Summary
The GmbH (Gesellschaft mit beschränkter Haftung) is a German limited liability company form that protects shareholders by limiting liability to the company’s assets. It requires a minimum share capital of €25,000, of which at least €12,500 must be paid in before registration. The formation process includes a notarisation, registration in the Commercial Register as well as trade and tax registration. GmbHs are subject to corporate taxation, trade tax, and possibly capital gains withholding when distributing profits. The GmbH is among the most common and respected company forms in Germany.
Contents
Hi, I’m Andreas,
For over a decade I have been advising companies on how to do business in Germany. I’d be happy to answer your questions about the GmbH in a one-on-one consultation.
What does the abbreviation GmbH stand for?
The abbreviation GmbH stands for Gesellschaft mit beschränkter Haftung, which in English means a ‘limited liability company’ or ‘company with limited liability’. The limited liability that the GmbH legal structure offers is the main reason why so many entrepreneurs choose this legal form for their businesses.
What is a GmbH?
A GmbH is a company legal form and is the peer of the AG (Aktiengesellschaft = stock corporation) and the KGaA (Kommanditgesellschaft auf Aktien = partnership limited by shares). The owner of a GmbH is called a Gesellschafter (shareholder or partner). The main feature of the GmbH is its limited liability – shareholders cannot be held liable for damages with their private assets. A gGmbH is the non-profit counterpart of a regular limited liability company.
What does limited liability mean?
Limited liability means the financial liability of a person is limited to a set amount. In the case of the GmbH, liability is limited to a shareholder’s share capital contribution. For a GmbH, limited liability means that the company is liable for damages solely with its assets and not with the private assets of the individual shareholders. The financial risk for the shareholder is much easier to calculate since they are liable only with the amount of Stammeinlage (share capital) that is recorded in the GmbH’s articles of association. To save taxes on rental income, it is possible to form a real estate GmbH.
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How much does a GmbH cost?
There is no set cost for forming a GmbH, as notary fees, etc., can vary. The lion’s share of the costs comes from its share capital. The amount is determined by legislation designed to offer various options that involve different risks.
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The Ultimate Guide to Starting a Business in Germany
Chapter 1: Business visas, residence & work permits
Chapter 2: Business legal forms in Germany
Chapter 3: Forming a business in Germany
Chapter 4: Post formation
How much share capital is required to form a GmbH?
To incorporate a GmbH, you need at least €25,000 in share capital, which can be contributed by one or more shareholders. The individual capital contributions of each shareholder do not have to be the same but can vary. For example, Founder A can contribute €20,000 while Founder B contributes €5,000 to the share capital.
Where does the share capital have to be paid?
Shareholders must deposit their share capital into the GmbH’s bank account. The receipt for the deposit is then submitted to the notary who formed the company for you. Only then can the company be entered into the Handelsregister (commercial register).
Do I have to pay all the share capital upfront?
No. Someone who does not have the full share capital of €25,000 can nevertheless form a GmbH if they have at least half of the capital, i.e. €12,500. However, the missing share capital should be deposited as soon as possible.
Incorporating a company with share capital below €25,000 is risky because the partners are liable for damages with their personal assets up to the amount of the outstanding capital contribution (i.e. if only €12,500 share capital was deposited, the shareholders are personally financially liable up to €12,500).
What is a mini-GmbH?
Suppose you do not have the minimum share capital but want to get started as soon as possible. In that case, the UG (haftungsbeschränkt) – haftungsbeschränkt means limited liability in English – may be a solution for you.
Colloquially called the “mini-GmbH”, the UG can be formed with just €1- (one euro). But, it does come with the legal obligation to put 25% of its profits into a special reserve account until its share capital reaches €25,000.
Like the GmbH, the UG also has a non-profit version—the gUG. If you want to form a UG for a charitable purpose, consider this option.
Still, got questions about setting up a GmbH?
- Startup expert
- 10+ years experience
Hi, I’m Andreas and I’ve been advising businesses in Germany for over a decade. I’d be happy to call you and answer any questions you have in a one-on-one consultation.
Want to know more about the GmbH?
Our GmbH essential reading:
GmbH basics:
Master list:
All Company Formation articles
Conclusion
Choosing a GmbH offers strong legal protection, credibility, and limited liability for business owners. The higher capital requirement suits founders with long-term growth plans and stable revenue potential. Ensure accurate bookkeeping and tax compliance to avoid penalties. Update all corporate records promptly after structural changes. With professional guidance and proper setup, a GmbH provides a secure foundation for sustainable success in Germany.
