A limited liability company - Gesellschaft mit beschränkter Haftung (GmbH) - is the most frequently used corporate legal form in Germany and the suitable legal structure for domestic subsidiaries of international groups.
Determining criteria for the choice of legal form are in general the intended function of the shareholders, issues of liability and the applicable tax regime.
The GmbH must have its own share capital, management, and accounting system. The minimum start-up capital requirement is Euro 25.000.
The advantages of a GmbH:
- formation of a sole shareholder GmbH is possible and foreign natural or legal entities can be founders. The GmbH may also have more than one shareholder;
- the liability of the company to its creditors is limited to the company´s assets;
- the personal liability of the company’s shareholder(s) is excluded if the capital for which they have subscribed is fully paid up;
- the subsidiary will operate independently from the parent company and can carry out additional business activities as needed in Germany;
- a subsidiary operates under the same tax regulations as all other companies in Germany.
As an alternative an Unternehmergesellschaft (UG), commonly known as a "mini-GmbH", can be established with capital of only one Euro, or any other sum up to the minimum Euro 25.000 required for a regular GmbH.
But 25% of a mini-GmbH's (UG) annual profit must be contributed to its capital reserves until they reach Euro 25.000 at which point the UG can become a regular GmbH.
The UG has a management board, is subject to corporate taxes, can acquire property, own assets, sue and be sued. The UG company's name must contain the title “Unternehmergesellschaft haftungsbeschränkt” (Business Corporation limited in liability).
Advantages of the UG are its relatively low initial capital requirement and simple administrative procedure.
This means, that the Articles of Association are usually a standard template and in this case the costs for the lawyer who will not need to compose an individually tailored Articles of Association and for the notary are a lump sum which are quite low compared to the costs of the Articles of Association for a GmbH.
Its principal disadvantage however over a standard GmbH is that a “UG” is not considered as really creditworthy in German business circles and in particular by German banks.
Therefore, we describe in the following answers the requirements and procedures for establishing the GmbH.