Updated on: Jul 29th, 2022
10 min read
Germany is the number one choice for an entrepreneur to start a company in the European continent. The location of Germany is centric on the European continent, thus providing business development and a vast opportunity for networking across the continent. All European countries are easily accessible from Germany through different modes of transportation. Therefore, Germany is the favourite choice for business owners to establish their business internationally.
Germany is also conducive to new businesses for many reasons. The German Government supports in providing training for businesses to carry out various activities. Since the economy of Germany is business-friendly, it is easy for entrepreneurs and investors to register their companies in Germany.
Before registering a company in Germany, knowing the type of business structure an entrepreneur can choose for the company incorporation is essential. Below are the types of business structures:
Limited Liability Company (GmbH)
A limited liability company can be established by a minimum of one investor with a minimum share capital of 25,000 EUR. However, the shares of the limited liability company cannot be transferred to the public, and it cannot be registered on the Stock Market. The director appointed through the shareholders’ general meeting takes the day-to-day decisions in the company.
German Joint Stock Company (AG)
The german joint stock company is suited for large businesses. It requires to have a minimum share capital of 50,000 EUR. The company members will have limited liability, and the company shares can be freely registered in the Stock Market. A supervisory board consisting of at least three members will regularly check the company management performance. A statutory auditor should also be appointed to audit the company accounts.
German Limited Partnership
A German limited partnership is an arrangement between two or more people who decide to work together with mutual understanding. It requires a minimum of two partners. There can be two types of partners based on liability. One is the general partner, having an unlimited liability extending to his/her personal assets. Another type is the limited partner, whose liability extends only to his/her nominal holdings in the partnership firm. The general partners have decisional powers, while the silent partners cannot participate in the management decisions.
A sole trader can be easily formed in Germany as it only requires one individual to establish it with his/her personal assets. However, the individual has unlimited liability when the sole trader faces bankruptcy. The profits of the sole trader are subject to individual income tax rates.
Branches are a popular method to enter the German market. Many foreign investors choose to start a branch. Setting up a branch to a parent company is popular, especially when the foreign investors are not sure about long-term operations. It is easy to establish a German branch office. The foreign investors are only required to register with the local trade office and the commercial register for setting up a branch. However, it is not a legal entity; its liabilities and assets belong to the parent company. The parent company will retain the entire responsibility of the branch on legal and tax matters.
Articles of Association
The first step of company incorporation in Germany is drafting the Article of Association (AoA). All companies must have an AoA. After drafting the AoA, other accompanying documents must be compiled, such as passport copies, the specimen of signatures, a local bank account, a company registration form, etc. The entrepreneurs must get all the documents notarised by a public notary officer in Germany.
Minimum Capital Requirements
The minimum required share capital for incorporating a German Joint Stock Company is 50,000 EUR. The minimum share capital required for starting a private limited company is 25,000 EUR. However, an entrepreneur can also begin a Private Limited Company (GmbH) with a minimum share capital of one Euro. In such a case, the company will be termed as a mini GmbH (UG) company. When the mini GmbH (UG) earns a profit of 25,000 EUR, it will be elevated to the GmbH category without incurring an additional cost.
Director and Shareholder
There must be a minimum of one shareholder for establishing a company in Germany. The shareholder can be a corporate entity or an individual. The minimum director to establish a company is one director of any nationality. The director can be a corporate entity or an individual. The shareholder and director can also be the same person of any nationality.
There must be a local registered office address of the company. An entrepreneur should have a physical registered address and place in Germany for carrying out the business before applying for company registration.
The entrepreneur must also open a bank account of the company in Germany. The entrepreneur must provide the company’s bank account details while applying for its registration. The director or a company representative should visit Germany to open a bank account.
The district court manages the German Commercial Register. It is free of cost and open to public view. A company can also access the Germany Commercial Register online through the Common Register Portal of the German Federal States.
Once the company name is entered into the Germany Commercial Register, it is recognised officially as a legal entity. The entrepreneurs need to contact a notary who will file a certified electronic form to register the company in the Germany Company Registry.
The entry of the company name in the German Commercial Register is part of the establishment process. The company registration will be effective only when its name is entered in the German Commercial Register.
The German Commercial Register contains all the information about relationships between commercial companies and merchants. It includes information on the partner’s name, managing director, liability limitations, capital stock, insolvency proceedings opening, and the company’s dissolving or ending details.
The company registration process in Germany is as follows:
The entrepreneurs willing to establish a company in Germany must submit the following documents to the German Commercial Register to start the registration process:
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