gGmbH formation in Germany – setting up a German non-profit limited liability company
Do you want to become active in a non-profit organisation and still benefit from the entrepreneurial advantages of a corporation? As an experienced law firm in the field of corporate law we know all the important details of setting up a non-profit GmbH. A lawyer will draw up your articles of association. Fast, legally secure and at a fixed price.
If you have questions like:
- “What is a gGmbH?”
- “How do I run a non-profit?” or
- “What costs will I incur?”
you will find many answers and tips on the following pages.
We set up your gGmbH. You focus on business
Key points gGmbH formation
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Procedure, Information & Packages
Online gGmbH formation
Andre Kraus, lawyer and founder of the KRAUS GHENDLER RUVINSKIJ law firm, is your contact in matters of company formation, trade mark law, reputation protection and corporate law.
Online company formation or in-person appointment
You can form a company directly online, book a free initial consultation online or send us a message.
Free initial consultation
You will receive a comprehensive initial consultation for the formation of your UG free of charge. During this meeting, we will clarify any open questions you may have and advise you on the most important basic issues in company formation, such as the right legal form or the costs and procedure involved in forming a company.
Forming your company
We start by forming your company. We will support you, from providing legal advice on forming a company, drafting tailored articles of association, arranging a notary appointment and entering your company in the commercial register, to registering a trademark, drawing up your application for tax and business registration, and handling your bookkeeping.
Overview of gGmbH formation in Germany
Forming a gemeinnützige Gesellschaft mit beschränkter Haftung (gGmbH, non-profit limited liability company)
The gGmbH – gemeinnützige Gesellschaft mit beschränkter Haftung – is a special sub-form of the GmbH, which was created in 2013 and brings enormous tax advantages to the shareholders. GmbHs whose business purposes are purely charitable, benevolent or ecclesiastical are exempt from corporation and trade tax. However, profit distributions are not possible. Categories of non-profit activities include the following in particular:
- the welfare of young people,
- the welfare of the elderly,
- environmental protection,
- animal welfare,
- consumer protection, and
- the protection of historical monuments.
The formation of a non-profit GmbH is particularly worthwhile for founders who wish to become active in non-profit activities alone, or those who wish to use the entrepreneurial advantages of a GmbH for their business.
We set up your gGmbH. You focus on business
gGmbH founding by a lawyer
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Objective 1
Tax freedoms and benefits
A GmbH that is recognised by the tax office as a non-profit company enjoys tax benefits. You do not have to pay corporate income tax or trade tax with your company, and turnover in the non-profit sector, also called the charitable sector, is exempt from VAT. Other income is only taxed at 7%. Furthermore, the gGmbH is exempt from inheritance or gift tax and from real estate tax. Finally, certificates can be issued to the donor for donations to the company, which also grant the donor tax advantages.
The gGmbH thereby offers a unique advantage in tax benefits for shareholders.
Objective 2
Commercial organisation with the advantages of non-profit status
Forming a gGmbH combines the advantages of the commercial organisation and quick decision-making chains of a GmbH with the relief afforded to a non-profit association. Full-time management enables decisions to be made directly and quickly, which greatly simplifies administration for social entrepreneurs. At the same time, the gGmbH enables you to apply for state subsidies and privileges in the use of public resources. The gGmbH is therefore perfectly suited for efficient social entrepreneurship.
Objective 2
Objective 3
Releasing shareholders from liability
As a sub-form of the GmbH, the gemeinnützige Gesellschaft also offers its founders release from private liability. Entrepreneurial risks only endanger your company’s assets, but not your private assets.
Objektive 4
Legally secure formation
As a company formation firm with years of experience in company formations, we can form your gGmbH with a legal guarantee. We take care of the whole process: from drawing up formation documents and providing legal advice to registering your company for tax and having it entered in the commercial register. Since the non-profit status of the gGmbH depends largely on the anchoring of the selfless purpose in the contract, we place a special focus on its presentation and have it checked for you by the tax office.
