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Establish a GmbH: definition and meaning

definition

The GmbH (limited liability company) is one of the corporations. You set up a GmbH if your company is a trade. An important feature of this legal form is the liability with the business assets instead of the complete private assets of the entrepreneurs or shareholders. As a result, the risk for you as a shareholder is much easier to calculate. To found a GmbH, you need at least one natural person. In addition, however, any number of shareholders can join.

The legal basis of the GmbH is anchored in the GmbH Act. In addition, the Commercial Code (HGB) is another important legal basis because the GmbH is legally considered a trading company. In this context, it is important for founders to know that there are several special forms of GmbH:

Who is a GmbH suitable for?

The legal form should suit you and your activity. Therefore, you should know your company vision and also your resources. You can set up a GmbH as an individual or as part of a team. It should be clear to you that your GmbH is viewed as a commercial company and that you therefore also have to pay trade tax. This legal form is therefore rather unsuitable for freelancers. In addition, you do not necessarily have to be a managing director to set up a GmbH. Shareholders can also be investors here, which means that the GmbH is a popular legal form for startups as well.

What are the requirements for a GmbH?

Basically, these features should be taken into account, based on which you can decide whether the GmbH is the right legal form for your company:

  • Minimum capital of 25,000 euros (half must be in the GmbH account at the time of establishment)
  • Founding as an individual or with several partners
  • Without capital: founding a UG or a mini GmbH
  • Limited liability on company assets
  • High formal requirements for the establishment

How do you set up a GmbH?

So that you know what tasks you have to do in the process of establishing a GmbH, we will now explain step by step how to set up your own GmbH.

1. Articles of Association

First of all, you need to draw up a social contract. All relevant information about your GmbH is entered in this. This includes the name of your company, the seat of the company and also the object of your company. In addition to this general information, you also enter the amount of your share capital, which must be at least 25,000 euros. Here you can decide whether you want to start your company with a cash or non-cash foundation. With a cash formation, you pay in the required share capital with money. When founding in kind, the share capital is paid in through tangible assets such as real estate or machines. In addition, the respective business shares or the so-called internal relationships are noted in this articles of association. Therefore, think carefully about which agreement should be recorded beforehand. Especially if you are setting up with several partners.

Then set up a company account and make the necessary deposit, as you will have to prove this later.

2. Notarial certification of the contract

In order for everything to be legally binding, a notary must notarize your articles of association. Therefore, you have to make an appointment to obtain this certification. All shareholders should be present at this time, as everyone has to sign this contract. In addition, the notary checks all important formalities and draws up a list of shareholders. So that he can initiate the next steps, he also needs proof that the share capital has been paid into the business account.

3. Registration with the commercial register

Once all the necessary evidence has been provided, the notary will register your GmbH with the commercial register. This takes place at the competent local court, which will send you a confirmation of the entry after a certain processing time. As soon as you have this, your GmbH is properly registered.

Start-up costs

The costs of establishing a GmbH result on the one hand from the required share capital to be provided. On the other hand, however, also from the costs for the notary or tax advisor. Since the costs vary here, an exact amount cannot be determined. Because with regard to the share capital there is no fixed amount outside the limit. How much you or your team of shareholders are willing to invest at the beginning must be clarified in advance in discussions. Particularly important here is the possible implementation of the financing and what individual options each founding member should have.

Advantages and disadvantages of the GmbH

When founding a GmbH, as with any other legal form, there are special advantages and disadvantages. These can be important for founders, especially in the decision-making phase for the appropriate legal form. Therefore, we want to show you all the advantages and disadvantages of the GmbH and thereby make your decision easier.

What are the advantages?

A particularly important advantage when choosing a GmbH is the limited liability on company assets. This aspect is even the reason why the GmbH is the most attractive legal form for many. Since there is only liability with company assets and not with private assets, this factor offers a reduction in risk.

The foundation is here not limited to a certain number of shareholders. Whether alone, as a couple or in a large team - many shareholders can join in here. This legal form is therefore particularly popular with startups, as investors can participate with limited liability.

In addition, the GmbH is a Legal form highly regarded, because a relatively high share capital is required for the establishment. This even applies not only to Germany, but also to other countries, which, for example, can also attract lucrative international investors.

Besides as well tax advantages, such as the deduction of managing director salaries as business expenses, you also enjoy a lot with a GmbH Freedoms regarding the social contract. You can design this individually with your shareholders.

What are the downsides?

Registering a GmbH is related to the laborious and costly establishment disadvantageous. The numerous formalities and the high minimum capital poses insurmountable challenges for many founders.

And although there are tax advantages on the one hand, GmbH brings one on the other complex bookkeeping with himself. Therefore, a tax advisor is often called in. This should especially be consulted if you are not an expert on tax issues yourself. Because the management of a GmbH sets one Accounting and bookkeeping obligation ahead as well as a Duty to publish the annual financial statements.

Register a company in 4 steps

Step 1: Register business / small business

In principle, everyone in Germany who wants to run their own business must register with the trade office. This is the only way to get official permission to run your own business with the trade license. However, freelancers are exempt from this obligation. You also have to ask yourself whether you want to register a business or a small business. The difference is that a small business is a company with low turnover and makes use of the small business regulation.

Step 2: Inform the tax office

After you have registered with your company at the trade office, you will usually automatically receive a questionnaire for tax registration. With this you register your company directly with the tax office. The tax office will then assign the necessary tax number to your company. Anyone who also wants to sell or purchase goods or services in the EU without VAT must also apply for the VAT identification number here.

Step 3: Enter in the commercial register

The commercial register is a public directory in which all traders and companies can register. This contains all important information about a company. Therefore, in principle, all traders are obliged to be entered in the commercial register. Small businesses are exempt from this, but can register voluntarily if they want. Registered merchants (e.K.), corporations (GmbH, UG, AG) and partnerships (OHG, KG, GmbH & Co.KG) must be entered in the commercial register from the time of formation.

Step 4: Enter in the company register

The business register is also a directory that is publicly accessible. This bundles all information that can be found in the commercial register, cooperative register, partnership register and the Federal Gazette. Which companies have to be registered here mainly depends on the size and legal form of the company. Depending on this, some companies are obliged to publish or deposit.

How do you dissolve the GmbH?

The dissolution of a GmbH can have many reasons. This does not necessarily have to be due to business failure. For example, the field of activity can change, the legal form can be changed or shareholders can exit. The dissolution of the GmbH is therefore tied to many factors. This is not easy and quick, because you need the consent of all shareholders for this, for example. Basically, you go through three process stages when dissolving:

  • Dissolution: The shareholders formally resolve the dissolution
  • Liquidation: The GmbH is liquidated within one year according to certain rules
  • Deletion: The GmbH will be deleted from the commercial register.

If you would like to know more about the dissolution of a GmbH in this case, you can read the article Liquidation GmbH: How to dissolve your company - These steps are necessary for the dissolution of your GmbH, in which we describe the entire process in detail.

Conclusion: The characteristics of the GmbH must match your company

Before you decide on a certain legal form and in particular on the GmbH, you should check carefully in advance whether the characteristics and properties of the legal form are suitable for your company. In this context, you should always be aware of the risks that can come your way. Especially when you're drafting the social contract. The more you pay attention to and absorb here, the more trouble you may be spared afterwards. In any case, you should use the expertise of a specialist to avoid mistakes.