GermanyIntroduction to the 9 Different Germany Legal Entity Types

January 25, 2022by Tetra Consultants0
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As one of the world’s largest and most stable trading economies, offering a secure, highly developed political and economic framework, you might be looking to start a business in Germany. In this article, our team at Tetra Consultants has introduced the 9 different German legal entity types to help you once you decide to register company in Germany.
german legal entity types

There are multiple types of company in Germany that are available for the companies to choose from.

1. Sole Proprietorship:

  • A sole proprietorship is the simplest form of business structure where the business is owned by a single person. Tax reporting is also simple as it is exempted from corporate tax. However, personal income taxes still apply.
  • Since it is not a separate legal entity, there is unlimited liability where the owner will be liable for all debts, losses or legal action taken against the business. Moreover, it can be more difficult to raise capital via debt or equity.
  • There is no minimum capital required.

2. Limited Partnership (KG):

  • KG is suitable for small and medium-sized enterprises (SMEs).
  • KG consists of at least two partners where at least one of them is subjected to unlimited liability whereas the other is a limited partner which is only subjected to liability not exceeding the values of shares held in the company.
  • The partners will have to sign a partnership agreement, registering it at the Commercial Register and Trade Register.
  • A minimum capital of 50,000 euros is required where it would be split into shares.

3. General Partnership (OHG):

  • OHG consists of at least two partners where each partner has unlimited liability and profits will be shared between them.
  • OHG will have to be registered at the Trade Register.
  • There is no minimum capital required.

4. Civil Law Partnership (GBR):

  • GBR consists of two partners with unlimited liability.
  • The partners will have to sign a partnership agreement and be registered with the Trade Office.
  • It will be classified as a commercial business if profits exceed 25,000 euros and thus, it will have to be registered with the Commercial Register as well.

5. Limited Liability Company (GmbH):

  • GmbH is most widely used, suited for small and medium-sized businesses.
  • GmbH consists of at least one director and one shareholder of any nationality.
  • There is only the requirement of one founder and this founder can also be a shareholder.
  • GmbH is a separate legal entity where the shareholder is not liable for debts, losses or legal action taken against the business.
  • There is a minimum share capital of 25,000 euros of which 12,500 euros will have to be deposited into a corporate bank account during registration.
  • The company shares of a GmbH cannot be traded on the stock exchange.

6. Limited Liability Entrepreneurial Company (UG):

  • A new form of GmbH, UG is a simpler version of GmbH enabled on 1 November 2008.
  • UG is popular among Entrepreneurs as it only requires a minimum share capital of 1 euro.
  • There is a requirement to accumulate at least a quarter of its annual turnover until it reaches a share value of 25,000 euros, enabling it to become a GmbH.

7. Joint Stock Company (AG):

  • AG is most suited for large corporations.
  • AG requires at least one shareholder of any nationality.
  • The board of directors possesses the right to decide the company’s operation and management.
  • There is a minimum share capital of 50,000 euros.
  • Similar to GmbH, AG is a separate legal entity where the shareholder is not liable for debts, losses or legal action taken against the business.
  • The company shares of AG can be listed on the stock exchange.

8. Branch Office:

  • Branch Office is an extension of a foreign parent company abroad and can only conduct businesses similar to the parent company.
  • The parent company is liable for the debts incurred by the German branch office.

9. Representative Office:

  • A representative office is only allowed to conduct market research and marketing for the parent company in Germany.

Business Registration Process in Germany

The most popular incorporation among foreign investors is GmbH. If you have decided on starting a business in Germany, the steps of registering a company in Germany as a foreigner are as follows:

Step 1: Planning of your business idea

Step 2: Choosing a suitable corporate entity

Step 3: Corporate bank account opening and depositing the minimum shared capital

Step 4: Reserving of the company name through the German Chamber of Commerce and Industry (IHK)

Step 5: Company registration through German Companies Registry

Step 6: Trade Registration (if required)

  • If your company is involved in trade activities, it is required to apply for an EORI number in Germany

Step 7: Tax Registration

Step 8: Staying compliant with financial reporting and tax requirements

  • The corporate tax is levied at 15% and is subjected to a solidarity surcharge of 5.5%.

Conclusion:

After this article, you would have understood the 9 different german legal entity types. If you are unsure which of the german legal entity types will be suitable for you, you may engage the service of Tetra Consultants. With Tetra Consultants by your side, the registration process of your business in Canada will be smooth and hassle-free. Our comprehensive service package includes planning and strategizing with our clients to select a suitable business entity, completing the registration process, obtaining required licenses, opening a corporate bank account, and ensuring your compliance with the government regulations. 

Contact us to find out more about how to register a business in Germany and our dedicated and experienced team will revert within the next 24 hours.

Tetra Consultants

Tetra Consultants is the consulting firm that works as your advisor and trusted partner in your business expansion. We tell our clients what they need to know, instead of what they want to hear. Most importantly, we are known for being a one-stop solution for our valued clients. Contact us now at enquiry@tetraconsultants.com for a non-obligatory free consultation. Our team of experts will be in touch with you within the next 24 hours.

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