If you have decided to run your own business in Germany you will have to decide between one of the various business types. When you are comfortable with your decision, you will have to register with the local Trade Office (Gewerbeamt). Unless you are a freelancer, individual trade person or private partnership, you will also have to register with the Commercial Register. Within the first month of your business trading, you must register with the local Tax Office. Activities regarding hospitals, bank, and insurance companies will need a particular license to perform their activities.
Here is a list of the most common business types in Germany:
Limited liability company – Gesellschaft miy beschränkter Haftung (GmbH)
Joint Stock company – Aktiengesellschaft (Ag)
Limited Partnership – Kommanditgesellschaft (Kg)
General Partnership – Offene Handelsgesellschaft (OHG)
Civil Law Partnership – Gesellschaft bürgerlichen Rechts(GbR)
There are two other options to consider. A sole trader is an individual who starts a business. It is a simple and relatively safe option as they are not liable for debts or obligations that may accumulate. Finally, the German branch office is a way to extend a foreign company into the German market.
German Limited Liability Company (GmbH)
This is a highly popular choice for small to medium-sized businesses. Only one person is required to form the business and that person can also be a shareholder. One of the strange things is that the name of the business must be related to its activity or the name of the shareholder and it will end with the letters GmbH.
It is straightforward to set up a GmbH. Shareholders must sign a deed of formation and any articles that are associated with this, and this must be done in front of a public notary (in Germany).
Shareholders will need a share capital of a minimum of 25,000€ of which half has to be transferred to a corporate bank at the time the business is registered. GmbH shares are neither certified nor can be traded on the stock exchange.
In 2008, Germany enabled mini limited liability companies. Setting up a mini company is easier because of standardized articles of association, signed in front of a notary. The huge advantage is that you only require 1€ of capital. The condition is that 25% of the annual turnover is set aside until the company reaches the 25,000€ to become a full GmbH.
The German Joint Stock Company (Ag)
The Joint-stock company requires a minimum of one shareholder and there is no limit on the maximum number of shareholders. The shareholder/s will need 50,000€ in order to register as a company and it must also be registered in the Register of Companies, until then, it won’t be able to carry out its activities.
An Ag is very similar to a GmbH with regards to shareholder liability. The significant difference is that an Ag can trade its shares in the stock market. That and the larger start-up capital means it is a better solution for larger businesses.
Limited Partnership (Kg)
Similarly to an Ag, you will need 50,000€ as capital and this capital must be divided into shares. It also has to be registered in the Trade Register and all articles of associated have to be signed in front of a notary. It is one partner is taking on all of the liability and then the limited partners who are liable just for the values of shares the company owns. A Kg is great for small to medium-sized businesses.
There is a subtype of the limited partnership- a limited partnership with a liability company as a general partner (GmbH & Co Kg). It’s a mouthful but the title explains the difference. Instead of having one partner who takes on the liability, a limited liability company takes on the liabilities. This is another good option for small to medium-sized businesses and family-run businesses. For a GmbH & CO Kg a partnership agreement must be signed. The business must be registered with the Trade Register and the Commercial Register.
In this case, there is no need for start-up capital. Each partner in the businesses is liable for debts and obligations and the profit is shared between the partners. It must be registered with the Trade Register and the company name has to end in OHG. To register an OHG you will need a minimum of two partners.
You need to have a person who takes of the role of supervisor and it is also a requirement to have a board of directors. An advantage of this type of business is that the accounting system is simpler.
Civil Law Partnership
Here, you will need two partners with unlimited liability and it is recommended that a partnership agreement is signed. A GbH must be registered with the Trade Office if its annual profits are less than 25,000€. Any amount over this and the business will become a general commercial partnership and must be registered with the Commercial Register.
Sole traders are individual people who wish to run their own business. Generally, the size of the business is quite small and therefore there is no complicated accounting. The owner of the business is responsible for all debts and obligations. On a positive, they also receive all of the profits.
A company wishing to expand into Germany can do so by opening a branch. This branch is incorporated as a GmbH and the parent company in the original country takes on all of the liability.
Company Taxation In Germany
Among the corporate taxes in Germany are the corporate income tax and value-added tax. The basic corporate tax is 15.825% but then you need to take into account the municipal trade tax (between 14 and 17%) so the total corporate tax is between 30 and 33%. Based on your annual accounts submitted you (or your accountant) will be able to calculate the companies taxable income.