Find out everything about the Stammkapital (share capital) of a GmbH: From cash and contributions in kind in the formation stage, to the capital increases and decreases. When does a capital increase make sense? And can a capital reduction be worthwhile?
We’re here to answer these questions for you:
- What is the Stammkapital of the GmbH?
- Can I also form a GmbH without a GmbH?
- How do the founding shareholders contribute their Stammkapital or shares?
- What’s the difference between cash formation (Bargründung) and non-cash incorporation (Sachgründung)?
- Do I need an expert opinion for the non-cash incorporation with an asset foundation report?
- When does a capital increase make sense?
- What conditions does the GmbHG impose for a capital reduction?
What is the Stammkapital of the GmbH?
The Stammkapital of a GmbH – a company’s share capital – is the guarantee amount (Garantiebetrag) up to which a GmbH must always be liable. Unlike a sole proprietorship (Einzelunternehmen) or a partnership (Personengesellschaft – commonly a GbR), the GmbH is always liable with this share capital. The shareholders, therefore, do not have to step in with their private assets, as is the case with a sole proprietorship or a GbR. Because of this limitation of liability, the German Limited Liability Companies Act (GmbHG) subjects the share capital of the GmbH to strict rules.
The GmbHG requires at least € 25,000 as the share capital of a GmbH. In the articles of association, the partners may set a higher but never a lower share capital. At least 50 per cent of the share capital of a GmbH must be proven on the date of incorporation. All shareholders must contribute at least 25 per cent of their shares to the share capital of the GmbH. As long as the balance sheet does not include the entire € 25,000 share capital, the company has a claim against the shareholders for payment of their capital shares. However, in the event of insolvency at the latest, the shareholders must raise their share of the share capital. The individual shares of the partners in the GmbH are called capital investments.
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Can I establish a GmbH without any share capital?
In principle, you can also set up a GmbH without share capital. However, this type of GmbH must then build up its share capital from the business revenue, in order to guarantee that it becomes a fully-fledged GmbH. This legal form is popularly referred to as “Mini GmbH” or “1-Euro GmbH” – but is officially called a Unternehmergesellschaft (haftungsbeschränkt) or UG (haftungsbeschränkt) for short.
With the UG (limited liability), € 1 is in theory sufficient for the formation of the company. However, as long as the share capital is not fully reported in the balance sheet, the shareholders must book at least 25 per cent of the profits per year into the share capital. This means that until then, the shareholders may only pay out a maximum of 75 per cent of the profits as profit withdrawals. Only when the share capital in the balance sheet has risen to € 25,000 can 100% of the profit can be distributed to the shareholders in accordance with their shares.
Forming a GmbH with cash: Cash contributions (Bareinlagen) as the Stammkapital
All shareholders must contribute their share in the share capital in proportion to their shares. They may do so by making cash contributions or contributions in kind. The cash contribution is usually made by bank transfer to the business account. In the intended purpose, you should clearly state that this amount represents a “cash contribution to the share capital of NAME GmbH by shareholder XY” (writing this in German would be preferable: Bareinlage zum Stammkapital der NAME GmbH durch den Gesellschafter XY).
Bear in mind, however, that the GmbH as a company is liable from day one with its entire share capital. If a GmbH or a UG (haftungsbeschränkt) becomes insolvent before the entire share capital of the company is available from the reserves, the shareholders are liable for the uncovered maximum liability amount of € 25,000. This can happen in practice, for example, if there’s too little paid-in capital if existing tangible assets cannot be quickly turned into money and have lost value through use.
Forming a GmbH without cash: Contribution in kind (Sacheinlage) as the Stammkapital
The non-cash incorporation is far more complex than using cash to form a company. Contributions in kind are made through assets (real estate, vehicles), rights (patents, licenses) or an existing company with ongoing business operations. These are then transferred into the company assets of the GmbH. This is not so rare in practice. For example, a company previously operating as a partnership (GbR or an oHG) can be transferred to a GmbH to limit liability. The partners of the GbR then transfer the common company assets with all demands and assets into the GmbH
The non-cash assets for the establishment of a GmbH in kind must be disposable, ie have a market value. As a founder, you must not only estimate this market value, but also prove it. You provide this proof with an asset foundation/fact-finding report (Sachgründungsbericht). It’s part of the incorporation documents of a GmbH. The notary submits them, together with the articles of association, to the commercial register (Handelsregister) for examination. The competent register court (Registergericht) examines the substantive foundation report very thoroughly and can also reject it if doubts arise as to the value of the assets.
