Legal forms of Doing Business in Germany

Foreign companies are basically entitled to pursue their own business interests within the
Federal Republic of Germany. The regulation of the right of establishment applies to all
companies of EU/EEA member states. In addition, agreements have been concluded
between the Federal Republic and several other countries, which are essential to the
citizens of those countries seeking to do business in Germany. Such agreements are, for
example, the agreements on Double Taxation and the agreements on the Right of
Establishment Convention and the Promotion of Investment.

The following sections will present only the business forms most commonly found in the
Federal Republic of Germany. The Association of European Economic Interests will not be
addressed as it is not allowed to pursue any business activities of its own, but rather is
intended to provide support for the business activities of its members. The establishment of
a Kommanditgesellschaft auf Aktien (limited partnership on shares), a public trust, or
participation in a co-operative or business association is rarely considered by foreign
investors.

In 1994, the right to form non-business partnership associations was adopted into German
law. With this legal form, individuals of specific professions (e. g. medical doctors,
attorneys, engineers) have the opportunity to establish a company, which is similar in form
to the German Offene Handelsgesellschaft (OHG) (general partnership). An important
aspect of this regulation is that the partners are able to limit their liability.
German law recognizes the business forms of small businesses and of registered,
commercial businesses.

1. Small Businesses

2. Registered Commercial Businesses

3. Sole Proprietors

4. General Partnership (Offene Handelsgesellschaft, OHG)

5. Limited Partnership (Kommanditgesellschaft, KG)

6. Limited Liability Company (Gesellschaft mit beschränkter Haftung, GmbH)

7. entrepreneurial company at limited liability (Unternehmergesellschaft (UG)

haftungsbeschränkt)

8. Joint-Stock Company (Aktiengesellschaft, AG)

9. Branch Offices

10. Dependent Branch Offices - Permanent Establishments - Representive Offices

1. Small Businesses

A small business in Germany is defined as a business operation which, due to its nature
and scope, does not require a commercial organisation. This is determined by the sales
and turnover, the business assets, the number of transactions, the number of employees,
the variety of business activities, and additional other factors. The particular situation of the
individual business is always the deciding factor.
A small business may be operated by one private individual or by several individuals
forming a Gesellschaft des bürgerlichen Rechts (civil law partnership). The accounts and
official papers of any small business must contain the proprietor’s full first and surname. In
the case of a civil law partnership, the full names of all members must be stated. This form
of business is not allowed to operate under a commercial name.
It is not obligatory that a small business, operated by a private individual or through a civil
law partnership, is registered in the Commercial Register. A small business may, however,
choose to be listed in the Commercial Register and, through such listing, obtain the status
of a registered merchant or, in the case of a civil-law partnership, obtain the legal form of a
general (OHG) or limited partnership (KG) (see description below).

2. Registered Commercial Businesses

A registered commercial business is any individual or partnership organization whose
nature and scope requires a commercial organisation. In cases of doubt, a recommendation
from the Chamber of Industry and Commerce will be requested.
A commercial business is to be entered under its commercial name (= Firma) in the
Commercial Register of the local court at the corporate seat of the business. The
application must be witnessed and signed by an authorized notary public. Special
instructions are to be given in writing or by a – not necessarily German - notary, a
comparable legal advisor or a consular official.
11. Information Offices
12. Company Names
A commercial business may take the form of a sole proprietor, an Offene Handelsgesellschaft
(OHG) (general partnership), or a Kommanditgesellschaft (KG) (limited
partnership), which have the form of a GmbH & Co. KG.
The Gesellschaft mit beschränkter Haftung (GmbH) (limited liability company), the
Aktiengesellchaft (AG) (joint-stock company, Inc.), and the Kommanditgesellschaft auf
Aktien (KgaA) (limited partnership on shares) are all treated by the law as commercial
businesses. All members of these business forms must be registered in the Commercial
Register.
In the following sections the possible operational forms will be explained separately.

3. Sole Proprietors

As indicated by the name, this form always has one, sole proprietor. No limit is placed on
the proprietor’s liability. The name of the firm, the legal form of the business, the location of
the business office, the court of registration, as well as the number under which the firm is
listed in the Commercial Register, must be stated on all business correspondences and
letterheads.

