Representative office

If a company wants a presence in Germany mainly to initiate business and maintain contacts with business partners, credit institutes, or government offices, the establishment of a representative office is the first and easiest step. The personnel, financial, and organizational expense is relatively low. Depending on requirements, it is enough to establish a representative office with one or several employees. The establishment of a representative office in Germany by a foreign company only requires approval in exceptional cases. For example, representative offices of foreign banks that aim to independently initiate or conduct business with domestic customers require the approval of the bank supervisory authorities.

 
Sole proprietorship, registered business person

Anyone wanting to start up immediately is advised to establish a sole proprietorship. This is the easiest way of forming a company, because special formalities such as deeds of partnership or minimum capital are not required. An entry in the commercial register as a registered business person (eingetragener Kaufmann, e.K.) is only necessary if the annual turnover is more than 260,000 € and the profit is over 25,000 €.

 
Partnerships

Civil law association (Gesellschaft bürgerlichen Rechts,GbR)

A civil law association (GbR) is often formed to launch a business idea together with others. This form of company is a type of partnership because at least two partners agree to establish the company. The partners are liable with their private assets for debts incurred by the company. Written articles of association are recommended on the formation of a GbR but are not compulsory. General partnerships (Offene Handelsgesellschaft, OHG) The general partnership (OHG) is the classic form for medium-sized and larger companies. Every GbR (see above) whose purpose is to run a commercial enterprise, that is a business enterprise of a type or size that requires business operations to be set up in a commercial way, automatically qualifies as an OHG. The OHG is run under a common business name and requires a written deed of partnership. An OHG is required to register with the trade licensing office and be entered in the commercial register. The accounting regulations for an OHG are also stricter than those for a GbR. The total costs for registration vary from region to region, but a guideline value of 700 € can be used.

Limited partnership (Kommanditgesellschaft, KG)

The limited partnership (KG) is a legal form related to the OHG, but with the option of limiting the liability for some of the partners. In the KG, at least one partner (the general partner) is personally liable without limitation. The liability of the other partner(s) (the limited partners) is limited to their monetary contribution. Like an OHG, a KG must be registered with the trade licensing office and be entered in the commercial register. The most important advantage of a KG over an OHG is the greater flexibility offered by the option of being able to increase the capital base by including additional limited partners. Partnership company (Partnerschaftsgesellschaft) – The partnership company is specifically for the joint exercising of professional freelance activities. Mere capital participations are therefore excluded. This form of company enables members of the same or different freelance Professions to join forces to form a mutually profitable company. As a result, a number of different professional services can be offered from a single company, something that more and more customers are coming to expect.

Selection of the right legal form and a registered and protected name improve competitiveness. Company law is effectively and flexibly tailored to the freelance professions. The personal liability of the partners can be excluded with regard to professional errors for which other partners alone were responsible. The partnership company pays neither income tax nor corporation tax. A partnership company is formed by drawing up a written partnership agreement, which must contain the name, place of business, and object of the partnership, as well as the name, place of residence, and profession of each of the partners. Partners can only be natural persons. The partnership company is registered in a form certified by a notary for entry in the partnership register in the local court that serves the district in which the company is located. The costs are primarily based on the number of partners.

 
Corporations

Corporations are the alternative to partnerships. A corporation is usually the right form of company for older and larger companies. The company bears liability, because as the result of the establishment of a corporation, a legal entity is formed with its own rights, obligations, and name. The partners do not necessarily act in a way that can be seen by external third parties. The company itself concludes contracts, possesses assets, and must pay taxes. Liability is limited to the business assets. A minimum capital is required, and the accounting obligations are more extensive than those for partnerships.

Limited liability company (Gesellschaft mit beschränkter Haftung,GmbH)

The limited liability company (GmbH) is the most popular legal form among the corporations, as it combines high flexibility with relatively few obligations. The GmbH is established through the articles of association. The chambers of industry and commerce offer sample deeds. For a GmbH to be established successfully, a notary must certify the articles of association and the entry of the GmbH in the commercial register. The total costs for registration are around 1,500 €.

To set up a GmbH, minimum capital of 25,000 € is required, which can also be made up of non-financial assets. At the time of registration, however, it is sufficient for half of the minimum capital, i.e. 12,500 €, to be actually and verifiably contributed. In the case of property, documents must be attached to the application verifying that the value of the property actually corresponds to the specified counter value of the contribution. The GmbH can also be an attractive form of company for the freelance professions. The freelance professionals that can run a company in GmbH form include architects, engineers, tax advisors, auditors, lawyers, and doctors. In some freelance professions, the GmbH is only permitted on certain conditions. As a rule, establishment of the company is dependent on membership of the associated professional organization.

Stock corporation (Aktiengesellschaft,AG)

A stock corporation (AG) offers the advantage of a higher status among business partners and makes it easy to extend the equity base through the issuing of shares. Company shares can also be transferred easily. The share capital for an AG is at least 50,000 €. The disadvantages are the higher costs for planning and establishment, and the more extensive organizational obligationsin day-to-day business. In principle an individual person can establish an AG; the articles of association – statutes – must be certified by a notary. For more information, companies should contact the local chambers of industry and commerce or the chambers of skilled crafts. These offer further information and one-to-one advice. Detailed information can be found on the internet sites of the individual chambers via the umbrella association DIHK.

GmbH & Co. KG

A GmbH and KG can be combined to create a GmbH & Co. KG, a special form popular because it minimizes the liability risk. However, because of its basic structure as a KG, this form is a partnership, not a corporation. In this combination, though, a GmbH – whose liability is limited to the paid-in capital – acts as a single personally liable KG partner (general partner).