Especially suited to entrepreneurs who want to pursue social or charitable goals with their company, the “non-profit GmbH” business structure is a variant of the regular GmbH. The gGmbH (gemeinnützige GmbH) combines the advantages of a normal, commercially-managed GmbH with the benefits of a non-profit organisation.
The most important distinction between a GmbH and a gGmbH is this charitable aspect. In order to qualify, therefore the gGmbH must serve a charitable function (defined as pursuing a non-commercial, beneficent or religious function). This purpose must be laid out in the new company’s article of association and approved by the competent tax office (Finanzamt) before the company can be entered into the commercial register.
Key features of a gGmbH
- Establishment: Article of association; entry into commercial register; tax office ratification
- Capital: At least 25.000 euros, half of which needs to be in a bank account at the time of registration
- Governance: Managing director, shareholders’ meetings, and supervisory board for companies with more than 500 employees
- Liability: Up to the amount of capital contribution, or the amount of company assets; shareholders usually exempt from private liability.
- Taxation: Exempt from business taxes such as corporation tax, solidarity surcharge and trade tax; VAT is usually reduced
Establishing a non-profit limited company in Germany
A gGmbH requires start-up capital of at least 25.000 euros. Half of this (12.500 euros) must be paid into the company’s bank account before the company can be founded. This amount can be made up of not only cash but also valuables such as real estate, vehicles and machinery.
The other important step to take when founding a gGmbH is to ensure that your company qualifies as being “non-profit” and fulfilling a charitable purpose. It would be wise to check this with the tax office early on. The definition of “charitable” can include any businesses that seek to promote or protect any of the following:
- Education, science and research (including schools, kindergartens and daycare facilities)
- Environment, nature, animals and plants
- Art, culture and monuments
- Youth and elderly care
Registering a gGmbH
This charitable status must be firmly established in the company’s article of association, which should state that the gGmbH acts selflessly and does not pursue any self-serving economic goals. This means that no profit can be distributed to the shareholders and that compensation for senior managers must not be “excessively high”. The article of association must also name another non-profit association, which is elected to receive any profits in the event of the gGmbH’s dissolution.
This article of association is checked over by the tax office, to ensure it complies with the laws on charitable organisations, before it can be submitted by a notary to the commercial register. The founders can then complete the process of setting up the business.
A big advantage of the gGmbH form is that the liability of shareholders is limited, as with the classic GmbH form. Indeed, the private assets of the company’s shareholders must be kept separate from the company’s assets. Any debts are paid from the company’s assets only.
Do gGmbHs pay business taxes in Germany?
If the company is recognised by the tax office as having non-profit status, then the gGmbH will receive an exemption status, which qualifies it for exemption from corporation tax, solidarity surcharge and trade tax. Additionally, the gGmbH’s services can be partially (or even sometimes fully) exempt from VAT.
gGmbHs will also receive a certificate from the tax office that authorises them to accept donations and issue tax-deductible donation receipts. For this reason, non-profit limited companies are also exempt from other taxes, including gift, inheritance and property taxes.
Managing a gGmbH
The gGmbH is managed by a managing director, who must be at least 18 years old and must not have been convicted of bankruptcy in the past five years. It is also possible to appoint several managing directors, who can all represent the company individually. The company also receives direction from an annual shareholders’ meeting, and (if it has more than 500 employees) a supervisory committee.
gGmbH accounting in Germany
Non-profit limited companies are generally required to publicise their profit and loss figures and balance sheets, as well as comply with double-entry bookkeeping standards.
gGmbH or gUG?
It is also possible to found a gUG, i.e. a provisional non-profit limited liability company. This is a good option for those who do not have start-up capital of 25.000 euros, as a UG can be founded, in theory, with as little as one euro. As with a classic UG, the gUG is compelled to set aside at least 25 percent of its profits until 25.000 euros has been accrued, at which point it can be converted into a gGmbH.