and representation in legal dealings are the responsibility of the managing director, who in turn is subject to the instructions of the shareholders' meeting.

From a tax point of view, the GmbH is primarily characterized by its corporate income tax liability and trade tax liability. Since 2008, the little sister of the GmbH has been the entrepreneurial company (UG, limited liability), which, due to some modifications, is particularly suitable for founders/start-ups.

Overview of business forms available

Germany recognises a verity of business organisational forms. Each of them has its own particular justification for existence based on specific economic considerations, such as terms of organisational structure, liability of the shareholders and methods of taxation.

In general, german law basically differentiates between business organisational forms which have the characteristics of a partnership and those which have the characteristics of a corporation. In contrast to partnership forms, the corporate forms each possess the status of a separate legal entity. Another major distinction is that, as a general rule, the shareholders of businesses organised as corporations possess limited liability equal to the amount of capital they have invested in the business, whereas the partnerships creditors can lay claim to the personal assets of each of the partners if necessary.

The most common businesses forum used in Germany today is the GmbH. This is due to the fact that the GmbH is relatively easy to establish and operate and is an appropriate organisational form for almost all types of businesses. There are a comparatively small number of stock corporations in Germany, since this form is more suitable for very large enterprises such as banks and insurance companies.

Basic features of the GmbH under german law

Nature

The legal basis for a limited liability company is contained in the German GmbH Act. As an incorporated business entity, the GmbH possesses rights and obligations and is liable for all of its debts to the full extent of its corporate assets. It also may pursue and defend against legal actions in its own name. In the GmbH's articles of association, the shareholders set the amount of nominal capital which is to be paid into the Corporation by each of them. In principle, the individual shareholders are then liable for the company's obligations only in the amount of their committed capital investment. A GmbH cannot enforce an obligation against any shareholder in excess of that amount. Under german law, the shares of the GmbH cannot be quoted on stock exchanges. The articles of association can contain special regulations for individual needs and requirements of the company and its owners, as long as these do not conflict with the provisions of the German GmbH Act.

Formation procedure in Germany

The GmbH can be established for any lawful purpose for one or more people. Its initial shareholders, may be natural persons or legal entities, residents and non-residents, German or foreign citizens. The german law does not limit the number of shareholders which may participate in the GmbH. The structure and operations of the GmbH are governed by the articles of association. The first step in the process of forming a GmbH in Germany is the drafting of its articles by its founders. The articles must be signed by each of the shareholders and notarized by a notary. In addition to the statement of the name, location and purpose of the company, the articles state the total amount of the nominal capital and the percentage of shares each shareholder has agreed to pay in return for. The name chosen for a company must directly relate to the company's purpose or contain the name of at least one of the shareholders. Further on, it is required that the company name containes the designation “GmbH”.

The company comes into final existence with its liability is limited to its assets only after it has been registered in the german commercial register located in the district court of the company's place of business. Before that time, the founding partners are personally liable for their own business transacted during the GmbH formation stage. The entry into the commercial register requires the submission of a formal application by the managing director with all necessary attachments, such as articles of association, list of shareholders, assurance that minimum cash required has been paid up (25 % of each share, at least 50 % of nominal capital [12.500 EUR]), to name but a few. Furthermore, after prior briefing, the managing director must assure the german commercial register that there are no legal reasons for exclusion from assuming the position of a managing director.

In addition, registration with the local trade supervisory office and the tax office is required before commencing business. Finally, shareholders with an interest of more than 25% must be registered with the Transparency Register.

GmbH Incorporation from abroad

Foreign founders can also establish the GmbH through an authorised representative who attends the notarisation appointment with the german notary by means of corresponding powers of attorney, which have been certified by a notary in their home country and subsequently provided with an apostille, as well as correspondingly certified proof of existence and representation (insofar as the founder is a foreign company).

For the required assurances regarding the payment of the minimum capital and the non-existence of legal obstacles to the appointment of the managing director to the commercial Register, the prior instruction can also be made by a german lawyer and the submission of the declaration can be certified and aopstilled by a notary in the home country.

Capital structure of a GmbH

Share capital

According to German GmbH Act, the statutory minimum amount of capital that must be invested by the owners in return for shares is 25,000 EUR. The capital may be paid in cash and/or in kind (non-cash investments). When a non cash investment has been agreed to, a special report has to be presented for that so that the actual worth of the non-cash capital investment can be evaluated by the registry court. It is not required that a nominal capital of 25,000 EUR will be divided into equal amounts.

Transfer of shares

The shares of a german GmbH are freely transferable and inheritable. However, the articles of association can stipulate that the transfer of shares is conditional upon the consent of the GmbH or the other shareholders. A change of shareholders does not affect the continuity of the company. In order to be valid, a transfer of shares has to be notarised.

Increase and reduction of nominal capital

The shareholders can increase or reduce the nominal capital figure as cited in the articles of association, however, only as far as they do not reduce it below the legally required minimum of 25,000 EUR. The decision to raise or lower the capital value of the company requires a shareholders resolution with three fourths of the shareholder votes which requires notarisation and entry in the german commercial register.

In the event that the nominal capital amount is to be increased, each of the shareholders must present a notarised statement that they are willing to raise their personal investment proportionally.

In case of a reduction of the nominal capital, the shareholder resolution authorising it must be announced in the Federal Gazette (Bundesanzeiger). Any creditors who oppose the reduction are entitled to have their outstanding claims satisfied. Only after one year has elapsed afterwards the GmbH can file an application to have to decrease capital amount entered in the german commercial register.

