Note: * The notary fees and the costs for entry in the commercial register (Handelsregister) are not included in the price and will be charged separately. ** firma.de Firmenbaukasten AG does not provide legal advice itself but works exclusively with lawyers and independent tax advisers who specialise in the field of limited liability entrepreneurial companies. Please make an appointment: +49 611 17207-0 or by e-mail at email@example.com. complete comprehensive
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Compared to sole proprietorships or business partnerships, the GmbH has a much lower tax rate for undistributed profits. This is why the GmbH is considered a good tax-saving model.
No personal liability
GmbH shareholders are not liable for company debt with their private assets (e.g. house, car, bank accounts) even in the case of insolvency. For many founders, this is the most important benefit of the GmbH corporate structure.
Forming an GmbH can help establish credibility with potential customers, employees, vendors and partners because of the perceived status of the company type.
Set up your business with firma.de in eight easy steps
You authorise firma.de to set up your company.
You receive expert advice from our consultants.
We arrange your company name check with the Chamber of Commerce and Industry (IHK).
We coordinate your notary appointment in your city of choice.
We arrange the opening of your company bank account.
We handle your company's entry into the commercial register (Handelsregister), while also preparing your trade registration (Gewerbeanmeldung) and tax office questionnaire (Finanzamtfragebogen).
We refer you to one of our tax adviser partners for an opening balance sheet (Eröffnungsbilanz) consultation.
"Having a good support network at the founding stage can be a significant advantage. There are many unknowns that first-time founders have to deal with extensively. In particular, legal and accounting issues can take up an excessive amount of resources, with the risk of overlooking something critical. For this reason, firma.de is a reliable partner who provides the support that founders need to be successful."
CEO, Stadtleben GmbH
“We had a great experience! Friendliness and reliability rounded off the service wonderfully. Without hesitation, we would recommend firma.de to every entrepreneur and founder. ”
CTO Geocode Earth
"I'm forever grateful for the legal guidance I received from firma.de and their professional partners during the formation of the company. The German legal system can be perplexing to a foreigner, having an English-speaking partner firm was essential to our success. I'm happy to endorse firma.de to entrepreneurs who need professional guidance when founding their business in Germany."
Frequently asked questions about the GmbH
Is the GmbH the right corporate form for my business venture?
A limited liability company, such as the GmbH, is your perfect match if you want to protect your personal assets and are able to raise the necessary capital share of € 25,000.
This corporate form also offers other advantages such as tax benefits and the public image of a fully-fledged company.
Hybrid corporate forms such as GmbH & Co. KG or the non-profit variation gGmbH are also limited liability options.
What exactly is a GmbH?
The abbreviation GmbH stands for Gesellschaft mit beschränkter Haftung, which translates to "company with limited liability".
All liabilities are covered by the company rather than the personal assets of its shareholders.
The corporate form is widespread in Germany and can be best compared to the US-American LLC, the British Inc. or Ltd and the Australian Pty.
How much share capital is required to found a GmbH?
GmbH shareholders need to put up a minimum of € 25,000 share capital.
The share capital can be contributed by several shareholders and has to be provided after the formation but before registering your company with the commercial register (Handelsregister).
How exactly the individual shares are divided among the shareholders is regulated in the articles of incorporation. The shares must be paid in as cash deposits or contributions in kind.
What if you don’t have the required € 25,000 to found a GmbH?
If you are unable to raise the minimum capital requirement of € 25,000 to form a GmbH, your best alternative is the UG (haftungsbeschränkt) - colloquially known as the mini GmbH or 1-Euro GmbH.
The UG is a special variation of the corporate form GmbH and caters to the needs of startups with limited starting capital that still want to benefit from limited liability.
The minimum capital requirement is only € 1 per shareholder.
What is a Mini-GmbH?
The 'Mini-GmbH' is the corporate legal form Unternehmergesellschaft (haftungsbeschränkt) — commonly known as the UG.
The UG is a limited liability structure that caters to the needs of startups that have restricted starting capital (the minimum share capital is only €1.00 per shareholder) but still want to benefit from limited liability.
