Legal Form

Choosing a legal form – which form of company is the right one for me?

1. Establishing a new company
There is no single answer to the question of what is the ‘right’ legal form for a new business venture to adopt. First, an analysis must be made of the respective requirements of the founder(s), such as cost, liability, the administrative burden, whether he is starting up alone or with partners, etc.

If the company is founded by a single individual, then the only available options are a sole proprietorship (small businessman or registered trader), a single-person limited liability company (GmbH) or single-person entrepreneurial company with limited liability (UG (haftungsbeschränkt)) or a one-shareholder joint stock company (Aktiengesellschaft). If there are several founders, the options are a business partnership, such as a GbR, OHG or KG, a corporation, such as a UG (haftungsbeschränkt), a GmbH or an Aktiengesellschaft (AG).

In the case of corporations, with the exception of a UG (haftungsbeschränkt), minimum capital of € 25,000 is required for a GmbH and € 50,000 for a AG. As far as this minimum capital is concerned, unless a higher amount has been agreed in the articles of association, each partner must contribute at least a quarter of his paid-up equity capital or at least a quarter of the nominal value of each share and, if a higher issue price is defined, the entire premium. If a GmbH or AG is founded, at least € 12,500 has to be contributed directly on Day One. The remainder can be deposited at a later date; the law does not specify any particular deadline.

However, no minimum capital is required, if a sole proprietorship or a business partnership is founded. But it is important to note that under-capitalised sole proprietorships or business partnerships are highly unlikely to be financially viable. 'Business partnerships’ means civil law partnerships (GbR) and legal forms which require registration in the commercial register, namely general commercial partnerships (OHG), limited commercial partnerships (KG) and GmbH & Co. KG, a special form of limited commercial partnership.