Legal form of companies are regulated primarily by the German company law (Gesellschaftsrecht) which is an influential legal regime in the Federal Republic of Germany. Under German law it is possible to set up four different forms of business companies, i.e. German Limited Liability Company (GmbH), Limited Liability Entrepreneurial Company (UG), the German Stock Corporation (AG), the Partnership Limited by Shares (KGaA) and the Limited Liability Partnership (GmbH & Co. KG), with the German Limited Liability Company (GmbH) being the most common form of incorporation in Germany. The Mini-GmbH (Unternehmergesellschaft UG, haftungsbeschränkt) is not a separate legal form of company, but a GmbH which has a minimum capital of less than EUR 25,000 and where cash subscription is required. This means that it is possible to set up a company with limited liability in Germany with capital of only EUR 1.00. In order to compensate the initial absence of capital the company has to retain a quarter of its annual profit until it has accumulated the minimum share capital of an ordinary GmbH (which is EUR 25,000). The accumulated capital can then be converted into share capital and the Mini-GmbH altered into a standard GmbH.
There are no restrictions on the name given to a GmbH, provided that the name: (1) clearly distinguishes the GmbH from other businesses in the same location; (2) is not misleading; and (3) contains a reference to its limited liability. The name must be authorized by the Chamber of Industry and Commerce, and must end in “GmbH”.
MEMORANDUM AND ARTICLES OF ASSOCIATION
It is necessary to adopt Articles of Association when founding a GmbH company, and it is a requirement that the establishment of the Articles of Association be made before a German notary. The notarization and the appointment of the first director (Geschäftsführer) are recorded in a Memorandum of Incorporation, to which the Articles of Association are attached. An application for registration of the company, in the Commercial Register (Handelsregister) must be made to the Local Court (Amtsgericht), where the company’s registered office is located. It is important to note that during the period between application for registration in the Commercial Register and the notarial formation, the proposed company’s business activities may be carried out. However during that that period those acting in the name of the proposed company will bear personal responsibility.
There is a minimum of one shareholder in a GmbH company. The shareholder(s) may be of any nationality and may or may not be a corporate entity. Shareholder names are filed on the public register, however anonymity can be safeguarded by using nominees. A notarized agreement must be drawn up between shareholders.
The share capital for the formation of an Entrepreneurial Company with limited liability should be to at least € 1.00. Only cash contributions are admissible, contributions in kind are excluded. Furthermore, the minimum share capital must be paid in full prior to the application for entry in the commercial register.
Profits made by a “UG” (Entrepreneurial Company with limited liability) after the formation may be distributed only to a limited extent. 25% of the profits have to be transferred to a statutory reserve until the minimum share capital of €25,000 has been accumulated. There is no time limit for this. If no profit is made after formation, no funds have to be transferred to the statutory reserve.
A GmbH is managed and legally represented by its managing directors. There must be at least one managing director (who does not have to be a shareholder or a German resident), however it has to be an individual. Legal entities are not admissible as managing directors. It is not important whether the person permanently lives abroad or whether he or she is a resident or a foreigner. The shareholders may exercise direct influence on the management of the GmbH, by issuing binding instructions or directions to the managing directors (the supreme body of the company). Each executive director represents the company independently, the memorandum of association stipulates otherwise. All managing directors (Geschäftsführer) must sign the commercial register application in person in the presence of a notary.
All GmbH companies must have their statutory registered office in Germany. The administrative registered office however may be located outside Germany (at least in another EU country or the US; in other countries this may depend on their respective corporate laws).
There is no requirement for GmbH company to have a company secretary.