The limitation of liability can be a reason for selecting the legal entity (corporate enterprises) as the legal form. However setting up a legal entity is normally more complex than in the case of partnership companies.
Legal entities are able to exercise rights and are subject to obligations. The notarisation of the company agreement, commercial bookkeeping and accounting as well as a minimum capital are obligatory.
Legal entities governed by private law are for example:
Limited Liability Company (GmbH)
The limited liability company (GmbH) is very popular, also for small businesses, particularly with regard to the limitation of liability.
Please take note of the following issues:
- The specified minimum capital requirements are 25,000 euros. They can also be in the form of assets in kind.
- The work involved for bookkeeping and documentation is greater than for a partnership.
- The founders are not liable with their personal assets.
- The following persons could become managing directors:
- a partner
- several partners
- third parties, who are employed by the company
- The GmbH agreement controls
- who is the managing director and what authorities this person has,
- the payment of capital and
- the allocation of profits.
- Any changes in the management have to be registered in the Commercial Register.
- Shares in the business can only be sold through a notary.
Business Company (Unternehmergesellschaft – UG)
A business company, the so-called "Mini-GmbH", is appropriate as the legal form if you
- would like to limit your liability and
- can mange with little capital (small companies or service providers).
You can set up the UG with an initial investment starting from one euro. However, please note that the share capital is based on the capital requirements of the business for the intended business activities. Furthermore, reserves amounting to 25 percent of the profits have to be built up until you have raised the minimum share capital of 25,000 euros (as for the GmbH). This should facilitate the start as a "proper" GmbH. You must register the company under the description "Unternehmergesellschaft (haftungsbeschränkt)" or "UG (haftungsbeschränkt)".
If you want to set up a so-called business company, you have to comply with special requirements when registering: The company can only be registered once the total share capital has been paid in. Assets in kind are not possible for a UG.
Compared with a GmbH there are also differences with regard to the annual financial statement (setting up provisions) and to pending insolvency. Otherwise the same legal provisions apply as for a GmbH.
Public Limited Company (AG)
The great advantage of a public limited company (AG) compared with a GmbH is the simple participation of additional partners (shareholders) in the company.
On the other hand the requirements for an AG are greater: The minimum capital required to set up the company is 50,000 euros, the formal requirements are very strict. You have to appoint an Executive Board and a Supervisory Board. The Executive Board has to consist of at least one member (e.g. the sole shareholder), the Supervisory Board of at least three members.
Registered Cooperative (e.G.)
A cooperative is a union of at least three members through joint business operations (e.g. Volks- und Raiffeisenbanks). The purpose of the cooperative is to promote the acquisition and business of members or cultural issues. The cooperative has an indeterminate number of members.
If the cooperative is registered in the Public Register of Cooperatives, it has legal capacity and is deemed to be a legal entity. The supplement "e.G." is added to the name.
The liability of the registered cooperative is generally limited to the assets of the cooperative. The cooperative members are not personally liable. However, the law on cooperatives (Genossenschaftsgesetz) stipulates that the cooperative members are obliged to make subsequent payments. The duty to make subsequent payments is the obligation to increase the existing cooperative capital proportionately or to be liable for any losses. You can however limit or completely exclude the obligation to make subsequent payments by the statutes of the cooperative.
The German original version of this text was drafted in close cooperation with the relevant departments. The Wirtschaftsministerium released it on 20.07.2016. Only the German text is legally binding. The Federal State does not assume any liability for the translated texts.
In cases of doubt or if you have any questions or problems, please contact the relevant authorities directly.