Setting up a Commercial Entity in Germany
It may come as a surprise to some that establishing your own commercial entity or business in Germany is accessible to any entrepreneur regardless of nationality, and the same procedures apply to both overseas and local investors. If you are interested in starting a business in the robust German economy, the first step is deciding which type of entity you intend to set up.
Types of German Commercial Entities
A commercial entity refers to any corporation, proprietorship, partnership, limited partnership enterprise, franchise, or association that engages in commercial activities. Commercial entities come in several types:
Private Limited Liability Company (GmbH)
In Germany, the most common legal entity is a limited liability company (Gesellschaft mit beschränkter Haftung, or GmbH). This is also the most common choice for foreign entrepreneurs.
- An appointed shareholder (Gesellschafter) and a managing director (Geschäftsführer).
- A drafted and notarized articles of association.
- Minimum capital of at least 25,000 EUR for the deposit in the corporate bank account, where at least 12,500 EUR of the portion must be confirmed at the time of registration.
- Application for the company into the German Commercial Register with a notarized agreement between shareholders.
- Registration with the local trade office.
The size of a GmbH ranges from a handful of employees to large conglomerates. The main factor is that it is not traded publicly. If you intend to sell shares of your company, an AG company would be your choice.
Public Joint Stock Company (AG)
For businesses that are intended to be traded publicly, and possibly even listed on the stock exchange, the Aktiengesellschaft or AG company is the designated legal entity. AGs enjoy a high market reputation in Germany.
- At least one shareholder, with no restrictions on the number of shareholders that can be appointed. A board of directors decides on operational and managerial aspects of the company.
- Minimum capital of 50,000 EUR.
- Articles of association are signed by the investors.
- Application is signed by the founding shareholders, supervisory board members, and management board with a notary present; registration is made at the German Commercial Register.
- Application for an EORI number.
Extensive bureaucratic steps are required in the incorporation of an AG, to which proper notaries and a corporate attorney would streamline the process immensely. Note that there are some facilitations for a so-called “Small AG” (kleine AG).
General Partnership (Offene Handelsgesellschaft, oHG)
To establish an oHG, at least two partners must conclude a partnership agreement. All partners share the profits, but also have unlimited personal liability, including for any debts and obligations. The partnership is also entered into the commercial register and local trade office.
Limited Partnership (Kommanditgesellschaft, KG)
A KG has one general partner (Komplementär) as the representative and is liable for the company, whereas the limited partner(s) (Kommanditist) whose only liability is the value of the shares owned in the company. Note that the KG in combination with a GmbH or a Ltd. as general partner is often chosen due to tax considerations.
Establishing a subsidiary of a foreign entity allows the business to be physically separate from the parent company to address regional demand. It holds certain autonomous power, while still having certain limited ties to the parent company. Note that subsidiaries are distinctive from branch offices in the commercial register.
Branch Office (Zweigniederlassung)
A branch office is a German extension of the international parent company. It can be further distinguished between a Dependent Branch (unselbständige Zweigniederlassung) and an Autonomous Branch (selbständige Zweigniederlassung).
The process might require some paperwork and time, thus a competent Corporate Law attorney will streamline the required business registration procedures. Our bilingual attorneys with extensive experience in assisting overseas investors welcome all inquiries to help start their business in Germany.