Limited liability in Germany
The German versions of the American LLC are the GmbH and the UG. Both are very popular business forms among founders for a simple reason: their liability is limited to the company assets, while the shareholders’ private assets remain untouched. This makes them less financially risky, but there are certain capital requirements that need to be met.
While the GmbH requires a minimum share capital of 25.000 euros, it only takes 1 euro per shareholder to set up a UG. This makes the UG a very attractive business form for founders who start with little equity. To compensate for its low credit rating every UG has to set aside 25 percent of its annual net profit as reserves until the equity has reached 25.000 euros.
Setting up your GmbH or UG: Basic requirements
Before you can set up your GmbH or UG, there are two basic requirements you should consider.
Residence/settlement permits for Germany
Any UG or GmbH needs at least one managing director. If they don’t hold an EU or EEA citizenship, Germany requires them to provide a German residence permit (Aufenthaltserlaubnis) or a settlement permit (Niederlassungserlaubnis) to be able to register the company. If you don’t yet have a visa or residence permit that allows you to carry out self-employed work, you’ll need to get this paperwork sorted before you can set up your company.
Attendance at the notary appointment
A notary appointment is also required to set up a GmbH or UG. All managing directors must attend, while shareholders have the option of giving power of attorney to a representative.
As of August 2022, founders have two options in theory: attending the appointment in person or via video call. In reality, however, the digital option might not be available in every case. If it is available, you will need one of the following forms of valid electronic identification to make use of it:
- EU / EEA citizens: ID or passport with eID function
- Other citizenships: Electronic residence permit (eAT), such as an EU Blue Card, ICT card or Mobile ICT card
If you are not able to attend the notary appointment in person, or you cannot provide the correct electronic identification to appear via video call, you may not be able to start a GmbH or UG in Germany.
How to set up a GmbH / UG in Germany in 10 steps
Once you have taken care of these basic preliminary steps, you can start setting up your company. The formation process is exactly the same for both legal forms and quite complex. The following is a checklist guiding you through the process.
Keep in mind that even small details can influence your formation or your company’s future in a big way. This is why I recommend taking your time for each step. Avoid hasty decision-making just to get your company started quickly and instead plan ahead step by step.
1. Make some basic decisions
First things first, you need to consider some basic foundational questions:
- Who are going to be the shareholders of your company?
- Who will be the managing director(s)?
- How much is your share capital going to be?
2. Determine your company name and purpose
Your company name not only needs to sound right and stick in the minds of your customers, but also needs to be legally permissible and - most importantly - not already taken. You also need to put together a company objective that determines your new business’s activities. You should:
- Familiarise yourself with the formal requirements
- Have both checked with the Chamber of Industry and Commerce (IHK)
- Check the availability of your chosen domain and trademark
3. Clarify financial questions
The next step is to consider some important financial details, particularly concerning the share capital:
- Clarify how the company shares will be divided among the shareholders
- Estimate the total formation costs
4. Musterprotokoll versus articles of association
For both legal forms, you can either use a standardised founding document template known as a Musterprotokoll, or you can draw up your own articles of association and customise them to suit your business arrangement. You should:
- Check if your company meets the requirements to use a Musterprotokoll*
- If it is possible: Decide which variant suits your company best
- If you can't or don't want to use a Musterprotokoll: Get a lawyer to draft your articles of association
- When in doubt: consult a lawyer specialised in company law
*You are only eligible to use a Musterprotokoll if:
- You have no more than three shareholders
- You have no more than one managing director
- Your company’s fiscal year is the same as the calendar year
5. Set up your notary appointment
The next step to set up your GmbH or UG is to attend a notary appointment to certify the formation documents and prepare the commercial register insertion. You should:
- Clarify all details and collect the required documents ahead of time
- Let a notary certify your formation documents
6. Open your business bank account
You should open a business account for your new company as soon as possible after your notary appointment. The managing director(s) need to attend the bank appointment, and shareholders might also need to be present, depending on the bank. You have to:
- Clarify all details with your bank beforehand
- Attend the bank appointment and transfer your share capital into the new account as a cash deposit
- Send the deposit receipt to your notary
7. Finalise your commercial registration
Once your notary has received all the necessary documents, they will send your data to the commercial register. Then you need to:
- Label your letter box at your business address
- Pay the commercial register invoice
- Register your company and all beneficial owners with the German transparency register
8. Apply for trade registration
After you have been entered into the commercial register, you also need to register with the trade office. You can either do this in person, in writing or (sometimes) digitally.
9. Get a tax number
Finally, to receive your tax number and be able to issue invoices you need to:
- Consult a tax advisor
- Register your company with the tax office online using ELSTER
10. Start your business
Now you’re ready to start getting on with running your business! You need to:
- Prepare your opening balance sheet and transfer it to the commercial register
- Register with the Chamber of Industry and Commerce (IHK) or the Chamber of Crafts (Handwerkskammer)