Want to know what a GmbH is and what it does? You’ve come to the right place! Learn the basics about the GmbH: What a GmbH is, what limited liability is, the costs involved, and what a mini-GmbH is.
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 or Stock Corporation in English) and the KGaA (Kommanditgesellschaft auf Aktien or Partnership Limited by Shares in English). 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 share capital (Stammeinlage) that is recorded in the GmbH’s articles of association. In order to save taxes on rental income it is possible to form a real estate GmbH.
How much does a GmbH cost?
There is no set cost for forming a GmbH as there are notary and tax advisers fees, which can vary. The lion’s share of the costs, however, comes from its share capital. The amount is determined by legislation that is designed to offer various options that involve different risks.
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 in?
Shareholders must deposit their share capital into the bank account of the GmbH. 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 commercial register (Handelsregister).
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 the amount of € 12,500).
What is a mini-GmbH?
If you do not have the minimum share capital, but want to get started as soon as possible, 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 has a charitable purpose, you should consider this option.
Want a GmbH education?
- CEO salary in a GmbH: How much is a GmbH CEO allowed to earn?
- gGmbH: What is the German non-profit limited liability company?
- GmbH shareholder rights and obligations
- What is the difference between the AG and the GmbH?
- Notary costs for establishing a GmbH
- Forming a German company abroad
- Assessing company names: Is my company name still available?
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.
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