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1.1.1. Main Forms of Doing Business

German law recognizes the following types of legal entities:

  • Limited Liability Company (GmbH)
  • Joint Stock Corporation (AG)
  • Partnerships
  • Branch

Limited Liability Company (GmbH)

Limited liability companies are the most commonly used and flexible business forms in Germany.

Key aspects of a Limited Liability Company include:

  • May be formed by a single shareholder with no maximum limits;
  • Shareholders may be natural persons or legal entities;
  • 100% foreign ownership is allowed;
  • Shareholder liability is limited to their contribution for shares in the company;
  • Minimum share capital is EUR 25,000;
  • Capital contributions may be in cash or in-kind;
  • At least 25% of cash contributions and the entire non-cash contribution must be paid upon formation, and the total thereof cannot be lower than EUR 12,500;
  • Shares may be transferred with certain notarized documents but may not be listed on an exchange;
  • The company must have at least 1 managing director;
  • An address in Germany must be maintained; and
  • The company must be registered on the Commercial Register.

Germany allows for the formation of so-called mini-limited liability companies (mini GmbH) for smaller entrepreneurs. The minimum required capital of a mini GmbH is only EUR 1, but non-cash contributions are not allowed and 25% of profits must be added to reserves until capital reaches at least EUR 25,000.  

Joint Stock Corporation (AG)

A joint-stock corporation is typically used in Germany when there are a large number of shareholders. The shares of the corporation my listed on a stock exchange.

Key aspects of a Joint Stock Corporation include:

  • May be formed by a single shareholder with no maximum limits;
  • Shareholders may be natural persons or legal entities;
  • 100% foreign ownership is allowed;
  • Shareholder liability is limited to their contribution for shares in the company;
  • Minimum share capital subscribed by founders is EUR 50,000;
  • Shares may be listed and quoted on a stock exchange;
  • The corporation must have at least 1 managing director and a supervisory board that must have at least 3 members; and
  • The corporation must abide by the legal framework as provided in the German Stock Corporation Act, and the articles of association may only deviate from the provisions of the legal framework where this is expressly permitted.

Partnerships

Partnerships may be formed in Germany as general partnerships and limited partnerships.

Key aspects of a General Partnership include:

  • Formed by a partnership agreement with a minimum of 2 partners;
  • All partners are fully liable for the obligations of the partnership, including newly joining partners;
  • All partners are able to engage in the management of the partnership;
  • Partners who exit the partnership remain liable for existing obligations of the partnership for 5 years; and
  • The partnership must be registered on the Commercial Register.

Key aspects of a Limited Partnership include:

  • Formed by a partnership agreement with at least 1 general partner and 1 limited partner;
  • Only general partners are able to engage in the management of the partnership;
  • General partners are fully liable for the obligations of the partnership, while limited partners' liability is limited to their contribution to the partnership;
  • There are no minimum capital requirements; and
  • Limited partnerships need not be registered on the Commercial Register.

Effective 1 July 2021, trading partnerships and professional partnerships can opt to be taxed as a corporation. The option allows partnerships (opting companies) to benefit from the same tax regime as corporations, with the partners treated as limited-liability shareholders, eliminating any differences in taxation.

Branch

Germany allows foreign companies to establish a branch in its own name in order to conduct business in the country. A branch with sufficient autonomy must be registered on the Commercial Register but is not considered a separate legal entity. The parent company is fully liable to the extent of its own assets for the obligations of the branch.