Doing business abroad is far from a new and proven form of investment. It is used by entrepreneurs from all over the world, especially since foreign investments in almost every country are under special protection. Germany is one of the most attractive countries for doing business. But it is important to know about the organizational and legal forms of ownership in Germany: the right choice of one of them for registering an enterprise can become a determining factor in the success of a business.
Doing business in Germany
Why is Germany so attractive for foreign investment and business in general?
- Firstly, guaranteed compliance with the legal procedure for doing business and those rights that are granted to foreign entrepreneurs by German law.
- Secondly, the opening of the German and the European market in general for the sale of manufactured goods and services.
- Thirdly, by the effect of the national treatment for foreign investments (most of the benefits for German companies apply to foreign ones as well) and the absence of significant restrictions on foreign capital.
- Fourth, the variety of organizational and legal forms for registering a company.
A foreign investor can choose the most suitable form and type of enterprise. In Germany, in accordance with the Civil Code (Bürgerliches Gesetzbuch, BGB), there are both individual enterprises and partnerships formed on the basis of personal and equity participation. We will talk about them below.
And for those who are interested in the specifics of doing business, we recommend that you refer to the article "Business in Germany".
Capital (equity) companies
Capital societies (Kapitalgesellschaft) or, as they are also called in Germany, corporations, are based on the model of association or pooling of capital of their creators, which, as a rule, pursue economic goals.
All capital companies are formed in the form of legal entities, therefore, acquire the associated rights and obligations.
Their activities are regulated by the second section of the third book of the German Commercial Code (Handelsgesetzbuch, HGB). According to her, all such companies are created with the obligatory contribution of the authorized capital (Stammkapital), that is, they provide for equity participation. Moreover, all of them are subject to mandatory entry in the German Commercial Register.
In accordance with German law, in the Federal Republic of Germany, in particular, such capital companies can be formed as:
- limited liability companies - GmbH;
- simplified form of LLC - mini-GmbH, UG;
- joint stock companies - AG;
- limited partnerships in shares - KGaA;
- European Joint Stock Company - SE.
We propose to deal with the most common organizational and legal forms in more detail.
Limited liability company
As in Russia, German limited liability companies (Gesellschaft mit beschränkter Haftung, GmbH) are the most common form of incorporation for company formation. At the beginning of 2021, there were 1.15 million LLCs in Germany. The regulation of their activities is primarily carried out by the LLC Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung, GmbHG), as well as paragraphs 238-342a HGB.
According to them, LLC is an individual legal entity with its own name, has a list of rights and is responsible for financial and other obligations with its own property.
GmbH can be founded by one or several persons, and they can be both natural and legal persons. Moreover, even foreign organizations can be its founders.
The number of creators and participants is not limited by law. All liability of contributors is limited to the value of their contributions.
The minimum Stammkapital is 25,000 €, at least half of which must be formed at the time of filing an application for registration.
More about this in the article "GmbH in Germany".
Simplified version of LLC
From 01.01.2008 significant changes have been made to GmbHG. The Law on Combating Abuse and Modernization of the LLC Law (Gesetz zur Modernisierung des GmbH-Rechts und zur Bekämpfung von Missbräuchen, MoMiG) was adopted, which introduced a simplified form of LLC into the legal field of Germany - an entrepreneurial company or Unterhmergesellschaft hneaftungsbeschrän. The possibility of establishing such a simplified LLC is reflected in paragraph 5a of the GmbHG.
The key difference between an ordinary company and a simplified one is the size of the authorized capital: for UG, the minimum Stammkapital starts at 1 €, while for an ordinary LLC you need a minimum of 25,000 €. The second simplifying point, according to clause 1a of paragraph 2 of the GmbHG, is the possibility of creating a UG according to a simplified procedure (by the way, it is also provided for GmbH).
As for registration, its procedure has not changed. So, to create a company in the form of UG, it is necessary to go through the logging procedure, submit an application to the court, agree on the name, name, types of economic activities, and so on.
The law, by the way, introduces some restrictions in terms of the distribution of profits between the equity holders. Thus, according to clause 3 of paragraph 5a of GmbHG, UG must form a certain reserve fund in the amount of 25% of net profit reduced by loss. These funds increase the authorized capital of the company and can be spent on a minimum number of purposes, such as compensating for deficits or losses incurred in the past year. If, as a result of the formation of such a fund, the authorized capital of UG exceeds 25,000 €, it must be transformed into a GmbH.