Objektive 4
Objektive 5
Minimising formal overheads
Forming a GmbH with us allows you to skip most of the formalities of the formation process. You can concentrate on the business orientation of your non-profit organisation and a successful start to your project. We only need your input for necessary information.
gGmbH founding by a lawyer
✔ CHEAP✔ FAST✔ LEGALLY SECURE
Open questions? – Just call us:
(Mo. – So. from 9am to 22pm / NATIONWIDE – German landline)
Forming a gGmbH in 10 steps – Process step by step
Overview: Process of forming a GmbH:
- Free initial consultation
- Intensive legal advice
- Checking the company name
- Drawing up the formation documents
- Checking non-profit status
- Notarisation meeting
- Entry in the transparency register
- Opening the business account and paying in share capital
- Entering the gGmbH in the commercial register
- Final consultation
Advantages and disadvantages of forming a gGmbH
The gGmbH as a legal form offers founders many advantages. First and foremost, the release of private assets from liability. This enables you to do business with your private assets protected. Of course, there are also some disadvantages. Please see below for an overview of the advantages and disadvantages of a gGmbH.
Advantages of forming a gGmbH
Disadvantages of forming a gGmbH
Questions and answers regarding the formation of a gemeinnützige GmbH
When setting up a gemeinnützige GmbH, clients often have specific questions such as:
“What does liability look like at a gGmbH?” or
“How is the profit of a gGmbH distributed?”
Below you will find the frequently asked questions and our answers regarding the formation of a gGmbH.
Can my gGmbH start its business activity before being entered in the commercial register?
Under certain circumstances, you can do business even before the gGmbH is entered in the commercial register:
- In business transactions, the abbreviation “i.G.” for “in formation” is added to your company name
- Your liability is not limited to the business assets
- You are privately liable for debts
- You have applied for a temporary tax number from the tax office, which you can use to issue invoices.
What must be considered when naming a gGmbH?
You can choose a free and creative company name that is in line with your marketing strategy and conveys your charitable values. Nevertheless, the requirements of commercial law apply. The name:
- cannot be misleading
- cannot be already in use (Section 30(1) HGB), and
- must be distinctive (Section 18(1) HGB).
In addition, the abbreviation “gGmbH” or “gemeinnützige Gesellschaft mit beschränkter Haftung” must be appended in business transactions.
What exactly is the difference between the GmbH and a gemeinnützige GmbH?
A classic GmbH is usually formed with the aim of maximising profits and building up capital. The gemeinnützige GmbH, on the other hand, pursues a purpose that serves the general public.
In contrast to the classic GmbH, the following rules apply to the gGmbH:
- No right to distribution of profits
- Proportionality of salaries to services rendered
- Anchoring of the charitable purpose in the articles of association
- Tax exemptions if the non-profit purpose is recognised
- Identification of a beneficiary
- No possibility to build up capital: 75% of profits must be re-invested in the same financial year for the pursuit of a non-profit purpose.
Does the gGmbH get tax advantages?
The gGmbH benefits from numerous tax advantages. They go hand in hand with the non-profit status, which must be checked and recognised by the tax office.
In concrete terms, the tax advantages look like this:
- The gGmbH does not have to pay corporation tax, trade tax or, in the charitable area, VAT
- In the business area, only reduced VAT applies
- Inheritance or gift tax and real estate tax do not apply to transfers made for charitable purposes.
In order for the tax advantages to retained, the company’s charitable purpose must be recognised. If a distribution of profit is detected, whether overt or covert, the status will be revoked.
When is the gGmbH non-profit?
A GmbH is a non-profit organisation if the non-profit status is recognised by the tax office. The requirements of Section 52 AO (German Fiscal Code) apply:
- The GmbH must pursue a purpose that is non-profit, charitable or ecclesiastical
- The pursuit of the purpose or realisation of the project must be selfless, direct and exclusive. If, for example, too much profit is paid out, a hidden profit distribution is assumed and the selflessness is forfeited
- The purpose of the company must be for the public good. It must not only benefit a limited group of people
- The articles of association define a beneficiary to whom the share capital is transferred in the event of the company’s dissolution. Beneficiaries may only be legal persons under public law and other tax-privileged organisations.
How is the management of a gGmbH liable?
In general, the business assets are liable for the gGmbH’s operational debts. The management can only be held liable with their private assets in certain cases. These cases must involve gross misconduct and breaches of duty.
In most cases, liable conduct can be found in the following areas:
- Tax law and social security
- Insolvency law
- Causing damage through misconduct and neglect of duty
When can the gGmbH be entered in the commercial register?
Your gGmbH must be entered in the commercial register before you can start your business activity. Although this process cannot be actively accelerated, arrangements can be made to encourage the fastest possible registration.
- Selecting a correct company name: As a company under commercial law, you can choose a free and creative name for your gGmbH. It must nevertheless comply with the legal requirements. We check your company name before registration. If the name cannot be registered, entry in the commercial register is refused and the process is delayed.
