Non-profit limited liabilities companies (gGmbH) are on the rise. Almost a third of the 2.6 million people employed in the charitable sector now work at a gGmbH. But, what does this term actually mean? What does the abbreviation stand for? What are the differences between a gGmbH and a charitable organisation (gemeinnütziger Verein)? And why is the gGmbH so popular right now? Learn more about the gGmbH in our guide. Becoming an entrepreneur, saving on taxes and giving something back to society – the gGmbH combines all of this in one legal form. But what exactly does gGmbH stand for?
gGmbH: Definition and meaning
If you look up the definition of a gGmbH, you’ll quickly find an answer: a gGmbH is a ‘charitable company with limited liability under German law’ (gemeinnützige Gesellschaft mit beschränkter Haftung [gGmbH]).
Here ‘charitable’ (gemeinnützig) means that the purpose of the company is to benefit the common good. ‘GmbH’ is the abbreviation for Gesellschaft mit beschränkter Haftung (limited liability company in English). This means that in Germany, the legal form of a gGmbH is bound by GmbH law. The increasing number of hospitals, kindergartens and museums now being conducted as gGmbHs serve as a good example.
Do you have a charitable mission and don’t need much share capital to form a company? Then establish a nonprofit entrepreneurial company (gemeinnützige Unternehmergesellschaft [gUG]) with limited liability (haftungsbeschränkt) instead. This requires as little as a one-euro investment.
The gGmbH is the charitable variety of the GmbH (the German limited liability company). You can find out more about the GmbH legal form in our guide.
Purpose of the gGmbH
The legal form of the gGmbH aims to combine the benefits of a nonprofit with those of a GmbH. The increase in economic demands on charitable organisations have made gGmbHs more attractive and relevant for healthcare, cultural, and educational institutions. For example, a gGmbH makes long-term planning and implementation easier through the employment of a professional full-time executive director, while also continuing to benefit from tax breaks.
Forming a gGmbH
The most important requirement and difference between the GmbH and gGmbH legal forms is the charitable aspect. A gGmbH must serve a charitable function. This is be established in the articles of incorporation (Satzung). These articles must be approved by the responsible financial authority (Finanzamt). Learn more about the pros and cons of the corporate form GmbH.
When does my GmbH qualify as charitable?
- A gGmbH is considered charitable if it serves a non-commercial, beneficent, or religious function. You can find an overview about these functions in the general fiscal law (Abgabenordnung) under Sections 52 and 53 (§ 52 AO/§ 53 AO). For further information about what constitutes a charitable nonprofit, check out our article.
- The company objective must clearly fulfil this charitable function.
- The objectives of a gGmbH must be altruistic, direct, and for a specific purpose. Profits must not be distributed among the shareholders but must instead be put towards the company objective. Additionally, all salaries must be kept in relation to work performance. You can learn about the rights and duties of gGmbH shareholders in our article.
- The articles of incorporation need to establish a beneficiary (Begünstigter). If the gGmbH is disbanded or loses its nonprofit status, the company assets go to this beneficiary. However, the initial investment is paid out to the shareholders. The beneficiary must also be recognised as a nonprofit. Beneficiaries can also fall under the category gGmbH, as well as foundations (Stiftungen), charitable organisations (gemeinnützige Vereinegemeinnützige Vereine) or gUGs, for example.
Source: German Charity Council (Deutscher Spendenrat)
Prerequisites for forming a gGmbH
- The legal form of gGmbH dictates that a charitable purpose must be established in the articles of incorporation.
- The company must directly work towards fulfilling this charitable function.
- A charitable beneficiary must be established in the articles of incorporation.
- The share capital must be deposited. We’ve outlined the things to look out for when depositing your gGmbH capital in a helpful article.
The information published on our site is all written and checked by experts with the utmost care. Nevertheless, we cannot guarantee its accuracy, as laws and regulations are subject to constant change. Therefore, always consult an expert in a specific case – we will be happy to put you in touch.
firma.de does not take over any liability for damages, which resulted from errors in the texts.