Limited Liability Corporation: Gesellschaft mit beschränkter Haftung
The Gesellschaft mit beschränkter Haftung (GmbH) is the most popular legal form among the corporations, as it combines high flexibility with relatively few obligations. If you are in a hurry and want and / or need to get started quickly then its best to start with a standard construction (especially cash founding) and later fine tune all details. When you later fine tune, you can start earning money to cover the further costs.
Want to do real business in Germany without personal liability – tell me something about that. What is needed to found a GmbH?
These are the requirements:
- € 25,000 capital funds or equivalent non-financial assets and proof thereof, (however at the time of registration half of the minimum capital is enough),
- at least one founder (be it a physical or juristic person),
- line of business (Gesellschaftszweck),
- a notarized board resolution providing evidence of the decision to set up the company / branch (Gesellschafterversammlung zur Gründung einer Gesellschaft / Zweigstelle), which will be held at the notary during notarization,
- a notarized list of shareholders and the quota of their shares,
- notarized articles of association (Gesellschaftsvertrag),
- ID of the founders.
What does it cost to found a GmbH?
The fees for notary and commercial registry are around € 1,500. On top of that are costs for lawyers and / or tax consultants respectively, and eventually for translators.
This sounds like I can do it all of myself, do I really have to hire a notary?
Yes, you do! There is no way around it because §2 I GmbHG requires this. Elementary decisions regarding the corporation must pass a notary as he has the double function of creating the required public form and warning that a major legal transaction is to take place. The notary will document and apply for the entry into the commercial registry. The registry has the final word on its entries.
Heck, 25 k is a bunch of cash that I don’t have so readily at hand. You mentioned that we can use non-financial assets to finance the company. How does that work?
Generally, you can use anything that has a market value for funding in-kind. In order to officially become a part of the capital stock, you have to prove the value of that asset. The easiest example is real estate because there will be a notarized contract. However, be careful because if you funded the company with only one piece of land and sell it later, then you are practically liquidating the company! In order to generally prove the value, you will have to hire an auditor (Wirtschaftsprüfer) to verify that the value of the property actually corresponds to the specified counter value of the contribution to the corporation. Note, that you have the option of only contributing half of the legal funds, i.e. € 12,500.
You mentioned that I can only fund the company with half of the statutory funds? Isn't that illegal?
No, it is not illegal. The law provides this possibility (§7 II 2 GmbHG).
Okay, I will go that way and fund the company with half of the legally needed money. When do I have to prove that I fully funded the company?
The lawmaker expects you to do this asap. On the other hand, practice shows that nobody cares if the company has received 12.5 k€ or 25 k€. However, once the company busts, the bankruptcy manager will demand and enforce the non-contributed funds.
For which line of business may I found a GmbH?
The GmbH can be an attractive form of company for practically any profession – be it freelance, trade. However, some professions like those “chambered” (i.e. attorney, physicians, accountants, auditors, etc.) will have encounter some restrictions.
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