- Correctly labelling the company postbox: If the company postbox is not correctly labelled, your post may not be delivered. This delays the registration process by approximately one month.
- Specify the purpose of the company: It must be possible to precisely describe the company’s purpose when it is registered. In the case of a gemeinnützige GmbH, it is identical with the non-profit purpose. We correctly designate the purpose of your company and anchor it in the articles of association.
- Payment of the advance on costs: For the fastest possible registration, the advance on costs should already be paid at the cash desk or deposited with the notary.
What does the accounting of a gGmbH cost?
An across-the-board calculation of accounting costs is not appropriate, as the costs depend to a large extent on various factors:
- Complexity of the business model
- Number of bookings
- Regional focus of the company
- Size of the company
The gGmbH is obliged to engage in double-entry bookkeeping and to prepare a balance sheet. An approximate cost framework would be the following: 30 bookings per month would cost €800, while 100 bookings would cost €1,500.
As a founder of a gGmbH, do I have a social security obligation?
Founders of a gGmbH may well be obliged to pay into a social security scheme. This is especially the case if self-employment is not recognised as a full-time occupation. If you work less than 20 hours per week in the company, for example, this would not be a full-time job and you would be subject to a social security obligation.
How can I use the gGmbH’s profits?
A gGmbH must use its profits correctly in order to maintain its non-profit status. The principles of selflessness and directness are decisive for this. Profits may not be distributed or used for personal enrichment, but must directly serve the company’s purpose. Therefore, it is prescribed that 75% of profits must be invested in the company’s charitable purpose in the same financial year.
It may be possible to create reserves
25% of the remaining profits may be used to build up share capital. If profits are to be saved, this must be done for a comprehensible larger investment, which in turn serves the company’s charitable purpose.
Hidden profit distributions put the company’s non-profit purpose at risk
Hidden profit distributions can be assumed, for example, when businesses pay out excessive salaries or organise unnecessary company events. These violate the principle of selflessness and therefore endanger the company’s non-profit status.
When is the gGmbH entitled to deduct input tax?
The gemeinnützige GmbH benefits from numerous tax advantages. For example, it does not have to pay VAT on turnover generated in the charitable area, i.e. in connection with the non-profit purpose. However, no input tax can be deducted for expenditure in this area either.
Nevertheless, the gGmbH is entitled to deduct input tax for income and expenditure in the business sector. This can be divided into three sections:
- Asset management
- Special-purpose operations
- Other business operations
Only 7% of all income from special-purpose operations and asset management must be paid. However, input taxes are fully deductible. In other business operations, the normal rate of 19% VAT is payable.
So if VAT is levied, reduced and regular, input taxes can be deducted.
When should I form a gGmbH?
Social entrepreneurship is becoming increasingly popular in Germany. Since the introduction of the gemeinnützige Kapitalgesellschaft (non-profit corporation) in 2013, the gGmbH and the gUG have increasingly replaced the Verein as the preferred legal form for non-profit projects.
The reasons are obvious: The gemeinnützige GmbH combines the tax and economic advantages of a legal form recognised as non-profit with the commercial organisation of a GmbH. Short decision-making chains make the gGmbH more agile than the Verein.
A gGmbH could be the right legal form for you if the following apply to you: You would like to form a non-profit organisation that has short decision-making chains, has a commercial organisation and can claim tax advantages.
Are there any special features of the annual financial statements of a gGmbH?
Simply being a non-profit does not make drawing up a gGmbH’s annual financial statement any simpler. As a corporation, the gGmbH has to engage in double-entry bookkeeping and prepare annual financial statements. Only classification as a small capital company in accordance with Section 267a HGB can provide relief.
II received a strange invoice after entering the gGmbH in the commercial register. What does this mean?
Especially after the entering your company in the commercial register, you should check all invoices that you receive carefully. The data is publicly accessible to everyone. Fraudsters take advantage of this and illegally send out invoices for certain services that most businesses use after they are formed. For example, you may receive an invoice for the commercial register entry or for your recently registered company domain, even though you have already paid for it.
Start-ups very often fall victim to fraud. You should therefore be particularly vigilant in the initial phase.
Is it possible to convert a Verein into a gGmbH?
It is certainly possible to convert a Verein into a corporation, such as the gGmbH or the gUG. Since its introduction in 2013, the non-profit legal forms have increasingly replaced the Verein.
