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Got questions about setting up a business in Germany?
- Startup expert
- 10+ years experience
Hi, I’m Andreas, and I’ve been advising businesses in Germany for over a decade. I’d be happy to call you and answer any questions you have in a one-on-one consultation.
Questions to help guide your decision
If your visa doesn’t restrict you, the nature of your business determines what kind of legal form is best. For example, if limited liability is non-negotiable, incorporating a company is your only option.
If you have ambitions of a big exit, then a holding structure is the way to go (it’s best to get legal/tax advice before making any life-altering decisions).
What legal form you select for your business should be guided by some key decisions that reveal the conditions in which you’re starting your business:
- How many founders will there be?
- Does the nature of my business mandate the limitation of liability?
- How much capital do I have?
- What do I want to call my company?
- What is my budget for setting up costs?
- When can I start my business?
- What is the best tax strategy for the profits I expect to make?
- What kind of accounting obligations can I take on?
- How much control do I want over my business?
- Will there be investors involved?
- Do I want to start a non-profit business?
As you learn more about the different legal forms, it’ll become clear how the answers to these questions directly impact which legal form is right for your business. To help you make this big decision, we’ve put together this guide.
Rechtsform: Types of business legal forms in Germany
The main legal forms in Germany are listed below. Click on the link to get a short introduction to each type of business structure. If you want to go deeper, we’ve got articles that give in-depth definitions and explore the pros and cons of each legal form.
Rechtsform: Major legal forms for businesses in Germany
Not a legal form but a corporate structure
Less common legal forms for businesses in Germany:
- GmbH & Co. KG
- Eingetragene Kaufmann als Einzelunternehmen (e. K.)
- Offene Handelsgesellschaft (OHG)
- Partnerschaftsgesellschaft (PartnG)
Is the GmbH right for me?
The legal form for entrepreneurs with no private liability (usually) and a better public image.
At a glance
- For entrepreneurs who want to limit their business liability
- Can offer founders significant tax advantages
- Formation formalities and bookkeeping are somewhat more time-consuming
- Simpler formation formalities are possible for standard formations thanks to the Musterprotokoll (the standardised formation protocol)
- The managing director can be a shareholder or an external managing director
- The company is liable with all its assets
- The liability of the partners in the event of liability claims against the company is limited to their capital contribution
- Capital contribution is at least €25,000 in total
- In the case of loans, partners are usually liable with additional private collateral.
What is the GmbH?
Here is a selection of articles to get to know the GmbH better so you can make an informed decision:
Pros and cons
After you’re on familiar terms with Germany’s limited liability company, it’s time to weigh things up:
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Got questions about setting up a UG in Germany?
- Startup expert
- 10+ years experience
Hi, I’m Andreas, and I’ve been advising businesses in Germany for over a decade. I’d be happy to call you and answer any questions you have in a one-on-one consultation.
Is the UG right for me?
This entrepreneurial variant boasts lower share capital than its sister limited liability legal forms (GmbH, AG).
At a glance
- For founders of small businesses who want to limit liability
- Simplified formation if you use the Musterprotokoll (model protocol)
- Liability of the shareholders is limited to their capital contribution (at least one euro in total)
- The company is liable with all its assets but is limited to these assets.
- If the company takes out a loan, then shareholders usually usually guarantee the amount of the loan with additional private collateral
What is the UG?
Weighing things up
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Is the Holding right for me?
The Holding (holding company or holding structure) is not actually a legal form but is still worth a special mention because it offers an attractive way for many entrepreneurs in Germany to structure a business.
At a glance
- Not a legal form but a corporate structure.
- The organisation has several companies that are structured independently and hierarchically.
- It has two levels: the parent company on the one hand and the legally independent subsidiaries on the other.
- A parent company manage finances and administers its subsidiaries according to its equity holdings.
- Can be an attractive tax optimisation strategy for entrepreneurs.
What is a Holding in Germany?
Weighing things up
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Is the AG right for me?
The AG is an alternative to the GmbH. It is Germany’s Mittelständler (SME) “heavy-weight” limited liability company.
At a glance
- For entrepreneurs who want to keep their options open for additional equity capital
- Entrepreneurs can involve further investors, for example, by issuing shares to staff or taking in customers as shareholders
- Entrepreneurs can be sole shareholders and board members
- Decision-making power is limited by an Aufsichtsrat (supervisory board)
What is the AG?
Weighing things up
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Got questions about setting up a business in Germany?
- Startup expert
- 10+ years experience
Hi, I’m Andreas and I’ve been advising businesses in Germany for over a decade. I’d be happy to call you and answer any questions you have in a one-on-one consultation.
Einzelunternehmen: Is the sole proprietorship right for me?
As a sole proprietor/trader in Germany, you get full control, but also full liability.
At a glance
- Well-suited for newbie business people
- Automatically comes into existence when the business is opened
- Only one owner, no conflicts with partners
- No minimum capital
- Full liability with private assets
What is the Einzelunternehmen
Weighing things up
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Is the GbR right for me?
Simple union of partners in a business structure.
At a glance
- Suitable for any business partnership (small business, liberal professions, joint venture)
- Great freedom possible for partners
- No official formalities, but a written contract is useful
- No minimum capital
- Partners are liable with company assets and private assets
What is the GbR?
Weighing things up
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Is the gGmbH right for me?
The legal form is exclusively for non-profit enterprises.
At a glance
- Has all the classic GmbH plus benefits from attractive tax advantages.
- Just like the GmbH, a smaller version – the gUG (haftungsbeschränkt) that can be formed with as little as €1- share capital – is also an option.
What is the gGmbH?
Weighing things up
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Got questions about setting up a business in Germany?
- Startup expert
- 10+ years experience
Hi, I’m Andreas and I’ve been advising businesses in Germany for over a decade. I’d be happy to call you and answer any questions you have in a one-on-one consultation.
Need more guidance?
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The Ultimate Guide to Starting a Business in Germany
Chapter 1: Business visas, residence & work permits
Chapter 2: Business legal forms in Germany<<<
Chapter 3: Preparing to start a business
Chapter 4: Forming a business in Germany
Chapter 5: Post formation
