The optimal legal form for your formation
Prior to founding a company, one question always arises: What legal form should your business have? In German commercial and company law, there are various legal forms; it is not possible to create a new legal form.
You can for instance start as a sole trader or set up a partnership or corporation.
The choice of legal form is far more than a matter of taste. It is of decisive importance for your capital requirements, the formation costs, liability issues, tax obligations, the image of your business and much more. Not every legal form is suitable for every founder and every business. On this page you find an overview of the possible options.
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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.
The most common legal forms
Most entrepreneurs choose a sole proprietorship. Larger companies are often established in the form of corporations. The legal forms are as follows:
Sole trader
– Businessman (e.k.)
– Small trader
– Freelancer
Partnerships
– Civil law partnership (GbR)
– General partnership (OHG)
– Limited partnership (KG)
– GmbH & Co KG
– UG & Co KG
Corporations
– limited liability company
– UG (entrepreneurial company with limited liability)
– Public limited company
– gGmbH
– gUG
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If several people want to found a company together, they have more options:
Formation in the form of a partnership
– GbR
– General partnership
– Limited partnership
etc.
Formation in the form of a corporation
– limited liability company
– UG
– Public limited company
Capital requirements, costs, bureaucratic expenditure
Capital requirements
If you want to set up a company in the form of a limited liability company, you need so-called share capital. – The GmbH, for example, requires a share capital of €25,000-
Costs, bureaucratic expenditure
Depending on the form of business, there are also considerable differences in the costs and effort involved in setting up a company.
Sole proprietorships or GbRs, for example, can be founded with comparatively little cost and effort (business registration and registration with the tax office).
It is completely different with GmbH and UG as well as with OHG and KG. These companies are to be entered in the commercial register and notarized formation documents are required.
The forms of enterprise in detail
Small business owner or Sole trader
The simplest way to become an entrepreneur is to register a small business. There is no entry in the commercial register. The entrepreneur is liable with his private assets.
A registered trader (e.K.) is a sole trader who conducts commercial trade and is entered in the commercial register. Incorporation is inexpensive. Sometimes a business registration is required. Sole traders are liable with their private assets.
Civil law partnership (GbR)
To form a civil law partnership (GbR) at least two persons are required. There are only few formalities, no minimum capital and an entry in the commercial register is not necessary. The GbR shareholders are liable with their private assets.
General partnership (OHG)
The OHG is also a partnership and has much in common with the GbR. The special feature is that it operates a commercial enterprise and is entered in the commercial register.
Limited partnership (KG)
The KG is a partnership entered in the commercial register and a form of enterprise, in which not all partners are personally liable. There is a general partners and limited partners. Only the first-mentioned us fully liable.
Corporations: GmbH, UG and AG
The GmbH is a corporation and may have one or more shareholders. It is more expensive and more difficult to establish a limited liability company than one of the aforementioned forms of enterprise.
Usually EUR 25,000 share capital is required, articles of association must be concluded and a managing director must be appointed. The formation documents have to be notarised and the GmbH has to be entered in the commercial register.
The formation of an entrepreneurial company is similar, but only one euro of share capital is required. The UG is obliged to form reserves.
The Public limited company (AG) is a corporation with at least EUR 50000 share capital. In the case of GmbH, UG and AG the liability is limited.
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