If you intend to engage in any commercial activity in Germany, it is wise to establish your own company. This, unless the business is trivial, can protect you from a lot of inconveniences and trouble with the authorities. Here are the most widespread forms.
Gesellschaft mit beschränkter Haftung (GmbH)
(Company with limited liability)
This is the most widespread company form. Its shareholders are not personally responsible for the company’s debts.
One person is sufficient to set up a GmbH and to be its shareholder. The share capital must be at least € 25,000. A notarial agreement must be drawn up between the shareholders and the company being set up. The company comes legally in existence only when it is entered into the Register of Companies (Handelsregister). The name of the GmbH must derive either from the purpose of the enterprise or the names of the shareholders, and must contain the abbreviation "mbH”.
Shares in a GmbH are not embodied in a certificate and cannot be quoted on stock exchanges. However they may be transferred through properly notarial documents. A GmbH must appoint al least one managing director (Geschäftsführer), who may also be shareholder of the company; he is the only person entitled to represent the company.
Aktiengesellschaft (AG)
(Joint-stock company; public limited company; corporation)
In order to set up this kind of company there must be at least one person who may be the only shareholder of the company, too. A share capital of € 50,000 is required; the shares may be (but need not be) listed on the stock exchange. Articles of association, authenticated by a notary, are needed to set up an AG. The company becomes legally existent as an AG when it has been entered into the Register of Companies. The name of the AG is usually taken from the purpose of the enterprise and it must contain the words "Aktiengesellschaft" or a common abbreviation of it (e.g. “AG”).
An AG must have a board of directors (Vorstand) empowered to decide all matters relating to the operation and the management of the business. The board of directors is appointed by and responsible to the directorate (Aufsichtsrat). The shareholders of an AG exercise their power in regard of the company at regularly scheduled general meetings (Hauptversammlungen).
Offene Handelsgesellschaft (OHG)
(General partnership)
In contrast to GmbH and AG, the partners in an OHG have unlimited liability. Every partner is legally obliged to participate actively in operating the business unless the articles of partnership (Gesellschaftsvertrag) otherwise provides. The OHG can sue or can be sued in a court of law. For internal matters decisions should be made unanimously, but articles of partnership usually allow decisions by a majority of votes.
Kommanditgesellschaft (KG)
(Limited partnership)
This is basically a partnership but provides a limitation of liability on behalf of some of the partners. A KG bears two kinds of partners: 1) the general partner (Komplementär), who has an unlimited liability extending to his or her personal assets, and 2) the limited partner (Kommanditist) whose liability extends only to his or her nominal holdings in the company.
GmbH & Co. KG
(Limited partnership with a limited liability company as general partner)
This combines a limited liability company with a limited partnership by making the former the sole general partner of the latter. The limited partners are, as in the case of every KG, only liable to the extent of their registered holdings.
(Subsidiary)
This is a non-independent company physically separated from the parent company, and has a certain degree of independence. It usually has its own management, accounting system, balance sheet procedure and business assets.
Zweigniederlassung
(Branch)
This is rather a non-independent business branch, dependent in every aspect on the head office, which also is in charge of the central administration.
The distinction between a subsidiary and a branch office is important as it determines whether an entry must be made in the Register of Companies. The distinction is also relevant in determining the place of the actual business in terms of German tax law.
Most of Germany’s business, on the contrary to other industrial countries, is conducted by the small and medium-sized companies of the Mittelstand. In one of Business Week's recent lists of the world's thousand biggest firms, 345 were Japanese and 353 American.
Only 30 of these biggest companies were German, which means that the Mittelstand is the engine of the German economy. The Mittelstand firms are often family-owned with a dominant founder or manager. They have a benevolent attitude towards their employees, who, in turn, are exceptionally well-qualified and motivated. In the past most of the Mittelstand firms’ business was conducted locally, and relationships with the customers were close. The market success was based rather on quality than on price.
The concept of the Mittelstand backdates to medieval times and is connected with a long handicraft tradition. Today it is one of the foundations of the middle class and the reason why the phrase “Made in Germany” has been a hallmark of quality for more than a century.
Because of the lack of an official definition of the term “Mittelstand” (and no satisfactory English translation!) it is hard to demonstrate its importance statistically. A firm employing less than 500 persons and having an annual turnover of € 500 million or less is a widely accepted approach of a definiation. It is estimated that there are 3,3 million Mittelstand firms in Germany, producing 57 percent of the gross national product, employing 70 percent of the work force and training 80 percent of the apprentices.
Mittelstand firms tend to be concentrated in industry, commerce, the skilled trades, professions, and such service branches as construction, transport, retailing and the hotel and restaurant business.
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This article has been published by Consulting House International, which is specialized on giving advice for doing business in Germany. For more information, go to www.consultinghouse-international.com .