Conversion is complex but feasible.
It is not necessary to re-form the company from scratch.
You do not need to form a completely new company, so business relationships and existing contracts with suppliers and other business partners can be retained. The following is required, however:
- a resolution of the general meeting regarding conversion and legal examination
- a new company statute anchoring the non-profit purpose, and
- a beneficiary to whom capital will be transferred in the event of dissolution or liquidation.
If the members decide to convert the Verein into a gGmbH, the usual process for a new formation must then be carried out.
How can I advertise legally?
Advertising legally is an elementary part of running any company. The legal framework must not be exceeded, otherwise there is a risk of warnings or even legal action by competitors.
In Germany, the legal framework is mainly regulated by the Gesetz gegen unlauteren Wettbewerb (UWG; German Act Against Unfair Competition). It applies to all common advertising formats:
- advertising on your own website
- advertising over the phone
- advertising by SMS
- email marketing
- advertising on social media
- advertising on search engines, and
- advertising by post.
The decisive factor here is that the advertising must not be misleading or unethical comparative advertising.
An advertisement is misleading if it is likely to deceive its target audience, or is generally untruthful (Section 5b UWG).
Comparative advertising is popular because of its effectiveness. It seems obvious to entrepreneurs to differentiate their own offer from that of their competitors by means of unique selling propositions. Comparative advertising is generally permissible, but it must not be unethical (Section 6(2) UWG).
If the legal framework has been exceeded, competitors can issue warnings or even bring legal actions.
As part of our formation consultation, we discuss the legally permissible framework of advertising for your charitable project.
Can I use text, images and graphics from the Internet?
The easy access to media that the Internet offers has many advantages for entrepreneurs. However, this also leads to numerous copyright mistakes. As there are different opinions on the legal admissibility of this, we feel obliged to clarify the matter.
All works of any creative or intellectual nature in the fields of art, literature and science are protected by copyright. This includes:
- images
- photos
- graphics
- logos
- text
- software
- films
- pieces of music
- tables
- etc. (Section 2 UrhG (German Copyright Act)).
It is worth noting that any copyrighted work can only be used by a third party with the express permission of the author. This is often done in the form of a purchased user licence.
This is equally true for professional works or amateur photographs. Consent must always be obtained.
A reference is not enough
A common misconception is that works may be used if reference is made to the author. Thus, website operators often use images and refer to the photographer, or shop operators use product descriptions without the express consent of the manufacturer. If there is no licence, this is a copyright infringement, which usually results in high legal costs.
What does AGB mean?
The abbreviation AGB stands for allgemeine Geschäftsbedingungen, in other words, general terms and conditions (GTC). These can be understood as the company’s own guidelines for business transactions. Since companies often conduct repetitive and similar business, it is worth working out a single set of conditions. This means that important agreements concerning your products or services do not have to be renegotiated every time you do business.
The following topics are frequently included in the GTC:
- delivery times
- payment methods
- liability
- postage and packaging costs
- reservations of title
- place of jurisdiction
- revocation and return, and
- rights of use.
Due to the individual freedom of contract, the GTC may even deviate from the legal provisions. Only an absurd deviation is not allowed. Since the GTC are only valid if they stand up to legal scrutiny, you should have your GTC drawn up by a lawyer.
When should I register a trademark?
The theft of intellectual property is a damaging factor for many companies. Once products, services or marketing strategies have been successful, competitors usually copy them quite quickly. By registering a trademark, you enable your company to defend itself legally.
If your trademark has been successfully registered, you have various means of defence at your disposal. If a competitor has copied your protected element despite trademark protection, or has committed any other trademark infringement, you could:
- make an authorisation request
- dun
- sue, or
- obtain a court order.
German trademark law is considered to be comprehensive and efficient. It is for good reason that European trademark law, which covers the entire EU area, was modelled on German law. Not only logos, names and graphics can be protected, but also product shapes, smells and audio formats.
We recommend that you have elements of your non-profit GmbH that are worthy of protection protected. If you would like to learn more about this topic, please read our article on how to apply for a German trademark.
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Invoicing
Dear Sir/Madam, We have recently grounded a gGmbH and within our scope are advising an Argentinian Foundation. Our question is how we invoice them? We understand VAT is not applicable, but there is any other tax that should be added when invoicing them?. Many thanks in advance, Jimena Zapata Ophelia Deroy
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