Rechtsform: What business legal form is right for my business?

This is a very important question because how you legally structure your business will affect your personal liability and taxation. This is your overview of the most common types of businesses in Germany.

 

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Contents

 

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Andreas Munck

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Got questions about setting up a business in Germany?

  • 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.

 

Questions to help guide your decision

If your visa doesn’t put any restrictions on you then the nature of your business determines what kind of legal form is best for your business. For example, if limited liability is a non-negotiable then incorporating a company is your only option. If you have ambitions of a big exit then a holding structure is the way to go (best to get legal/tax advice before making any life-altering decisions).

What legal form you select for your business should be guided by some key decisions that reveal the conditions in which you’re starting your business:

  • How many founders will there be?
  • Does the nature of my business mandate the limitation of liability?
  • How much starting capital do I have?
  • What do I want to call my company?
  • What is my budget for setting up costs?
  • When do I have start my business?
  • What are the best tax strategy for the profits I expect to make?
  • What kind of accounting obligations can I take on?
  • How much control do I want over my business?
  • Will there be investors involved?
  • Do I want to start a non-profit business?

As you learn more about the different legal forms, it’ll become clear how the answers to these questions directly impact which legal form is right for your business. To help you make this big decision we’ve put together this guide for you. 

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Types of Rechtsform (legal forms) in Germany

The main legal forms in Germany are listed below. Click on the link to get a short intro to for each type of business structure. If you want to go deeper then we’ve got articles that give in-depth definitions and explore the pros and cons of each legal form.

Major Rechtsform (legal forms) for businesses in Germany:

 

Not a legal form but a corporate structure

Less common legal forms for businesses in Germany:

  • GmbH & Co. KG
  • Eingetragene Kaufmann als Einzelunternehmen (e. K.)
  • Offene Handelsgesellschaft (OHG)
  • Partnerschaftsgesellschaft (PartnG)

 

Is the GmbH right for me?

The legal form for entrepreneurs with no private liability (usually) and a better public image.

At a glance

  • For entrepreneurs who want to limit their business liability
  • Can offer founders significant tax advantages
  • Formation formalities and bookkeeping are somewhat more time-consuming
  • Simpler formation formalities possible for standard formations due to Musterprotokoll (the standardised formation protocol)
  • Managing director: shareholder or “third-party” managing director
  • The company is liable with all its assets
  • The liability of the partners in the event of liability claims against the company is limited to their capital contribution
  • Capital contribution (at least €25,000 in total)
  • In the case of loans, partners are usually liable with additional private collateral.

What is the GmbH?

Here is a selection of articles to get to know the GmbH better so you can make an informed decision:

Pros and cons

After you’re on familiar terms with Germany’s limited liability company, it’s time to weigh things up:

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[BEGIN: Insert an Image between this tag]

Andreas Munck

[END insert Image]

Got questions about setting up a UG in Germany?

  • 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.

 

Is the UG right for me?

The entrepreneurial GmbH variant entrepreneurial company boasts lower share capital than its sister limited liability legal forms (GmbH or the AG).

At a glance

  • For founders of small businesses who want to limit liability
  • Simplified formation if you use the Musterprotokoll (model protocol)
  • Liability of the shareholders is limited to their capital contribution (at least one euro in total)
  • The company is liable with all its assets but is limited to these assets.
  • If the company takes out a loan then shareholders usually usually guarantee the amount of the loan with additional private collateral

What is the UG?

Pros and cons

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Is the Holding right for me?

The Holding (holding company or holding structure) is not actually a legal form but still worth a special mention because it offers an attractive way to structure a business for many entrepreneurs in Germany.

At a glance

  • Not a legal form but a corporate structure.
  • The organisation has several companies that are structured independently and hierarchically.
  • Has two levels, namely the parent company on the one hand and the legally independent subsidiaries on the other.
  • A parent company manage finances and administers its subsidiaries according to its equity holdings.
  • Can be an attractive tax optimisation strategy for entrepreneurs.

What is a Holding in Germany?

Pros and cons

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Is the AG right for me?

The alternative to the GmbH. The AG is Germany’s Mittelständler (SME) “heavy-weight” limited liability company.

At a glance

  • For entrepreneurs who want to keep their options open for additional equity capital
  • Entrepreneurs can involve further investors, for example, by issuing shares to staff or taking in customers as shareholders
  • Entrepreneurs can be sole shareholders and board members
  • Decision-making power is limited by an Aufsichtsrat (supervisory board)

What is the AG?

Pros and cons

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[BEGIN: Insert an Image between this tag]

Andreas Munck

[END insert Image]

Got questions about setting up a business in Germany?

  • 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.

 

Is the Einzelunternehmen (sole proprietorship) right for me?

As a sole proprietor/trader in Germany, you get full control, but also full liability.

At a glance

  • Well-suited for newbie business people
  • Automatically comes into existence when the business is opened
  • Only one owner, no conflicts with partners
  • No minimum capital
  • Full liability with private assets

What is the Einzelunternehmen

Pros and cons

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Is the GbR right for me?

Simple union of partners in a business structure.

At a glance

  • Suitable for any business partnership (small business, liberal professions, joint venture)
  • Great freedom possible for partners
  • No official formalities, but a written contract is useful
  • No minimum capital
  • Partners are liable with company assets and private assets

What is the GbR?

Pros and cons

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Is the gGmbH right for me?

The legal form is exclusively for non-profit enterprises.

At a glance

  • Has all the classic GmbH plus benefits from attractive tax advantages.
  • Just like the GmbH, a smaller version – the gUG (haftungsbeschränkt) that can be formed with as little as €1- share capital – is also an option.

What is the gGmbH?

Pros and cons

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[BEGIN: Insert an Image between this tag]

Andreas Munck

[END insert Image]

Got questions about setting up a business in Germany?

  • 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.

 

Need more guidance?

Read this: How to choose the right legal form for your business

See this: The Master list of all Company Formation articles

  1. 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: Preparing to start a business
    Chapter 4: Forming a business in Germany
    Chapter 5: Post formation

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