German Corporate & Business Law

Choosing the legal structure for your business is one of the most important decisions when starting a business abroad. There are several legal structures (business organizations) under which a business can operate.

We compare all forms of business organization to find the most favorable legal and tax approach for your business in Germany.

I. Incorporated Businesses

The formation of an incorporated business organization in Germany (GmbH, AG) has many advantages, especially for foreign investors:


1. GmbH (Gesellschaft mit beschränkter Haftung – limited liability company)

The most versatile business form in many ways is the GmbH (Gesellschaft mit beschränkter Haftung – limited liability company). It is the most widespread business form in Germany. As the “little sister” of the German stock corporation, the GmbH, as opposed to the AG (Aktiengesellschaft – stock corporation), is the most suitable business form for smaller and medium sized companies:

1.1 Formation
A GmbH may be formed by at least one shareholder for any lawful purpose that must be stated in its bylaws. A shareholder of a GmbH can be an (foreign) individual and a corporation. The formation of a GmbH requires that the bylaws (Gesellschaftsvertrag) are drawn up in notarial form.

The minimum share capital of a GmbH is Euro 25,000 which is divided into shares (Geschäftsanteile) of at least Euro 100 each. Contributions to the share capital may be in cash or in kind. In the latter case, the bylaws must state the specific form of the contribution in kind as well as the amount of the corresponding share capital. The GmbH begins to legally exist when it is registered in the Commercial Register (Handelsregister) at the local court where the GmbH is domiciled.
Prior to the registration, shareholders must have paid the minimum capital required under German law. In the case of a cash contribution, 50 % or Euro 12,500 of the share capital must be paid up in cash at the time of the registration of the GmbH. If the contribution is made in kind it must be submitted in full. A one-shareholder-GmbH must provide security like a bank guarantee for any capital that has not yet been paid. The court denies registration if these minimum capital rules have not been observed.

German law does not require keeping a share register, book or ledger, or other formal record of share ownership.

1.2 Liability
The shareholders of a GmbH are not personally liable for business debts, claims or other liabilities of the GmbH. This means that a shareholder normally only stands to lose the amount of money or the value of the property which he has paid for its stock. 

1.3 Management
A GmbH is required to have at least one managing director (Geschäftsführer). The board of directors elected by the shareholders has general power to manage the business and to bind the GmbH. Any restrictions on the authority of the managing director(s) to bind the GmbH stated in the bylaws, in a shareholders’ resolution or in the contract of employment of the managing director(s) are exclusively of internal effect and do not legally refer to third parties.

1.4 Shareholder
The most important rights of the shareholders are as follows:

1.5 Taxation
The GmbH is a separate taxable entity independent of its shareholders. The taxation of a GmbH corresponds to the taxation of an AG.

2. AG (Aktiengesellschaft – German stock corporation)

An AG (Aktiengesellschaft – German stock corporation) is the corporate form adopted by many of Germany’s largest corporations. The main advantage of an AG compared to a GmbH is that shares can be transferred relatively informally and listed on the stock exchange. Unlike a GmbH, the transfer of shares in an AG does not require the execution of a notarial deed. Accordingly, the AG is particularly interesting for companies intending to increase capital.

2.1 Formation
The formation process of an AG is similar to that of a GmbH. An AG may be formed by at least one shareholder. The minimum share capital of an AG is Euro 50,000. Articles of incorporation (Satzung) authenticated by a court or notary are required to set up a stock corporation. The AG turns into a legal entity only when it has been registered in the Commercial Register (Handelsregister).

There are different types of shares that can be issued:

The bylaws must specify which type of shares may be issued. Bearer shares may not be issued unless they are paid in full. While there is no way of restricting the transfer of bearer shares, the bylaws may provide that registered shares may only be transferred with the consent of the management board. Shares may be issued either with a par value (Nennbetragsaktien) of at least Euro 1 per share or multiples thereof or without a par value (Stückaktien). Shares may not be divided.

German law requires that the share capital is paid up and maintained. These rules are even stricter for AGs than for GmbHs.

2.2 Liability
The shareholders of an AG are not personally liable for the debts, claims or other liabilities of the AG.

2.3 Management Board
The board of directors elected by the supervisory board holds the general responsibility of managing the AG.

2.4 Supervisory Board
Under German law, AGs are required to have a supervisory board elected by a majority vote of the shareholders. Its main function is to supervise and advise the management board. Decisions of the management board may require the consent of the supervisory board if stated in the bylaws.

2.5 Shareholders
The shareholders exercise their rights in the shareholders’ meeting. Shareholders’ resolutions require a simple majority of the shareholders’ votes unless mandatory law requires a greater majority. Amendments of the bylaws and increases or decreases in capital, for example, require 75 % of the shareholders’ votes. The number of votes per share depends upon its par value.

2.6 Taxation
As a legal entity, an AG is a separate taxpayer, with its own income tax returns, differing from the tax rates and tax returns of its owners. AGs that have their registered office or place of management in Germany are liable to corporate income tax.
A “solidarity surcharge”, introduced after the German reunification to support the east German federal states, is imposed on the corporate tax due.
Dividend distributions are subject to withholding tax (Kapitalertragssteuer). The U.S.-German Double Taxation Treaty provides for reduction of withholding tax for US shareholders.
Trade Tax (Gewerbesteuer) is levied on business profits and business capital by local authorities where the business is situated.

II. Partnerships

1. GbR (Gesellschaft bürgerlichen Rechts – General Partnership)

A GbR (Gesellschaft bürgerlichen Rechts – General Partnership) is a business owned by two or more people. Since no written partnership agreement or public filing of any document is necessary for a formation, many very informal arrangements are partnerships.
All partners have joint power to bind the partnership unless otherwise is stated in the partnership agreement. Thus a partner may not individually hire employees, borrow money and sign contracts without the consent of the other partners.
Each partner is individually liable for the debts and taxes of the partnership. Therefore it will not be discussed any further.


2. OHG (Offene Handelsgesellschaft – General Commercial Partnership)

Unlike the general partnership, the creation of an OHG (Offene Handelsgesellschaft – General Commercial Partnership) requires that the purpose of the partnership be the operation of a trading company. The OHG must be registered in the local Commercial Register (Handelsregister). It is not required to have a written limited partnership agreement; there may be an oral agreement among the partners. However, the usual practice is to prepare a written limited partnership agreement that sets forth in detail the rights, duties, and limitations of the partners.
Since each partner is fully liable to third persons for all business obligations of the partnership, the general partnership does not give investor protection.


3. KG (Kommanditgesellschaft – Limited Partnership)

The creation of a KG (Kommanditgesellschaft – Limited Partnership) requires that there be at least one general partner with unlimited liability and one limited partner. If the business fails, all that the limited partners can lose is their capital investment contributed to the partnership. Just as with the OHG, the creation of a KG requires that the purpose of the partnership is the operation of a trading company. The KG must be registered in the local Commercial Register (Handelsregister), as well as any change of partners.

There is a common form of partnership which effectively limits liability for all partners known as a GmbH & Co. KG. According to this form of partnership, the general partner whose liability is unlimited is a GmbH which has limited liability.


III. Branch

US-companies who intend to establish a branch in Germany can do this very easily with our assistance. This also is a good legal basis to immigrate to Germany or Europe.