Germany Entity Setup

An Einzelunternehmen is a business run by a sole proprietor or sole trader. if a Gewerbetreibender (commercial trader/business person) or Freiberufler (liberal professional) has a business without partners and doesn’t incorporate a company (GmbH, UG etc.). This person has an Einzelunternehmen and is known as an Einzelunternehmer (sole proprietor).

An OHG, or Offene Handelsgesellschaft, is one of the traditional forms of partnership in Germany that allows two or more individuals to jointly own and run a business under a common name. One of the hallmark features of an OHG is that all partners have unlimited personal liability. 

The GmbH is a form of a private limited company that offers its owners limited liability, meaning their financial risk in the event of company failure is restricted to their investment in the company. It’s a flexible, reputable structure that’s recognized internationally, making it a go-to choice for entrepreneurs and investors looking to establish a business in Germany.

An Aktiengesellschaft (AG) is a type of corporation in Germany that’s allowed to issue stock to raise capital. It’s characterized by having its capital divided into shares, which can be traded on the stock market if the company is publicly listed. The AG structure is designed to support larger enterprises with significant capital requirements and a desire to expand their investor base.

The Unternehmergesellschaft (UG) is essentially a variant of the GmbH (Limited Liability Company) tailored for entrepreneurs with limited capital. It allows founders to start a company with less capital than is typically required for a GmbH, making it an attractive option for those looking to start their business with minimal upfront investment.

To form a GmbH, a minimum share capital of €25,000 is required. This can be contributed in cash or in kind, though certain valuations and approvals might be necessary for non-cash contributions.

None as long as they can easily enter Germany (or obtain easily a Visa). 

Managing directors are required (at least 1) but do not need to be a local German resident.

Not required but recommended.

Filing for incorporation requires an office in Germany. A lease is not required, however, a full postal address suitable for formal service of documents must be given. The actual location of the administrative headquarter can differ and therefore be in a foreign country as well.

For a company name to be officially viable, it must meet formal criteria to be approved by the notary and the competent district court. In addition, you need a company objective (Unternehmensgegenstand) that defines the new GmbH’s business activities. These details will be noted in your company’s entry in the commercial register and are publicly available for anyone to see.

Once you decide on the name of the GmbH, you should sort out the financial details. The minimum share capital of a GmbH is €25,000. However, the central question is: How many company shares should you issue to each shareholder? The percentage of shares each shareholder holds determines company voting rights and, in turn, individual share capital (Stammkapital) capitals. The distribution of shares directly is bound to capital contributions.

For the GmbH legal form, you can use a founding documents template called the Musterprotokoll (aka standardised articles of association). Alternatively, you can draw up your own articles of association and customise the documents to fit your business’s needs (this is called either Gesellschaftsvertrag or Satzung).

After settling all the formalities, it’s time to start the official incorporation part of the formation. First up, the shareholders and managing directors must attend an appointment where a notary certifies the founding documents. At the same time, the notary prepares the Handelsregister (commercial register) registration.

The final step is to decide the bank to work with. Germany has developed banking infrastructure that startups and hyper growth companies alike benefit from. The process of establishing a bank account can be an unexpectedly long process that many companies do not sufficiently plan for. This can include extensive application documents, notarized director documents, KYC documentation and in person signatures. You should open the business account for the GmbH as soon as possible after the notarisation at the notary’s office. The managing director must always attend the bank appointment. Many branch banks also require that all GmbH shareholders be present when the company account is opened. You should therefore clarify with the bank beforehand how the appointment will proceed. If you are setting up the company from abroad, the requirements for opening the account will usually change, as additional documents will be necessary. Common local banks in Germany include Commerzbank, Deutsche Bank, DKB, DZ Bank KfW and Nord/LB.

Public company register that contains details of all tradespeople and legal entities in the district of the registrar, which is generally the Amtsgericht of the place where the Landgericht is also situated.

The Finanzamt (tax office) is a local authority that administers taxes (with the exception of customs duties) on behalf of the municipality, federal state and federal government. There are around 650 tax offices across Germany.

You must register it with the tax office and apply for a Steuernummer (tax number) within four weeks of officially establishing it. You do this by completing what’s called the Fragebogen zur steuerlichen Erfassung (tax registration questionnaire) on the ELSTER portal.

VAT is a tax on consumer spending. In Germany, the standard VAT rate is 19%, with a reduced rate of 7% for certain goods and services, such as food and books. Businesses charge VAT on their sales (output tax) and reclaim VAT on their purchases (input tax), with the difference being paid to or refunded by the tax authorities.