Founding a Limited Liability Company (GmbH) in Germany

The GmbH as a legal form for start-ups

An article from Tobias Bystry

Choosing the right type of company is one of the first and most important decisions that founders have to make for their start-up. In Germany, the GmbH is particularly popular as a legal form. But what makes the formation of a limited liability company attractive for start-ups? In this article, we will take a closer look at the GmbH as a legal form and find out which requirements must be met when founding a Limited Liability Company (GmbH) in Germany.

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The legal form of the GmbH

The limited liability company (GmbH) is one of the most frequently chosen legal forms for start-ups. Firstly, because it is a legal entity, which means it and can own assets or acquire intellectual property. This makes it relatively easy to implement changes in personnel or shareholdings within a GmbH. Secondly, the liability of a GmbH is limited to the company's assets, which provides considerable security for the shareholders.

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How is a GmbH founded?

The formation of a GmbH requires at least one shareholder, and a written company agreement must be concluded and notarized. Simultaneously, the GmbH must also have at least one managing director who represents the GmbH externally.

After notarization, the company agreement is forwarded to the commercial register by the notary. The GmbH comes into existence only upon its entry in the commercial register. In addition to the notarized company agreement, the following evidence must be provided for registration:

  • A managing director's authorization, if not included in the company agreement.
  • A signed list of all shareholders with their place of residence and date of birth, as well as the amount of their contribution (list of shareholders).
  • Confirmation that the agreed contrubutions have been made.
  • In the case of non-cash contributions, corresponding evidence of their value and a report on the formation by subscription in kind.

What is the share capital of a GmbH?

The GmbH is classified as a capital company. This means that the shareholders provide the capital. The required share capital of a GmbH is at least 25,000 euros, but it is also possible to initially contribute only half of the share capital (at least 12,500 euros) when the company is founded. Both cash and non-cash contributions are are equally acceptable. As the name suggests, a GmbH offers limited liability, which means the company is liable only up to its assets. Therefore, the shareholders are generally not personally liable. An exception arises if the entire share capital is not fully contributed during the formation of the GmbH. In this case, the shareholders are personally liable for the outstanding amount.

Why set up a GmbH?

Compared to partnerships, the GmbH is distinguished primarily by the following:

  • The limitation of liability to the company's assets
  • Taxation based on the corporate tax rate (non-transparent taxation)
  • A relatively uncomplicated change of shareholders or sale of the company by transferring the shares
  • The legal capacity of the GmbH, which as a legal entity can conclude its own transactions or acquire shares in companies

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