Establishing a company: Choosing the right corporate form

Establishing a company: Choosing the right corporate form

Establishing a company: Choosing the right corporate form
Company founders have to come to a decision regarding the corporate form of their new business. The favourite is often the Gesellschaft mit beschränkter Haftung (limited liability company) – GmbH.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: Anyone who wishes to go into business for themselves and establish a company needs to choose a suitable corporate form. The Gesellschaft mit beschränkter Haftung, or GmbH ( for short, is among the most popular corporate forms when establishing new companies and start-ups.

One of the main advantages associated with GmbHs is the limited risk of liability. The company is liable to the extent of its share capital, whereas the shareholders cannot, save for a few exceptions, be personally subject to claims for the company”s liabilities. Furthermore, the GmbH allows for significant creative leeway, and one ought to take advantage of this. Company founders can seek legal advice from lawyers who are competent in the field of company law when choosing the right corporate form.

In order to establish a GmbH, it is necessary for there to be at least one shareholder. Additionally, the GmbH has to have a managing director. The required share capital in the amount of 25,000 euros sometimes represents an obstacle for company founders, but it does not have to be paid immediately; for the purposes of registering in the commercial register, it is sufficient to pay half of this. Moreover, it is possible for the contribution to take the form of tangible assets, e.g. a car, real estate etc. The share capital also represents the GmbH”s liability threshold. While the shareholders are not, as a matter of principle, liable with their private assets for the GmbH”s liabilities, they might be obligated to pay damages if they deliberately damage the company in a way that is contra bonos mores. The managing director, on the other hand, may be liable if he has breached his obligations.

A more favourable alternative to a GmbH in the start-up phase is the so-called Unternehmergesellschaft (entrepreneurial company). In the case of a UG, only one euro”s worth of share capital is necessary. However, this advantage is qualified by the fact that a quarter of any profits generated needs to go towards reaching the same level of initial investment that applies to GmbHs.

Choosing a suitable corporate form can have a decisive impact on the success of a business, as the various types of company entail different rights and obligations, including from a tax perspective. That is why one ought to obtain competent legal advice.

GRP Rainer LLP is an international law firm with lawyers and tax advisers specializing in business law, commercial law and company law and tax law. The attorneys counsel international commercial and industrial companies and corporations, as well as associations, mid-sized businesses, institutional investors and private individuals worldwide from offices in Cologne, Berlin, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart, Germany and London UK.

GRP Rainer LLP
Michael Rainer
Hohenzollernring 21
50672 Köln