The UG is not a corporate form of its own, as frequently assumed, but is a variation of the regular GmbH, which was created by the legislation to Modernise the Law on Limited Liability Companies and to Combat Abuse (Modernisierung des GmbH-Rechts und zurBekämpfung von Missbräuchen [MoMiG]) in 2008. And, why the name Mini-GmbH comes from
Since its introduction, the UG enjoys enormous popularity among founders with more than 200,000 formations already — a number that is steadily growing.
What makes the GmbH so attractive to entrepreneurs?
The GmbH offers a much more favourable tax rate in comparison to sole proprietorships or business partnerships regulated by the German Civil Code, making it an ideal corporate form to reduce taxes.
(It's important to note that the income of the managing directors of a GmbH, like an employee, are taxable at the personal income tax rate.)
No personal liability
As a GmbH founder, you are not liable for damages with your private assets (e.g. your house, car, bank accounts and deposits) for company debt - this rule applies even in the event of an insolvency.
Greater tax relief thanks to 'hidden reserves'
Another way to enjoy favourable tax regulations is via so-called 'hidden reserves' ('stille Reserven') which are company-owned assets that have a lower 'book value' than its market value.
As long as these 'hidden reserves' remain company assets, they are exempt from taxation.
Freedom to nominate managing directors
The shareholders are free to choose one or several managing directors.
Whether the shareholders act as managing directors themselves or decide to employ an external managing director is a matter choice.
Creation of a legal entity
The GmbH is an independent legal entity that can conduct business and enter into contracts as a person would.
The managing director is the legal representative of the company and can enter the company into contracts on its behalf.
How can a GmbH be a tax saving model?
The GmbH is taxable at the corporate tax rate, which is considerably lower than the personal income tax rate.
For example, sole traders are subject to income tax, which can be up to 45% of their taxable income. Whereas the total tax burden of a GmbH, which includes both a corporate tax plus the solidarity surtax (Solidaritätszuschlag), is 15.825%.
Comparing these rates makes it is easy to understand why entrepreneurs find the GmbH so attractive.
What does limited liability mean?
As opposed to partnerships or sole proprietorships, the GmbH generally is only liable for damages with its assets. The personal assets of its shareholders are off limits. There are a few exceptions to this rule, which we explore below.
If the assets of the GmbH amount to less than € 25,000 before its entry into the commercial register (Handelsregister), the company as a legal entity can claim the missing share capital from all its shareholders. In this case, the GmbH's creditors have the right to full payment from the shareholders’ private assets. Failure to meet the minimum share capital requirement may jeopardise the limited liability of the company.
If a GmbH has lost its assets because of illegal actions by its shareholders, an extraordinary form of liability applies - liability for the destruction of economic basis. In this event, an insolvency administrator can make claims on the shareholders' private assets. If the shareholders do not fulfil their legal obligation to act in the best interests of the GmbH, they no longer have limited liability.
What happens to the GmbH‘s liability if tax obligations are not met?
If the Gmbh does not meet its tax obligations, the managing director is personally liable for damages.
If the company started business operations before its entry into the commercial register (Handelsregister), the shareholders are also entirely liable for damages with their private assets.
What are the key GmbH positions that need to be filled?
It is essential that the shareholders and managing directors of a GmbH are chosen and appointed as early as possible.
Beyond a certain company size, a supervisory board is required by law.
What is the role of a GmbH shareholder?
GmbH shareholders are the owners and the decision-makers of the company. During the general shareholders' meeting, they vote on all major business decisions.
There is no shareholder minimum or cap for a GmbH.
If you want to use the model protocol for its articles of association, the number of shareholders is limited to three - any amount above this requires a customised version.
What is a general shareholder's meeting (Gesellschafterversammlung)?
All business-related decisions are made during the GmbH general shareholders' meeting.
Alternatively, if there is consensus, shareholders may opt to make decisions via written resolutions.
What is the role of a GmbH's managing director?
The shareholders can appoint one or more managing directors (MD).
The MD is the company's representative. His or her task is to manage the business and pursue the shareholders' interests as set out in the articles of association.
Shareholders themselves can also serve a double function as a MD. If the shareholder holds a majority stake in the company as well as being an MD, it is preferable that the GmbH officially employees him or her as an employee.
What is a supervisory board?
