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Before a company is formed, it is important to find a distinctive name for the company. In the case of a GmbH, it is a legal requirement to add the word 'GmbH' to the company name.

There are basically four different ways of finding a name:

• Name a company after its shareholders ('Bernd Beginner GmbH')
• Think up fantasy names ('Rumpotax GmbH')
• Describe what your company does ('Stuhlverleih GmbH')
• Combine all above mentioned company names ('Grimpotin - Bettina Beginner Kleinbus-Verleih GmbH')

Similar to brand names, quite a few founders are now increasingly using fantasy terms that can be pronounced in as many languages as possible and are ideally still unoccupied worldwide. Of course, industry conventions and the target group also play an important role. In any case, it is important to awaken positive associations in the target group. But also consider possible future target groups before you finally decide on the name of your company.

Further legal requirements: Your company name must be suitable for identifying your GmbH and be distinctive. Furthermore, the name must not contain any misleading information. In case of doubt, the registry court will decide whether a company name is to be classified as misleading.

More on the subject of company names can be found here

The managing directors represent all interests of the company externally and may consist of one or more persons. It is responsible for the business execution of the resolutions of the shareholders' meeting.

Shareholders can also be managing directors. Of course, it is also possible to employ a managing director without him owning shares in the GmbH.

You can find out more about the managing director/CEO of the GmbH here

In addition to the fees for one of the GmbH formation packages, you should also take into account the costs for the notary and entering your company in the commercial register (Handelsregister).

Here you will find an overview of the notarial and official fees for the 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, to name a few.

✅ Minimal start-up capital required

✅ Limitation of liability

✅ Lower incorporation costs

The formation of an entrepreneurial company (limited liability) - officially called a Unternehmergesellschaft (haftungsbeschränkt) in German - are ideal for entreprenuers who are bootstrapping their businesses. A deposit of just €1 per founder is enough to set up this company type.

It also enables you to protect your own assets. Just as with a GmbH, as a shareholder of a UG (haftungsbeschränkt) you are only liable with the company assets - not with your private assets. This keeps the liability risk for founders as low as possible.

The UG also offers the possibility to use the model protocol (Musterprotokoll) for the company's articles of association when establishing a company. The aim of the Musterprotokoll is to speed up the formation stage so that your company is fully operational as quickly as possible.

The use of the Musterprotokoll also means that the bureaucratic start-up expenses and the start-up costs are lower than if a customised articles of association is used.

Want to know more about the UG? Check out our article here.

Each UG must reserve at least 25% of the annual net profit - a process that is technically known as Thesaurierung (retention of profits) in German. This obligation exists so that the low share capital (Stammkapital) of a UG is balanced.

As a result of the reserve obligation, the corporate assets of the UG gradually grow. This is positive for investors, customers and the company as its creditworthiness better prepares it for financial ups and downs.

When the reserves and share capital combined exceed €25,000, the obligation to form reserves is lifted.

• Your UG has three or fewer shareholders.
• Your UG has just one managing director.
• You do not have any statue special requirements that are different from the model protocol.

Additionally, as most founders form UGs with a low share capital, the Musterprotokoll contains the following regulation: If the formation costs exceed €300 or the deposited share capital, at least one of the shareholders has to directly bear those costs. However, if a Musterprotokoll is used the notarial fees are much lower making this less of an issue.

The Musterprotokoll (which literary translated means 'model protocol') is a prefabricated articles of association for the formation of a UG or GmbH. It combines several documents that would otherwise have to be drafted individually (ideally by a lawyer) before being notarised.

The Musterprotokoll combines:

• Gesellschaftsvertrag or Satzung (template patnership agreement or articles of association/company statutes)
• Gesellschafterliste (shareholder list)
• Geschäftsführerbestellung (appointment of one managing director)

If you do not want or cannot use the Musterprotokoll, you need a Gesellschaftsvertrag (articles of associaton/partnership agreement). In Germany a synonym for Gesellschaftsvertrag is Satzung.

NB: In colloquial language, Mustersatzung - a mixed form of the two words - are sometimes used. This word is not an offical term, but it is sometimes mistakenly used instead of Musterprotokoll.

A holding company is not liable for its subsidiaries. Profits can therefore be transferred to a holding company and safely 'parked' there. Without a holding structure, the profits remain in the company and must be used in the event of liability. In this respect, the holding company can be used to secure part of your assets.