Joint Stock Companies
Another form of capital company is a joint stock company, referred to in Germany as aktiengesellschaft (AG). Its activities are regulated by a special law on joint stock companies (Aktiengesetz, AktG).
As set out in paragraph 1 of AktG, joint stock companies are legal entities, where the liability of shareholders for the obligations of a joint stock company is determined by the value and share of the shares they hold.
AO can be formed by one or more participants, which can be both citizens and organizations.
According to paragraph 7 of AktG, the minimum amount for Stammkapital is 50 thousand euros. At the time of registration, the monetary contribution to the shares must be made at least 25%, and the property contribution and the contribution in the form of property rights - in full.
Joint stock companies in Germany divide their share capital into shares, the value of which, if established in accordance with paragraph 8 AktG, cannot be less than 1 €. If it is lower, the shares are considered invalid.
If the shares have no par value and only represent a specific share of the share capital, then the percentage of such capital attributable to a particular share cannot be less than 1 €.
The issued shares are admitted to free circulation on the market. Their release and sale allows attracting investments in the company.
AG is governed by a board of directors, which includes one or more members. Control over the management board, as well as its appointment, is exercised by the supervisory board, which is formed by the meeting of shareholders; the first supervisory board, according to paragraph 30 AktG, is formed by the founders.
The supervisory board must have a chairman and at least one deputy chairman. Considering all this, AG is a form acceptable for opening a large business, otherwise the costs of its creation and maintenance will not justify themselves.
Limited partnership on shares
A limited limited partnership, known as a kommanditgesellschaft auf Aktien (KGaA), is a mixed form of a limited partnership and a joint stock company. According to paragraph 278 AktG, it is a legal entity, which includes 2 types of participants:
- complementors - general partners with unlimited liability, liable to creditors with their own property;
- limited partners - other shareholders who are not personally liable to KGaA's creditors and are limitedly liable for its obligations only by the value of their shares.
The minimum Stammkapital of a limited partnership on shares, like a joint-stock company, is 50 thousand. However, it consists of two parts: contributions of general and limited partners. It should be noted that the general partners, unlike the limited partners, are not required to participate in the formation of the authorized capital.
Complementors have a range of powers similar to the powers of the board in a joint-stock company. Limited partners, in turn, are a general meeting in which complementors have the right to vote if they are shareholders.
KGaA is managed by the general partners under the supervision of a supervisory board formed by the general meeting.
To create a limited partnership on shares, at least 5 founders are required.
Due to the presence of personal responsibility, KGaA are not so widespread in Germany, however, due to the increased creditworthiness under the personal responsibility of the general partners, this form is becoming more and more popular.
European company
Another very promising form of company registration is a European joint-stock company or a European company, translated as Societas Europaea (SE). It is established in accordance with the Charter of the European company, approved by the Council of the European Union Regulation No. 2157/2001 of 8.10.2001.
SE is a kind of universal form of business organization that can operate on the territory of any EU country and for this it does not need to obtain a special permit and grant national treatment. The charter contains the basic rules for the creation and operation of SE, and also defines the aspects that can be regulated by the legislation of each of the countries.
SE is a limited liability company. The capital of a company is divided into shares, the value of which is the limit of the liability of its shareholders.
According to paragraph 2 of Art. 4 of the Articles of Association, the share capital of the company must be at least 120 thousand euros, although this level may be raised by the national legislation of each country.
As provided by Art. 15 of the Articles of Association, the establishment of an SE is carried out in accordance with the laws applicable to public limited companies in the state in which it is incorporated. That is, the creation of a European company is possible both in the form of a joint stock company and in the form of an LLC. Thus, the establishment of SE is possible in several ways:
- creation of the main joint-stock company or LLC;
- creation of a subsidiary JSC or LLC;
- the merger of several joint-stock companies, if they have different countries of origin;
- transformation of an ordinary society into a European company. If it has branches in other EU countries for more than 2 years.
SE registered in Germany is entered in the register of legal entities of the Federal Republic of Germany, and may also have a mixed organizational and legal form.
Subsidiary company
Any capital company can organize a subsidiary (Töchtergesellschaft) - in this case, it becomes a new unit, independent of the parent company. The legal basis for its creation is contained in the relevant laws governing the activities of a specific form of capital company: AktG for a joint stock company, GmbHG for a limited liability company, and so on.
The subsidiary company is an independent company and completely independently carries out its economic activities and makes decisions. Even if the Tochtergesellschaft in Germany is created by a foreign company, the former is in any case subject to the rules established in Germany.
