German law recognizes various business formats as below :
1. Small Businesses
2. Registered Commercial Businesses
3. Sole Proprietors
4. General Partnership (Offene Handelsgesellschaft, OHG)
5. Limited Partnership (Kommanditgesellschaft, KG)
6. Limited Liability Company (Gesellschaft mit beschränkter Haftung, GmbH)
7. entrepreneurial company at limited liability (Unternehmergesellschaft (UG) haftungsbeschränkt)
8. Joint-Stock Company (Aktiengesellschaft, AG)
9. Branch Offices
10. Dependent Branch Offices - Permanent Establishments - Representive Offices
11. Information Offices
12. Company Names
2. Registered Commercial Businesses
3. Sole Proprietors
4. General Partnership (Offene Handelsgesellschaft, OHG)
5. Limited Partnership (Kommanditgesellschaft, KG)
6. Limited Liability Company (Gesellschaft mit beschränkter Haftung, GmbH)
7. entrepreneurial company at limited liability (Unternehmergesellschaft (UG) haftungsbeschränkt)
8. Joint-Stock Company (Aktiengesellschaft, AG)
9. Branch Offices
10. Dependent Branch Offices - Permanent Establishments - Representive Offices
11. Information Offices
12. Company Names
A small business in Germany is
defined as a business operation which, due to its nature and scope, does not
require a commercial organisation. This is determined by the sales and
turnover, the business assets, the number of transactions, the number of
employees, the variety of business activities, and additional other factors.
The particular situation of the individual business is always the deciding
factor.
A small
business may be operated by one private individual or by several individuals
forming a Gesellschaft des bürgerlichen Rechts (civil law partnership). The accounts
and official papers of any small business must contain the proprietor–s full
first and surname. In the case of a civil law partnership, the full names of
all members must be stated. This form of business is not allowed to operate under
a commercial name.
It is
not obligatory that a small business, operated by a private individual or
through a civil law partnership, is registered in the Commercial Register. A
small business may, however, choose to be listed in the Commercial Register and,
through such listing, obtain the status of a registered merchant or, in the
case of a civil-law partnership, obtain the legal form of a general (OHG) or limited partnership (KG) (see description below).
2. Registered Commercial
Businesses
A registered commercial
business is any individual or partnership organization whose nature and scope
requires a commercial organisation. In cases of doubt, a recommendation from
the Chamber of Industry and Commerce will be requested.
A
commercial business is to be entered under its commercial name (=
Firma)in the Commercial Register of the local court at the
corporate seat of the business. The application must be witnessed and signed by
an authorized notary public. Special instructions are to be given in writing or
by a – not necessarily German - notary, a comparable legal advisor or a consular
official.
A
commercial business may take the form of a sole proprietor, an Offene
Handelsgesellschaft (OHG) (general
partnership), or a Kommanditgesellschaft (KG) (limited partnership), which have the
form of a GmbH & Co. KG.
The Gesellschaft
mit beschränkter Haftung (GmbH) (limited
liability company), the Aktiengesellchaft (AG) (joint-stock company, Inc.), and theKommanditgesellschaft auf Aktien
(KgaA) (limited
partnership on shares) are all treated by the law as commercial businesses.
All members of these business forms must be registered in the Commercial
Register.
In the following sections the possible operational forms will be
explained separately.
As indicated by the name, this
form always has one, sole proprietor. No limit is placed on the proprietor–s
liability. The name of the firm, the legal form of the business, the location
of the business office, the court of registration, as well as the number under
which the firm is listed in the Commercial Register, must be stated on all
business correspondences and letterheads.
A general partnership (OHG)
must consist of at least two partners. No limit is placed on the liability of
each partner. Legal entities may also be members of an OHG, regardless of
whether they were established under German or foreign law (comparable to a
GmbH).
In principle, the right to represent the general partnership
(OHG) as a whole, may be exercised individually by all partners. The joint
representation of the partnership by several partners or the exclusion of
individual partners from representing the partnership, however, can be
specified in the memorandum of association.
All business correspondences and the letterhead must state the
firm, the legal form and the location of the partnership, the court of
registry, as well as the registration number.
In the
event that all partners in an OHG are legal entities and, hence, their
liability is automatically limited, reference must be made to this by an appropriate
supplement to the company name (e.g. ”GmbH & Co. OHG–). In addition, all
business correspondences of partnerships of this type must also contain the
business names of the partners (Firma)
and their court of registration as well as the number under which the firm is
listed in the Commercial Register.
In a
limited partnership (KG), at least two partners are necessary, one of which
must have unlimited liability (Komplementär)
and one of the limited partners must have liability not exceeding the value of
his/her shares in the company (Kommanditist).
The amount of liability is not fixed by law. Legal entities, regardless of
whether they are established under German or foreign law (see GmbH below), may
also be partners in a KG. In the situation where the only partner with
unlimited liability of a KG is required to have limited liability, indications
to this must be made by an appropriate supplement to the company–s name, such
as the commonly used ”GmbH & Co. KG–. All business transactions and
correspondences of limited partnerships (KG) must contain the same information
as the correspondences of general partnerships.
As a
general rule, the right to represent the company is held by the partners with
unlimited liability (Komplementäre)
only.