Organs of the GmbH in Germany

Organs of the german GmbH are the managing director and the shareholders:

Managing director

As the representation of the GmbH in Germany is conducted by its managing director (s) the appointment of one or more managing directors is mandatory. Each managing director must be a natural person with unlimited capacity to enter into legal transaction and may be but need not be a shareholder of the company. German corporate law differentiates between the external authority of the managing director and his or her internal rights and obligations. This means that, although the authority of the managing director maybe and often is restricted internally by the provisions of the articles of association, shareholder´s resolutions or the managing director's employment contract, such restrictions are of no effect concerning the managing director's interactions with third parties

The managing director of the GmbH has a legal obligation to perform his or her duties with the diligence of a prudent business person. Insofar as he does not act himself, he is obliged to carefully supervise other directors or employees of the company. The managing director who violates an obligation to perform his/her duties carefully is liable to the company for any resulting damage for wrongful acts committed against third persons the managing director's personal liability is limited to the situations in which he has personally acted.

In german practice, the managing director has been appointed by shareholder resolution. In this case, the appointment can be withdrawn by new resolution at any time. The managing directors have to be entered in the german commercial register; however this is not an effectiveness requirement for the appointment itself.

Shareholders

The rights of the shareholders, particularly with respect to the management of the business, derives from the articles of association and the Geman GmbH Act. Unless otherwise provided in the articles of association, the managing director calls the shareholders meetings by sending registered letters to the shareholders at least one week in advance of the meeting. In the shareholders meeting the shareholders are entitled to adopt resolutions which concern and impact to the daily business and to issue detailed instructions to the managing directors. There are particular issues which can only be be resolved in the shareholders meeting, such as the appointment and dismissal of managing directors, the institution of claims for damages against a managing director or shareholder, the approval of the annual financial statements and an agreement to what manner and in which way dividends are to be distributed.

In order to be effective, shareholder decisions require majority approval of those sharers participate in the vote, whereby proxy voting is permitted. If all company shares are controlled by one shareholder, the shareholder must prepare and sign minutes without delay following the adoption of any resolution.

Shareholders in Germany have the right, upon request, to be informed of business affairs by the company's management and to inspect the company books and records. Any shareholder who has not been given the request information or permission to inspect the books is entitled to file a court action.

Accounting and auditing in Germany

The managing director is responsible for ensuring that the GmbH has proper account books and balance sheets. Accounting and auditing laws pertaining to GmbHs are contained in the commercial code (HGB), the GmbH act and the German Tax Code. In accordance with accounting principles, the company must keep proper account books which show all transactions, assets and liabilities. At the date of the formation of the GmbH, and the end of each financial year, and inventory and a balance sheet must be prepared. These financial records must be kept for 10 years; commercial correspondence and invoices for six years.

Regarding the form of accounting requirements, german law differentiates between small, medium and large companies, depending on the balance sheet total, the turnover in the last 12 months and the average number of employees. If the company is the so-called large company, it accounts must be audited by certified public accountant, and is a financial statement, if management report as well as the proposals and decision on the distribution of profits must be made public according to Accounting Directives Act.

Liquidation of a GmbH under german law

In Germany, the GmbH can be dissolved at any time by resolution passed by three fourths of the shareholders participating in the meeting, unless otherwise stipulated in the articles of incorporation. Furthermore, upon the application of shareholders which hold at least 10% of the share capital, the company can be dissolved by court order. The issuance of such an order requires that the german court finds either that it has become impossible for the GmbH to accomplish its purpose that other substantial reasons justify its dissolution.

In case of a dissolution, the managing director usually assumes the role of the sequester. The sequestors duties are to terminate current businesses, discharge all obligations of the dissolved company, collect its accounts receivable and convert all assets into cash. Additionally, the sequestor has to prepare balance sheets at the beginning of the liquidation process and once every year thereafter until the conclusion of liquidation process.

The dissolution of the company must be registered in the german commercial register, and a notice requesting creditors to file any claims must be published in the Federal Gazette. The GmbH's assets may not be distributed to the shareholders until after the elapse of one year following the publication. At this time - and assuming the liquidation process has otherwise reached a point where the efforts can be distributed - all remaining assets are to be distributed among the shareholders in proportion to their shares. All the books and records of the company must delivered to a former shareholder or third party for safekeeping for 10 years.

Detailed Presentation of the Law of the GmbH in Germany

On the following pages, our attorneys for GmbH law will provide you with detailed information on the most important legal topics concerning the german limited liability company:

Shareholders

Managing Director

GmbH and AG in different languages

We Germans know the limited liability company as GmbH, in English we say LLC or just Limited, in French we would say société à responsabilité limitée and in Dutch Besloten Vennootschap. Joint stock companies also get different names, in German law they are known as AG, in French société anonyme and a Dutchman says Naamloze Vennootschap.

Our lawyers for german limited liability law in Hamburg, Berlin, Munich, Frankfurt a.M. and Cologne

All of our lawyers who advise shareholders or managing directors of GmbHs are either specialists in german corporate law or have the relevant experience and specialization in german limited liability company law:

  • Dr. Boris Jan Schiemzik, certified specialist for commercial and corporate law in Hamburg
  • Dr. Ronny Jänig, certified specialist for commercial and corporate law in Berlin
  • Finn R. Dethleff, attorney for GmbH law in Munich
  • Dr. Michael Demuth, certified specialist for commercial and corporate law in Hamburg
  • Dr. Jens Nyenhuis, certified specialist for commercial and corporate law in Hamburg
  • Christian Westermann, certified specialist for commercial and corporate law in Hamburg
  • Gregor Kübler, attorney for GmbH law in Berlin
  • Christian Mattlage, attorney for GmbH law in Hamburg
  • Dr. Jörg Kaufmann, LL.M., attorney for GmbH law in Munich
  • Christian Normann, certified specialist for commercial and corporate law in Cologne

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