An overview of the most significant differences between the Aktiengesellschaft (AG) and Gesellschaft mit beschränkter Haftung (GmbH) legal forms as a guide for the forming a company.
The difference between the AG (stock company) and the GmbH (limited liability company) capital companies lies in the legal requirements that are necessary for its formation and in other important factors.
The difference between the AG and the GmbH: The share capital (Kapitalvermögen)
The first serious difference between the two legal forms is the amount of share capital. While €25,000 must be paid in for a limited liability company, €50,000 must be contributed to the company to form an AG. The increased share capital of the AG (German article) should not be considered to be only a disadvantage, as it also increases confidence in the company for business partners.
The difference between an AG and a GmbH: The corporate organs
Corporate organs are the parts of a company which are tasked with management and control.
The organs of the GmbH
In the case of the limited liability company, the bodies are the shareholders’ general assembly and the management (German article). This legal form provides for a separation of capital and management. The shareholders are the owners of the company shares and can make decisions on all matters concerning the company.
Interventions in the operative business are also possible, as they have the right to issue instructions to the management. However, each decision must be supported by one or more shareholders who hold the majority of the shares. The shareholders also have the control function and they are responsible for monitoring the management.
The executive organs of the AG
In a stock company, the executive bodies are separated by function: there is the board of directors (Aufsichtsrat), the management board (Vorstand) and the general assembly (Hauptversammlung). The managing board is responsible for the management of the company and is monitored by the board of directors. The general assembly brings together all shareholders – the owners of the company. Concerning the powers of the shareholders, there is a decisive difference between an AG and a GmbH.
In contrast to the shareholders, the equity holders of a GmbH have the possibility to intervene in the management at any time – equity holders cannot do this. In the case of AGs, there is a strict separation between the management and the capital, i.e. the shareholders.
Difference between AG and GmbH: The shares (Anteile)
The AG and GmbH legal forms both fall into the category of a “capital company” (Kapitalgesellschaft). Their respective owners have contributed a certain part of the share capital and they own a respectively large part of the company. A decisive difference between an AG and a GmbH is the transferability of these shares. Shares are generally transferable simply and informally, except in the case of registered shares (Namensaktien). These are issued to a specific owner and certain formal requirements must be met when selling. By contrast, the shares of limited liability companies are more difficult to transfer to other owners (German article), because in this case a transfer must be notarized, which costs time and above all money.
Difference between AG and GmbH: The formation expenses
There are clear financial and structural differences between the two legal forms with regard to the cost of setting up a limited liability company. Setting up an AG is more expensive and more complicated than setting up a limited liability company. The German Stock Corporation Act (Aktiengesetz) regulates all matters relating to the legal form of an AG, while the basic provisions for limited liability companies are regulated in the German Limited Liability Companies Act (GmbH-Gesetz), among other things. The difference between the AG and the GmbH is due to the stricter provisions of the German Stock Corporation Act. The framework for the formation of an AG is narrower and most of the processes and documents involved in its formation require notarisation.
Difference between AG and GmbH: Liability
There is also a decisive difference between legal forms with regard to the liability of the management. The members of the managing board and the board of directors of an AG may be held liable for business decisions if they have violated their duty of care or acted illegally. The shareholders of the AG are only liable to creditors with the value of the shares they hold. The CEO of the GmbH may be liable for the damage caused by the GmbH or as the leading organ and may even be liable for imprisonment or fines if these obligations are violated.
Although both the GmbH and the AG are capital companies, there are differences between the legal forms. The AG enjoys much higher esteem and a better reputation as a legal form. This is a great advantage when dealing with banks, suppliers and customers. In order to take advantage of these positive characteristics, however, considerable advance investments must be made, since the establishment of an AG is expensive. Not everyone can afford the founding process and the deposits, which are twice as high as those of a limited liability company. In addition, there’s a high administrative expense resulting from the strict regulations of the German Stock Corporation Act.
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