Supporting the Sachgründungsbericht with expert opinions
Contributions in kind may make up the GmbH share capital. For this, they must be permanently usable and remain in the company. You must determine the replacement value of objects or the capitalised earnings value of rights or licenses in the asset foundation report. The replacement value is the amount at which you can procure an equivalent item on the market. The capitalised value, on the other hand, is the value of a patent or license that you obtain on the market when you sell it and customers pay fees for it.
A possible method for determining the value of contributions in kind is a balance sheet in which these assets are recorded. These are then shown in the balance sheet in the “operating and business equipment” (Betriebs- und Geschäftsausstattung) account. This includes office equipment, vehicles, machinery and tools of all kinds. Since a balance sheet must be audited by a tax consultant or auditor, there are usually no problems if the values are taken from the balance sheet in the asset foundation report (Sachgründungsbericht). It’s more difficult to determine the earnings value of rights and licenses or even real estate. It also often makes sense for you to prove the valuation with an expert opinion
Forming a GmbH with mixed assets (Mischeinlagen)
Of course, the easiest way is to pay in the share capital in cash. However, if individual shareholders are not able to raise all the necessary capital in cash and also want to make contributions in kind, the third alternative is a mixed share capital of cash and non-cash for a GmbH.
For example, you can agree in your shareholder agreement that a shareholder should contribute one third of the share capital of the GmbH and may raise this through a cash contribution and a contribution in kind. The shareholder then states that he would like to contribute his private car with a book value of € 8,000 as a company car. But this is not allowed. In the German Limited Liability Companies Act (GmbHG), § 7 para. 2 stipulates that the company must pay at least one quarter of the shares of each shareholder in cash.
Capital increase (Kapitalerhöhung) for a better credit standing and reduction in financing costs
If the share capital of a GmbH has grown to € 25,000 in the balance sheet, you and your co-partners may want to consider a capital increase.
A well-started UG (haftungsbeschränkt) should also consider a capital increase to prepare for the conversion to a GmbH. This is because the minimum share capital of a GmbH, and of a UG in particular, can lead to disadvantages in business transactions. An example is the credit rating of your bank. A higher capitalisation of the share capital usually leads to a better bank rating, which in turn leads to more favourable conditions when financing overdrafts or the purchase of goods or investments in working capital.
Business partners also look at the exact capitalisation of a GmbH, before they give larger orders. You can prepare a capital increase whenever you want by, for example, creating reserves from undrawn profits. Often, a capital increase also takes place through the further admission of shareholders.
Capital reduction (Kapitalherabsetzung) is a delicate process
Just as you can bring about a capital increase, you can also carry out a capital reduction through a shareholder resolution (article is in German).
Some harmless reasons may be that the business is shrinking, the shareholders want to end overcapitalisation or a shareholder leaves the company and reclaims his or her capital contribution. The more frequent reason is a loss-making transaction that has partially depleted the share capital in the balance sheet. Then there is the threat of insolvency, which can be delayed with the capital reduction. However, the capital reduction may not fall below the statutory minimum capitalisation of € 25,000. These company assets must therefore always be preserved, otherwise insolvency is inevitable.
The capital reduction is subject to strict conditions set out by the GmbHG to protect creditors. First, the shareholders’ meeting must resolve the capital reduction with at least three-quarters of the shares in accordance with § 53 GmbHG. The resolution must be notarised. The CEO of the GmbH must then announce the capital reduction in an official organ (ie Frankfurter Allgemeine Zeitung, Handelsblatt). Thereafter, a blocking year begins in which the resolution may not yet be implemented. In this blocking year, the GmbH must give the creditors the opportunity either to agree to further securities or to be paid out. The capital reduction must then be reported to the Handelsregister.
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