It is certainly possible to integrate an existing company into a holding structure. However, if the subsidiary is to be sold, the full tax benefits will not be available until seven years have passed.

If the exit takes place before the end of the seven-year period, the tax benefits are proportionate, ie after 4 years the tax benefits apply to a share of 4/7 of the selling price.

In order to be able to benefit directly from the advantages of the holding company, the holding company must be invested in the corporate structure from the outset.

A Holding is a parent company with at least one subsidiary that it holds shares in. In Germany, a holding structure is known simply as a Holding. In many cases, the parent company owns 100% of its subsidiary.

In recent years, holding companies have increased in popularity as a corporate model, introducing innovative corporate structures to startup ecosystems around the world.

For example, if there is more than one founder, it may be feasible for each founder to set up their own holding company that holds shares in different subsidiaries.

Unlike other corporate forms, which are liable for damages with all company assets, a holding structure's liability extends only to its subsidiaries - significantly reducing risk.

Shareholders enjoy further protection if the subsidiaries are limited liability companies (ie GmbH or UG).

Further analysis of split operations is below:

Pros

• Distribution of operational risks among business units
• Asset protection
• Market entry with many companies and brands possible

Cons

• Increased administrative costs from setting up multiple companies
• Greater operational complexity and thus costs
• Increased tax consultancy fees

A holding strucutre (known simply as Holding in Germany) in Germany offers many tax benefits. For instance, if you transfer a subsidiary's profits to the holding company , 95% are tax-exempt — provided that the Holding holds a high enough share of the subsidiary (§ 9 Abs. 2a GewStG). The tax savings can then either be reinvested or paid out.

Tax benefits of the Holding also apply in the sale of subsidiaries. Such transactions only attract a 1.5% sales tax.

Although the UG is a special form of the GmbH (often referred to as the 'mini-GmbH'), there are, however, some critical points in which the two differ.

First, the regulations around share capital (Stammkapital) deviate significantly. While a GmbH requires a share capital of at least €25,000, a single euro is sufficient to establish a UG.

The UG is thus particularly well suited for founders without much start-up capital who nevertheless want to get started with a limited liability company. Founders of a UG may convert it into a GmbH in the event of a capital increase to €25,000 later down the track.

The GmbH does allow for non-cash formations are possible, ie the share capital may consist of non-cash assets. This option is not available when forming a UG.

Secondly, the UG can have significantly lower establishment costs that the GmbH. The costs of setting up a GmbH (including notary fee, commercial register fee, business registration, consultations) usually amount to €500-1,000.

On the flipside, the UG start-up costs can be significantly lower ranging €240-300, if the UG has one shareholder, which allows the founder to use the standardised incorporation document (called the Musterprotokoll in German) for the formation process. If a founder establishes a UG without a Musterprotokoll, the costs are comparable to a GmbH formation.

Finally, the regulations regarding profit vary between the GmbH and UG. The UG is obliged to retain a quarter of its annual profit in its reserves until it has accumulated the starting capital of a limited liability company. This process called Rücklagenbildung (accumulation of reserves) and is mandatory for the UG.

Once a UG has reached the limited liability capital threshold (€25,000) it has the option to convert into a GmbH.

Want to learn more? Check out our article Should you set up a GmbH and a UG? We lead you through the German LLC maze!

As with every other corporation, a GmbH is subject to the following types of taxes:

• Corporation tax (Körperschaftsteuer) on profits: 15%
• Capital gains tax (Kapitalertragsteuer) on profit distributions (also known as flat-rate withholding tax): 25%
• Trade tax (Gewerbesteuer): 3.5% x assessment rate (the amount of the assessment rate depends on your place of business)
• Pre-tax and sales tax (Vor- und Umsatzsteuer) on all sales: 19% and 7% respectively
• Wage/payroll tax (Lohnsteuer) as soon as you hire employees

In addition, the solidarity surcharge (Solidaritätszuschlag) and possibly the church tax (Kirchensteuer) are added to corporation tax, capital gains tax and income tax.

In addition to the fees for one of the GmbH formation packages, you should also take into account the costs for the notary and entering your company in the commercial register (Handelsregister).

Here you will find an overview of the notarial and official fees for the GmbH.