German Limited Liability Companies (GmbH): They Pay Off
Trading in Germany is a lucrative venture for foreign companies. However, German buyers are often more likely to buy from retailers with a German business model. The establishment of a German company with its registered office in Germany can also provide further advantages for foreign retailers. The liability limits of a GmbH are one example of this. This article explains why it may be worthwhile for retailers to set up a limited liability company and what should be observed.
Founding a GmbH
GmbHs – limited liability companies – are the most common type of company in Germany and are highly regarded by customers and business partners. In Germany, limited liability companies are governed by the Limited Liability Company Act (GmbHG). The advantages of a limited liability company are that it is founded as a company and its liability privileges do not increase risk. On the other hand, the GmbH shareholders are not liable for their private assets. The liability of shareholders can only be considered in exceptional situations, such as breaches of duty. A company is difficult to start since, before registering, the so-called share capital needs to be contributed. A limited liability company is required by law to have a minimum share capital of €25,000. In contrast to other forms of business, limited liability companies must be taxed according to the German Commercial Code, which means a more complex tax burden.
There are, however, certain formalities that must be followed:
1. Company Name
An appropriate name must be given to the Was ist eine GmbH. It is important to note, however, that foreign trademarks and brand names should not be used illegally or confusingly. There must, however, be a mention of “limited liability company” or its abbreviation (GmbH) as part of the name.
2. Drafting an association agreement
An effective limited liability company must be established by a partnership agreement between the shareholders. Normally, this is more than one person, but in theory this can be just one. Information that must be included in the contract includes:
The company’s name,
the seat of the company,
The mission of the company is:
Capitalization of shares,
Each shareholder receives a number of shares and nominal amounts in return for their contribution to the capital.
The partnership agreement must be notarized and written. It is therefore more expensive.
3. Registrations
Once the articles of association have been signed and the share capital deposited, the limited liability company must be entered in the commercial register and registered with the trade office. There is no problem with a limited liability company becoming commercially active before it is entered into the commercial register. However, the partners are personally liable at this point.
4. Hiring a Managing Director
Furthermore, the GmbH must have at least one managing director who represents the company externally and acts on their behalf.
Is there an alternative to a GmbH?
The sole proprietor acts exclusively on behalf of himself, as the name implies. Thus, the establishment is quite simple since anyone who acts as a commercial retailer over a longer period of time is recognized as such. The main advantage of this type of company is that it does not require any form of incorporation or registration. There are also no complicated tax accounting requirements. However, the risks emanating from the liabilities also directly affect the retailer’s private assets. Therefore, there is a high risk of direct private insolvency in cases of mismanagement.