4. General Partnership (Offene Handelsgesellschaft, OHG)

A general partnership (OHG) must consist of at least two partners. No limit is placed on
the liability of each partner. Legal entities may also be members of an OHG, regardless of
whether they were established under German or foreign law (comparable to a GmbH).
In principle, the right to represent the general partnership (OHG) as a whole, may be
exercised individually by all partners. The joint representation of the partnership by several
partners or the exclusion of individual partners from representing the partnership, however,
can be specified in the memorandum of association.
All business correspondences and the letterhead must state the firm, the legal form and
the location of the partnership, the court of registry, as well as the registration number.
In the event that all partners in an OHG are legal entities and, hence, their liability is
automatically limited, reference must be made to this by an appropriate supplement to the
company name (e.g. “GmbH & Co. OHG”). In addition, all business correspondences of
partnerships of this type must also contain the business names of the partners (Firma)
and their court of registration as well as the number under which the firm is listed in the
Commercial Register.

5. Limited Partnership (Kommanditgesellschaft, KG)

In a limited partnership (KG), at least two partners are necessary, one of which must have
unlimited liability (Komplementär) and one of the limited partners must have liability not
exceeding the value of his/her shares in the company (Kommanditist). The amount of
liability is not fixed by law. Legal entities, regardless of whether they are established under
German or foreign law (see GmbH below), may also be partners in a KG. In the situation
where the only partner with unlimited liability of a KG is required to have limited liability,
indications to this must be made by an appropriate supplement to the company’s name,
such as the commonly used “GmbH & Co. KG”. All business transactions and
correspondences of limited partnerships (KG) must contain the same information as the
correspondences of general partnerships.
As a general rule, the right to represent the company is held by the partners with unlimited
liability (Komplementäre) only.

6. Limited Liability Company (Gesellschaft mit beschränkter Haftung, GmbH)

The limited liability partnership (GmbH) is a legal entity in its own right. The required
capital of a GmbH must total a minimum of 25,000 euro at the time of the establishment of
the company due to liability reasons. The original capital contribution of each partner must
be at least 1 euro.
The contributions of partners are allowed to be made in kind. In this situation, the items
used to make the contribution together with their estimated values must be stated in the
partnership contract. The assessed value of such contributions must be stated in a special
report concerning the companies foundation on the basis of non-cash contributions.
The minimum payment to found a GmbH is one quarter of each original capital share,
provided these payments are made in cash and not in kind. The total sum, including the
full value of all payments made in kind, must, nevertheless, be at least half of the minimum
capital requirement (=12,500 euro). Failure to pay the nominal capital amount will in no
way reduce the liability of the individual. As individuals, partners are not directly liable to
the company creditors and, therefore, risk only the loss of their original contribution.
A GmbH may also be founded by a single individual as a so-called “Ein-Mann-
GmbH” (One-man-GmbH)”. In the event that the nominal capital contribution for an Ein-
Mann-GmbH is not paid in full, collateral is required for the outstanding balance.
Legal entities, regardless if they are licensed under German or foreign law, may also be
members of a GmbH.
Foreign legal entities may be recognized in the Federal Republic of Germany if they are
based in their native country and if their recognition would not offend common practices or
be in violation of German law. The recognition of foreign legal entities and other trade
associations is usually ensured by international treaties and agreements.
The GmbH is judicially and non-judicially represented by its managing director(s)
(Geschäftsführer). These individuals need not reside in the Federal Republic and may,
though they are not required to, be partners of the company. The directors are to be
appointed and dismissed by the corporation meeting of the partners and are to be listed in
the Commercial Register.
All business correspondences and letterhead must contain certain information about the
company including the firm (= name of the company), the legal form of the company, the
location and court of registration, its registration number in the Commercial Register, and
the first and surname(s) of the managing director(s).

7. entrepreneurial company at limited liability (Unternehmergesellschaft (UG)

haftungsbeschränkt)

Since November 1, 2008, a new form of the GmbH is available, the entrepreneurial
company at limited liability (Unternehmergesellschaft (UG) haftungsbeschränkt). It is a
simple version of a GmbH and can be founded with a capital of at least 1 euro. The
incorporation is easier and cheaper than the incorporation of a GmbH.
In order to achieve the capital of a GmbH one day, the UG haftungsbeschränkt is legally
required to set aside reserves of a fourth of the annual surplus. Having achieved the capital
of a GmbH, it may apply for a change of name and legal form with the Register Court.