Branch
Foreign companies can open a branch in Germany (Zweigniederlassung). He, unlike Töchtergesellschaft, is not an independent legal entity, even if his powers give him some freedom in relation to the head office. The branch is characterized by the creation of functions similar to those of the head office, the planned duration of operation and an external organization: its own accounting department, document flow, accounts.
A branch is usually created in partnerships, LLCs and JSCs.
The registration of a branch in Germany is carried out at the commercial register of the region or city in which the Zweigniederlassung will be located.
For branches of foreign companies on the territory of the Federal Republic of Germany, the same rules apply as for German companies, but with some additions, since the branch is the head office of the company in the Federal Republic of Germany.
Personal societies (partnerships)
Personal partnerships (Personengesellschaft) is a special form of partnership in which two or more individuals and legal entities can unite to achieve common economic goals. A personal partnership is not a legal entity, however, without this it easily acquires rights and obligations. Personengesellschaft has limited legal capacity - it is an association of persons with full legal capacity. In the overwhelming majority of cases, the liability of partners is not limited only to their contribution and extends to all their property, although some forms still provide for restrictions.
Among the most common forms:
- civil society;
- open trade partnership;
- limited partnership;
- limited partnership with a complimentor - a legal entity;
- partner company.
Let's consider each of them in more detail.
Civil society
Civil society or Gesellschaft bürgerlichen Rechts (GbR) is a legal form of partnership between two or more individuals wishing to conduct business. GbR is considered the most common personal partnership in Germany. This is due to the fact that GbR is characterized by ease of registration and simplified accounting and tax reporting.
The partners who found and enter the society jointly make decisions and, accordingly, bear responsibility also jointly. As already noted, GbR members as personal companions bear unlimited liability with all of their property.
The legal regulation of the activities of GbR and the relationship between the participants is carried out according to the rules specific to companies and established by paragraphs 705-740 BGB, as well as by the agreement signed between the participants of the company.
Such a memorandum of association is concluded in a free form. It also reflects the share contributed by each of the participants. By the way, there is no need to contribute the authorized capital.
The management of the company is carried out by all its participants at the same time. As a general rule, both profits and losses are distributed among the GbR participants in equal shares, however, the agreement may provide for a different distribution. Not being a legal entity, a civil society is not entered in the Commercial Register.
Open trade partnership
An open trade partnership or offene Handelsgesellschaft (OHG) is another personal form of society in which any natural and legal person wishing to conduct business can participate. The OHG is regulated by clauses 105-160 HGB.
By law, a partner's contribution can be made to the partnership in any form, both by property and by his own labor. Like all private companies, OHG is not a legal entity, but at the same time, according to paragraph 124 of HGB, it has the legal capacity and the ability to acquire property with the corresponding entry in the register of rights as owner.
OHG is created on the basis of an agreement between its participants, by which they determine the main metrics of their cooperation.
Each participant has the right to manage, represent and control the activities of OHG, including solely, if such an agreement between the participants is reached.
A commercial partnership is subject to entry in the Commercial Register and provides for a more complex registration procedure than GbR.
The responsibility of the participants is of particular interest. According to paragraph 128 HGB, they are personally jointly and severally liable to the creditors of the partnership. That is, OHG is liable for the obligations with its property and the property of the participants, who, in turn, are jointly and severally liable for the debts (each equally, regardless of the contribution).
Limited partnership (limited partnership)
The limited partnership or Kommanditgesellschaft (CoKG, KG) is a type of OHG and is the subject of the second section of the second book of the Commercial Code (paragraphs 161-177 HGB).
So, a limited partnership is an association of two or more individuals or organizations, where there is at least one full partner (complementor) who is responsible for the obligations of KG with all his property, and one limited partner, whose liability is limited by the amount of his contribution. By the way, comrades are jointly and severally responsible.
Based on the general rule established by paragraph 164 HGB, only general partners are involved in the management of KG, representation and conduct of all affairs, and limited partners are excluded from this process - they only make a profit in accordance with their contributions. However, this provision can be changed by the charter of the partnership.
Despite the lack of managerial powers, limited partners have the right to demand financial statements from general partners, including they have the right to check it.
As a kind of commercial partnership, KG is subject to entry in the Commercial Register. The establishment is carried out on the basis of the memorandum of association, without the need for the formation of the authorized capital.
Limited partnership with complementor - LLC
A special form of limited partnership called Gesellschaft mit beschränkter Haftung & Co. Kommanditgesellschaft or GmbH & Co.KG, limited partnership with complementor. The main feature of this form of organization is the presence as a full partner (s) of a company in the form of LLC (GmbH).
