What is the difference between the AG and the GmbH?

Contents

• Kapitalvermögen (share capital)
• Organe (corporate organs/bodies)
• Anteile (shares)
• Starting costs
• Haftung (liability)
• Overview
• Get to know the AG 

Kapitalvermögen: Share capital

The first serious difference between the two legal forms is the amount of share capital. While €25,000  must be paid in for a limited liability company, €50,000 must be contributed to the company to form an AG. The increased share capital of the AG should not be considered only a disadvantage, as it also improves business partners’ confidence in the company.

Organe: Corporate organs/bodies

Corporate organs are the parts of a company that are tasked with management and control.

Organs of the GmbH

In the case of the limited liability company, the bodies are the shareholders’ general meeting and the management. This legal form provides for a separation of capital and management. The shareholders own the company shares and can make decisions on all matters concerning the company.

Interventions in the operative business are also possible, as they can issue instructions to the management. However, each decision must be supported by one or more shareholders who hold most of the shares. The shareholders also have the control function and monitor the management.

Executive organs of the AG

In a stock company, the executive bodies are separated by function: there is the Aufsichtsrat (board of directors), the Vorstand (management board), and the Hauptversammlung (annual general meeting). The managing board is responsible for the company’s management and is monitored by the board of directors. The general assembly brings together all shareholders—the company’s owners. Concerning the powers of the shareholders, there is a decisive difference between an AG and a GmbH.

In contrast to the shareholders, the equity holders of a GmbH can intervene in the management at any time—equity holders cannot do this. In the case of AGs, there is a strict separation between the management and the capital, i.e. the shareholders.

Anteile: Shares

The AG and GmbH legal forms fall into a Kapitalgesellschaft (capital company/corporation) category. Their respective owners contribute a specific part of the share capital and own a large part of the company.

A decisive difference between an AG and a GmbH is the transferability of these shares. Shares are generally transferable simply and informally, except for Namensaktien (registered shares). These are issued to a specific owner, and certain formal requirements must be met when selling. By contrast, the shares of limited liability companies are more challenging to transfer to other owners because a transfer must be notarised, which costs time and money.

Starting costs

There are apparent financial and structural differences between the two legal forms regarding the cost of setting up a limited liability company. Setting up an AG is more expensive and complicated than a limited liability company. The Aktiengesetz (stock corporation law) regulates all matters relating to the legal form of an AG. In contrast, the basic provisions for limited liability companies are regulated in the GmbH-Gesetz (German LLC law), among other things. The difference between the AG and the GmbH is due to the stricter provisions of the stock corporation law. The framework for forming an AG is narrower, and most of the processes and documents involved in its formation require notarisation.

Haftung: Liability

There is also a decisive difference between legal forms about the liability of the management. The members of the managing board and the board of directors of an AG may be held liable for business decisions if they have violated their duty of care or acted illegally. The shareholders of the AG are only liable to creditors with the value of the shares they hold. The CEO of the GmbH may be liable for the damage caused by the GmbH or as the leading organ and may even be liable for imprisonment or fines if these obligations are violated.

Overview

Although both the GmbH and the AG are capital companies, there are differences between the legal forms. The AG enjoys much higher esteem and a better reputation as a legal form. This is a great advantage when dealing with banks, suppliers and customers. However, considerable advance investments must be made to take advantage of these positive characteristics since the establishment of an AG is expensive. Not everyone can afford the founding process and the deposits, which are twice as high as those of a limited liability company. In addition, there’s a high administrative expense resulting from the strict regulations of the German stock corporation law.

If your heart is set on an AG, consider the “kleine AG”, as this may offer a workaround to some of the more onerous bureaucracy of this legal form.

Want to know more about the AG?

Essential reading:

How to set up an AG
How to choose the right legal form
What is a “small AG”?
Pros and cons

Master list:

All Company Formation articles

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