To directly control the management of your GmbH, you can specify the formation of a supervisory board in your articles of association. A supervisory board is only obligatory for companies that have more than 500 employees.
A supervisory board consists of at least three people, and the ratio of employees to employers must be 1:2. It is possible to include more members of the supervisory board if specified in the articles of association, but in any case, the number of supervisory board members must be divisible by three. For example, from a company size of 2,000 employees, at least 12 supervisory board members are required.
What are the rules for choosing a company name?
Your GmbH needs to have an official corporate name. You can choose a name inspired by your name, the sector, your corporate purpose (or business branch) or make something up. In every case the name suffix “GmbH” is mandatory, so your chosen corporate form is transparent to the public.
The four options are explored in greater detail below:
Name your company after a person
It is common to use the names of one or more co-founders as a company name, e.g., "Franklin Smith GmbH."
Create a fantasy name for your company
You may invent a word to serve as your company name, e.g., "Bribotaz GmbH".
Describe what your company does
Use a description of the purpose or the activity of your company, e.g. "Steve Baker's Online Children's Book GmbH" if you are selling children's books online.
Use a combination of the above options
You can combine two or more options, e.g., "Rompostomp – Frank Smith’s Online Book Store GmbH" or "Bribotax – Jill Reagan‘s Party Service GmbH".
Before you incorporate a GmbH, you should choose your company name carefully. Something to consider is the fact that many founders use fantasy terms that are not only unique - and thereby avoid copyright issues - but also pronounceable in as many languages as possible.
Most importantly, make sure your company name only has positive connotations. Always consider your future customers before you make a final decision.
What are the legal requirements when choosing a company name?
Your company name has to meet two conditions: it has to characterise your business and distinguish it from other companies.
Your name choice must also not contain any statements that are misleading - something that the district court has ultimate authority over.
What must be included in the articles of association?
All the essential information about the GmbH gets recorded in the articles of association, and must include the following information as illustrated by the below example:
Name: Betty Steve GmbH
Shareholder 1: Steve Starter
Shareholder 2: Betty Beginner
Registered office: Wiesbaden
Branch of trade: Food industry (confectionary)
Amount of share capital: € 25,000
Share capital contributed by shareholder 1: € 5,000
Share capital contributed by shareholder 2: € 20,000
The articles of association of your GmbH have to be authenticated by a notary, who also issues the certificate of incorporation. Then, a list of shareholders needs to be drafted and signed by all partners. Finally, your data is transmitted electronically to the commercial register (Handelsregister).
The registration at the commercial register (Handelsregister) is only possible if these requirements have been met:
A minimum amount of € 12,500 deposited into the business account.
Each shareholder has provided at least 25% of their share, according to articles of association.
A review by court authorities.
Is it possible to speed up the incorporation process?
You can significantly accelerate the incorporation process by using a model protocol (Musterprotokoll) if these following conditions are met:
Your GmbH has three shareholders or less.
Your GmbH has one managing director.
You do not have any special requirements for the articles of association.
What is short balance liability (Unterbilanzhaftung)?
If GmbH company assets sink below € 25,000 before its entry into the commercial register (Handelsregister), it is considered to be undercapitalised.
In this event, the GmbH may claim liability from its shareholders, allowing creditors to collect damages from the shareholders’ private assets as well. This situation is called a short balance liability (Unterbilanzhaftung)
Careful financial planning is essential to avoid this short balance liability.
What is Existenzvernichtungshaftung (liability due to existence destructing actions)?
If a GmbH has lost its company assets due to negligence or wrongdoing of the shareholders, there are grounds for liability, which is called Existenzvernichtungshaftung in Germany. In this case, an insolvency administrator decides whether or not to remove the limited liability of the shareholders.
Liability due to Existenzvernichtungshaftung is based on the shareholders' obligations to protect the company’s financial interests.
What is liability for taxation non-compliance?
If a GmbH does not comply with tax laws and regulations, the managing directors become personally liable for any damages.
If the non-compliance occurs before the company's entry into the commercial register (Handelsregister), all the shareholders are liable for damages with their private assets.
What is Ausfallhaftung (contingent liability)?
If one of the shareholders defaults on his or her share capital, the remaining shareholders have to absorb the loss, and deposit the missing amount proportionate to their respective share percentage.