8. Joint-Stock Company (Aktiengesellschaft, AG)

A joint-stock company (AG) is a legal entity in its own right. The minimum capital which is
50,000 euro consists either of par value shares having a minimum value of 1 euro per share
or of no-par value shares.
An AG can be founded by one single individual. All individuals, including legal entities, may
be members of an AG. It is to be both judicially and non-judicially represented by the
management board, which may consist of one or more persons appointed by the
supervisory board. The supervisory board must consist of at least three members. For
larger joint-stock companies (AG) other regulations determine the minimum number
comprising the supervisory board. The main duty of the supervisory board is to supervise
the business management of the manager or management board. Like the business
correspondences and letterhead of a GmbH, those of an AG must contain certain
information: the firm, the legal form of the company, the location and court of registration,
its registration number in the Commercial Register, the first and surname(s) of all
members of the management board and the first and surname of the chairman of the
supervisory board.
Information regarding the establishment and costs associated with the establishment can
be obtained from the Chamber of Industry and Commerce.

9. Branch Offices

Registered commercial businesses – both German and foreign – may establish independent
branch offices which qualify for registration in the Commercial Register
(conditions: own possession, separate bookkeeping plus the manager has certain freedom
in managing the branch office; decisions will be made according to the situation of each
case). Independent branches of this type normally carry the same name as the head office
and may or may not include a supplementary designation indicating that it is a branch. In
certain situations a branch may be permitted to operate under a different commercial
name.

10. Dependent Branch Offices - Permanent Establishments - Representive Offices

A dependent branch office, as opposed to a registered commercial branch office, has few if
any commercial operations of its own, such as purchasing, sales or service offices, or
delivery depots, etc. Such offices are not eligible for registration in the Commercial
Register, but must be reported to the local Department of Business (Gewerbeamt). An
official certificate stating that the head office is listed in the Commercial Register or in the
Register of Partnerships in the native country, must be submitted in person or through a
proxy.
In German law the term “permanent establishment” is not treated in the same manner for
both legal and tax purposes. Business activities lasting only a few days could require
registration as a permanent establishment at the local Department of Public Affairs (Amt
für öffentliche Ordnung). For taxation purposes, however, in accordance with the double
taxation agreements concluded between Germany and several other countries, business
activities are classified as permanent establishments only after activities exceed a period
of six months, or occasionally twelve months depending on the agreement concluded.

11. Information Offices

Offices providing information only are neither required to be listed in the Commercial
Register as a branch nor are they required to be registered as a permanent establishment
with the local Department of Public Affairs (Amt für öffentliche Ordnung). Information
Offices are rare due to the fact that all in-house business practices such as advertising,
customer service, maintenance and repairs, sales negotiations, and technical advice are
already regarded as commercial activities. Thus the establishment loses the character of a
pure information office. Establishments that can be considered information offices are
those, for example, that only stock information to be distributed upon request.

12. Company Names

The name of a firm (= “Firma”) can be constructed from the name of a person (information
concerning the proprietor), from a specific subject (information concerning the business
type of the company), or from a fictitious name. The individuality of the business can be
preserved, but the company name must contain distinguishing characteristics. The name
may also not include any false information that might lead to an incorrect understanding of
the business operations. If is important and required that all firms, which are listed in the
Commercial Register provide, on behalf of the firm, information as to the legal form of the
business.
It is advisable to consult the local Chamber of Industry and Commerce as to the
appropriateness of a proposed firm name and description.
Contact person:
IHK Region Stuttgart
Service Center Recht
Tel.: 0711 2005-688
Fax: 0711 2005-550
recht@stuttgart.ihk.de

© IHK Region Stuttgart, Chamber of Industry and Commerce of the Stuttgart region
This website contains general information and does not constitute professional advice. To
the extent permitted by law we exclude any liability whatsoever for any loss or damage
arising out of the use of this website or reliance upon its contents.
Document: 27080
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