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How to... set up a business in Germany – 5 Steps to set up a GmbH (Limited liability company)

Why Setting Up in Germany?

  • The German market is open to entrepreneurial investment in all areas. There are no state-controlled industries, no permanent currency or administrative controls and no substantial restrictions on foreign investment in Germany. Foreign investors are generally subject to the same conditions as German investors.
  • Being a modern constitutional state with transparent, reasonable laws, Germany offers a high standard of legal security. Legal certainty is achieved through codification, contract law and contractual freedom. Among all countries, Germany ranks fourth in terms of legal security. Court - based public registers offer reliable data for commercial law and real estate and ensure legal certainty.
  •  The German banking system and the German financial services industry are stable and well developed.
  •  Germany is one of the world's most active trading countries, the EU's largest market and economy and the worlds third strongest economy. The German economy is characterized by privately owned small and medium-sized firms, the „Mittelstand" (85% of all businesses). This makes German industry very flexible, multifaceted and competitive.
  •  „Made in Germany"- a world-famous trademark and quality seal. "Made in Germany" stands for highest quality and plays a significant role in maintaining Germany's position as world export leader. Future Industries such as environmentally friendly energy production and nanotechnology are steadily gaining in importance.
  •  Germany's central location in Europe makes it a hub for goods and services. Germany has a highly developed infrastructure - a closely knit network of roads, railways and international airports and access to sea routes which guarantees swift connections.
  •  More than 7 million foreigners live in Germany. Approximately 70% of German blue- and white-collar workers speak English. The foreign communities have their own schools, mosques, shops and restaurants, etc. For example, a large number of Gulf - Arabs live in Wiesbaden, Japanese in the Düsseldorf region, many Koreans in the Frankfurt region and Chinese in Hamburg.

The Legal Process of Setting up a GmbH

German company law offers a suitable legal structure for every type of business. One of the most important corporate forms under German law is the GmbH. It is specially designed to meet the requirements of small and medium-sized enterprises (often family-owned and owner-managed businesses). Almost one million companies in Germany have opted for the legal form GmbH. In 2008, the German law on private limited companies was completely updated. It is now even easier and more straightforward to form and run a GmbH. GmbHs incorporated in Germany can even run abroad.

Anyone can establish a business in Germany - irrespective of nationality or place of residence. There is no specific investment legislation in Germany, nor is a minimum percentage of German shareholdings (sponsorship) required for foreign entrepreneurs setting up business. Foreign investors can choose between a variety of legal forms for conducting business in Germany.

A GmbH is a very common type of corporation in Germany. This form is used by both German medium-sized businesses and subsidiaries of foreign companies in Germany. The GmbH combines high flexibility with relatively few obligations. It can be set up by an optional number of shareholders. At least one shareholder is required (private individual or legal entity), a one-man GmbH foundation is possible. The nationality and residence of the shareholder(s) and the managing director(s) of a GmbH are irrelevant. Its office can be registered in a different locality then the place of its actual business activity. The place of its business activity may even be abroad. However, the GmbH must have a German postal address.

A GmbH must register itself with a share capital of at least € 25.000,00. It can be contributed in cash or in kind (e.g. real estate or patents). The founding act as well as the articles of association have to be notarized. As soon as the registration is completed, the corporation comes into existence.

A GmbH is managed and represented by the managing directors ("Geschäftsführer") that are chosen by the shareholders ("Gesellschafter"). A shareholder can also be a managing director. A managing director can be directed by the shareholders' resolution. 

The formation procedure of a GmbH can be divided into the following 5 steps:

Step 1: Drafting of Articles of Association

The articles of association shape the identity and constitution of the GmbH. Mandatory content includes business name, company object, registered office, share capital, shareholders and respective shares held. Due to the large scope for contractual design, the GmbH is a very flexible corporation.

Step 2: Notarization of Articles of Association

The drafting and notarization of the articles of association are normally performed in one session by a German notary. The founding shareholder(s) adopt(s) its articles of association and appoint(s) one or more managing directors in a notarial deed. The articles of association must be signed by all founding shareholders and notarized.

Step 3: Payment of Share Capital

Once the articles of association have been notarized, a company account should be opened and the share capital deposited. A payment of € 12.500,00 in total is sufficient for registration with the commercial register of a € 25.000,00 GmbH.

Step 4: Registration in the Commercial Register

Before taking up commercial activities the new business has to be registered with the public commercial register ("Handelsregister") and the local trade office ("Gewerbeamt"). Once the required share capital has been verifiable contributed to the GmbH, the managing director(s) apply for the registration of the GmbH in the commercial register. The application is electronically filed by a notary. It must be personally signed by all managing directors of the GmbH (power of attorney is not possible) and accompanied by documentation pertaining to the applying GmbH. In addition, the commercial register requires documentation verifying the existence of any parent company as well as the power of representation for persons acting on behalf of it. The commercial register checks if all formation requirements have been met. If that is the case, the GmbH is registered and comes into existence as a separate legal entity.

Step 5: Trade Office Registration

Before business operations are started, the local trade office is to be notified about the planned activity. Trade office registration must be submitted at the latest on commencement of business. In the majority of cases, a business license or permit is not necessary for registration. Only certain business sectors require a permit or authorization. Specific documents from the commercial register or equivalent abroad must be submitted in officially recognized translation excerpt form. Required permits and verification of representatives must also be submitted.

The trade office generally forwards the registration to the tax authority, the regional association of professional trading associations, and the local chambers of industry and commerce ("Industrie- und Handelskammer - IHK") or the chambers of craft ("Handwerkskammer"). Chamber membership is automatic and mandatory.

Rechtsanwaltskanzlei Boris Zimmermann assists their foreign clients in all stages of their business activities in Germany and provides them with individual tailor-made advice for their projects.  We shall be delighted to provide you with more details on this subject. We also offer comprehensive assistance for all issues relating to visa. Please do not hesitate to contact us. 

We speak German and English.

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            Rechtsanwalt Boris Zimmermann (Kanzlei Boris Zimmermann) Rechtsanwalt Boris Zimmermann

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