If you are starting your own business in Germany, one of the first steps you will have to take is to choose a legal form for your new enterprise. There are several different kinds of legal forms (Rechtsformen) for business structures in Germany, which can be roughly grouped into three main types:
- Sole proprietorships (Einzelunternehmen)
- Partnerships (Personengesellschaften)
- Corporations (Kapitalgesellschaften)
The type of business you are setting up will determine which legal form is best suited to you (e.g. a freelancer will choose a different legal form to an entrepreneur with a large start-up loan). Your local Point of Single Contact, company formation specialist or a lawyer can advise you if you are unsure.
Here is an overview of the main business forms in Germany. Note that it is a legal requirement for your business’s name to identify its legal form (for example, by including the word GmbH, OHG or AG) so that any observer is automatically aware of the company’s liability.
One-person businesses (Einzelunternehmen)
Especially popular with freelancers, sole proprietorships (Einzelunternehmen) are usually founded by one person, who is liable for all debts of the business.
Partnership businesses (Personengesellschaften)
Partnership businesses are formed of at least two legal entities (either two people or companies/organisations). Usually, both partners have unlimited personal liability for business debts, except in the case of limited partnerships.
Corporations (Kapitalgesellschaften)
These legal forms can be founded by between one and five people, require some start-up capital, and also protect your personal assets from business debts. Corporations must be registered with the German Chamber of Commerce (Handelskammer) and pay higher levels of business taxes.