The limited liability
partnership (GmbH) is a legal entity in its own right. The required capital of
a GmbH must total a minimum of 25,000 euro at the time of the establishment of
the company due to liability reasons. The original capital contribution of each
partner must be at least 1 euro.
The contributions of partners are allowed to be made in kind. In
this situation, the items used to make the contribution together with their
estimated values must be stated in the partnership contract. The assessed value
of such contributions must be stated in a special report concerning the
companies foundation on the basis of non-cash contributions.
The minimum payment to found a GmbH is one quarter of each
original capital share, provided these payments are made in cash and not in
kind. The total sum, including the full value of all payments made in kind,
must, nevertheless, be at least half of the minimum capital requirement
(=12,500 euro). Failure to pay the nominal capital amount will in no way reduce
the liability of the individual. As individuals, partners are not directly
liable to the company creditors and, therefore, risk only the loss of their
original contribution.
A GmbH
may also be founded by a single individual as a so-called ”Ein-Mann-GmbH–
(One-man-GmbH)–. In the event that the nominal capital contribution for an
Ein-Mann-GmbH is not paid in full, collateral is required for the outstanding
balance.
Legal entities, regardless if they are licensed under German or
foreign law, may also be members of a GmbH.
Foreign legal entities may be recognized in the Federal Republic
of Germany if they are based in their native country and if their recognition
would not offend common practices or be in violation of German law. The
recognition of foreign legal entities and other trade associations is usually
ensured by international treaties and agreements.
The GmbH
is judicially and non-judicially represented by its managing director(s) (Geschäftsführer).
These individuals need not reside in the Federal Republic and may, though they
are not required to, be partners of the company. The directors are to be
appointed and dismissed by the corporation meeting of the partners and are to
be listed in the Commercial Register.
All business correspondences and letterhead must contain certain
information about the company including the firm (= name of the company), the
legal form of the company, the location and court of registration, its
registration number in the Commercial Register, and the first and surname(s) of
the managing director(s).
Since
November 1, 2008, a new form of the GmbH is available, the entrepreneurial
company at limited liability (Unternehmergesellschaft (UG)
haftungsbeschränkt). It is a simple version of a GmbH and can be
founded with a capital of at least 1 euro. The incorporation is easier and
cheaper than the incorporation of a GmbH.
In order to achieve the capital of a GmbH one day, the UG
haftungsbeschränkt is legally required to set aside reserves of a fourth of the
annual surplus. Having achieved the capital of a GmbH, it may apply for a
change of name and legal form with the Register Court.
A joint-stock company (AG) is a
legal entity in its own right. The minimum capital which is 50,000 euro
consists either of par value shares having a minimum value of 1 euro per share
or of no-par value shares.
An AG can be founded by one single individual. All individuals,
including legal entities, may be members of an AG. It is to be both judicially
and non-judicially represented by the management board, which may consist of
one or more persons appointed by the supervisory board. The supervisory board
must consist of at least three members. For larger joint-stock companies (AG)
other regulations determine the minimum number comprising the supervisory
board. The main duty of the supervisory board is to supervise the business
management of the manager or management board. Like the business
correspondences and letterhead of a GmbH, those of an AG must contain certain
information: the firm, the legal form of the company, the location and court of
registration, its registration number in the Commercial Register, the first and
surname(s) of all members of the management board and the first and surname of
the chairman of the supervisory board.
Information regarding the establishment and costs associated
with the establishment can be obtained from the Chamber of Industry and
Commerce.
Registered commercial
businesses – both German and foreign – may establish independent branch
offices which qualify for registration in the Commercial Register (conditions:
own possession, separate bookkeeping plus the manager has certain freedom in
managing the branch office; decisions will be made according to the situation
of each case). Independent branches of this type normally carry the same name
as the head office and may or may not include a supplementary designation
indicating that it is a branch. In certain situations a branch may be permitted
to operate under a different commercial name.
A
dependent branch office, as opposed to a registered commercial branch office,
has few if any commercial operations of its own, such as purchasing, sales or
service offices, or delivery depots, etc. Such offices are not eligible for
registration in the Commercial Register, but must be reported to the local
Department of Business (Gewerbeamt).
An official certificate stating that the head office is listed in the
Commercial Register or in the Register of Partnerships in the native country,
must be submitted in person or through a proxy.
In
German law the term ”permanent establishment– is not treated in the same manner
for both legal and tax purposes. Business activities lasting only a few days
could require registration as a permanent establishment at the local Department
of Public Affairs (Amt für
öffentliche Ordnung). For taxation purposes, however, in accordance
with the double taxation agreements concluded between Germany and several other
countries, business activities are classified as permanent establishments only
after activities exceed a period of six months, or occasionally twelve months
depending on the agreement concluded.
Offices
providing information only are neither required to be listed in the Commercial
Register as a branch nor are they required to be registered as a permanent
establishment with the local Department of Public Affairs (Amt für öffentliche Ordnung).
Information Offices are rare due to the fact that all in-house business
practices such as advertising, customer service, maintenance and repairs, sales
negotiations, and technical advice are already regarded as commercial
activities. Thus the establishment loses the character of a pure information
office. Establishments that can be considered information offices are those,
for example, that only stock information to be distributed upon request.