The essence of this design is to minimize the economic risks that a limited partnership bears. Thus, despite the fact that the general partners of KG bear unlimited liability, if GmbH acts as such a partner, the liability will still be limited, since the LLC is liable for obligations solely by what is in its possession.
The partnership is managed through a GmbH, which, in turn, may employ direct managers. Despite the obvious advantages, the formation of such a partnership requires additional costs and double reporting: both for LLC and for CT.
Partnership
A partner company or partnerschaftsgesellschaft (PartnG) is a form of professional organization of individuals who are representatives of the liberal professions. According to paragraph 2 § 1 of the Partnership Companies Act (Gesetz über Partnerschaftsgesellschaften Angehöriger Freier Berufe, Partnerschaftsgesellschaftsgesetz, PartGG), such representatives of the liberal professions should include persons who practice independent professional activities and are doctors, dentists, veterinarians, psychologists, lawyers, patent attorneys, consultants, accountants, architects, pilots, journalists, reporters and so on.
The partner company is created on the basis of a partnership agreement and is subsequently registered in a special register (Partnerschaftsregister).
Relations between partners are governed by the provisions of the agreement signed between them. They bear unlimited joint and several liability for the obligations of the company. At the same time, according to §8 PartGG, partners can establish the responsibility of each of them for professional errors.
Private enterprise
In Germany, just like in Russia, there is private enterprise. An individual entrepreneur (Einzelunternehmer) or an enterprise acts as a form of organization, represented by one individual who is not a representative of the liberal profession, on whose behalf all business activities are conducted.
IE, in fact, is the simplest form of business organization in Germany. Moreover, such an enterprise cannot be considered either a legal entity or an independent economic unit. All legal capacity of the einzelunternehmer is directly related to its sole participant, therefore he bears all responsibility.
A private enterprise is considered established from the moment of notification of its creation to the competent authority in the region of location. If an individual entrepreneur is a merchant, it must also be registered in the commercial register.
Business taxes in Germany
One of the most important topics for future business owners is taxation. Taxes can become a key deciding factor not only when choosing a legal form, but also when deciding to start a business. So, the main taxes in Germany include:
- Corporate tax (Koerperschaftsteuer) or corporate income tax is paid by commercial companies at a uniform rate of 15.825%.
- Trade tax (Gewerbesteuer) is a local tax on commercial organizations, levied at a rate of 14-17.15% of profits, depending on the location of the organization.
- VAT (Mehrwertsteuer), which is levied on all transactions involving the purchase and supply of goods and services in Germany, as well as on the import of goods into the EU. The general rate is 19%, however there are reduced rates for many products.
- Personal income tax (Einkommnsteuer) - paid by individuals, including from income from commercial activities, is calculated at a progressive tax rate depending on the amount of income.
These are, of course, not all types of taxes. You can learn more about them from the material "Taxation in Germany".
Forms of ownership available to non-residents
Considering all of the above, we can draw an obvious conclusion: investing their own funds in Germany for Russians and all others who do not permanently reside on its territory is possible only in the form of creating a company - a legal entity. Thus, the available forms of organization include:
- LLC and its simplified version (GmbHб UG);
- joint stock company (AG);
- European company (SE).
The opportunity to open an individual entrepreneur in Germany for Russians certainly exists, but then they must be residents of the Federal Republic of Germany, and for this they must permanently reside in the country or stay in it for at least 183 days a year.
Business immigration to Germany
Many, wanting to run their own business in Germany, decide on business immigration. Moreover, there are all legal prerequisites for this: according to § 21 of the Law on Residence, Employment and Integration of Foreigners (Aufenthaltsgesetz, AufenthG), if a foreigner wishes to engage in entrepreneurial activity, for this purpose he can obtain an appropriate residence permit in Germany.
More about him in the material " Such a residence permit, as defined in paragraph 4 of paragraph 21 AufenthG, can be issued for three years, after which, if the commercial activity is successful, the business immigrant is issued a settlement permit (permanent residence). According to paragraph 1 of § 21 AufenthG, a residence permit is issued to a foreigner if: The article "Business Immigration" will tell you more about the requirements for foreign business immigrants. Summing up, we note that any foreigner, if he has a desire, can open a business in Germany.If he is not a German resident, then only organizational and legal forms of ownership typical for legal entities are available to him. To establish a sole proprietorship or business partnership, you must move to Germany. However, there are all the prerequisites for this: for example, those who wish to become a private entrepreneur, Germany can issue a residence permit.Conclusion
