A Brief Guide To Forming A German Company

Business formation in Germany can also be explained as a number of steps that every company has to go through with the consideration of preparation of all the necessary documents as well as its registration with the German authorities.

To initiate the process of establishing a company in Germany, it is necessary to develop the articles of association and other necessary documents such as specimen signatures, copies of passports, and special forms from the company registration department. It is mandatory that some of the documents need to be signed by the investors in front of a public notary in Germany. Company formation in Germany also involves searching for a registered office, obtaining a bank account, and employing an accountant for the specific firm.

Different Types Of Companies In Germany

If you are thinking of establishing a business in Germany, please see below for major types of business legal structures in Germany. 

German GMBH

Limited Liability Company also known as GmbH-Private can be formed in Germany by one or more investor with share capital of not less than 25,000 EUR. If you really wish to open a company in Germany as a GMBH, then you should note that the company’s capital can be paid in cash or in kind; in the later case, the value of the assets must be stated in the articles of association. There is one problem that the shares of the German GMBH cannot be issued to the public as well as float at the Stock Market. The General Shareholder’s Meeting is the one that must provide the management of the GMBH. The ordinary management of the company is carried out by the company’s director who is elected by the general meeting of the shareholders.

AG-German Joint Stock Company

This is ideal for large businesses since it can expand the initial capital through the listing of the shares to the Stock Market. The share capital of the German AG must be at least 50 000 EUR. The members’ liability is limited to the amount of subscribed capital they contribute; this is similar to the joint stock companies. This is backed up by the management board that is subjected to periodic monitoring by a supervisory board comprised of not less than three members. In the case of this business type, the accounts need to be audited by a statutory auditor.

German Limited Partnership 

Formed by two types of partners: the limited partners who must contribute an amount of money to the firm can share in the profits which the general partners are bound to share with them, and the general partners who do not have to contribute to the capital of the firm but are held personally liable for its debts and who can take profits. While the general partners have full management capacities, in the German limited partnership company, the silent partners do not have any voting power or cannot make any decisions concerning the operations of the company.

Sole Trader 

Created by a single person out of his own property and does not have mechanisms to shield itself in the event of bankruptcy of the entity.

Branch 

Branches are also one of the most preferred ways of entering the German market and many foreign investors use this method as the initial stage of their business. The branch is not a legal entity; therefore, its property is the property of the parent company; likewise, its debts are the debts of the parent company. If you want to learn more about specificities of these types of structures, please contact FastLane Group company formation specialists.

It is very easy to open a company in Germany. We will be explaining a list of all the requirements to start a business in Germany in the next section. If this information seems overwhelming, don’t worry. By consulting with FastLane, our experts will assist you, ensuring your business is incorporated as quickly as possible.

The Company Formation Steps In Germany

All the laws and regulations associated with the formation of a company in Germany can be found in the Company Act.

The early stages of company incorporation in Germany involve checking the availability of the company name with the local chamber of Industry and commerce drafting the Company’s Articles of Association and opening a bank account. The share capital according to the selected business structure is the minimum share capital which is deposited in this account. 

Here are the steps involved in company formation in Germany. 

1. Choose a company type: These include the limited liability company, the joint stock company, or the partnership.
2. Choose a company name: the name of the new legal entity must be unique and should check if it is available. 
3. Execute the deed of formation: this should be done before the notary public in Germany and the founders also should draft the articles of association.
4. Deposit the share capital: In some business forms, it is mandatory to have a minimum amount of paid-up capital, which is remitted to a business’s account in a bank.
5. Register the business: the formation process concludes at the stage where the company is entered into the commercial register.

The founding partners are required to complete the application form of registration and then have the document notarized. When entering the business, one major change that occurs for the founders is the registration of the company.

Below, we have outlined the general workflow of starting a business in Germany using an infographic.

The Process Of Company Incorporation In Germany

The documents, that need to be provided to the German Commercial Register to begin with the registration are as follows: 

• A registration application
• The original copy of the notarized articles of association
• A document that provides a list of managers and other officials on the management board.
• A certificate showing evidence of the share capital deposited.

All the provided documents have to be submitted in an electronic format. Finally, on the electronic platform, the Commercial Register records the registration of the new legal entity.

In the company registration process in Germany, after the submission of the documents, an application is made for the trading license from the local Office of Business and Standards, as well as registration at the statistical office (which will send the company a questionnaire that has to be filled in with business data), the chamber of industry and commerce and the labor office. An eight-digit operating number will be provided to the labor office and must be declared for the social security. In the next step, the entity is required to apply for the federal health insurance office. The new business entity to be formed must send a notification to the Tax Office that results in the registration of the corporate taxes and VAT.

When the company is registered, the business is set up and can operate legally. Many of the German companies will also recruit employees shortly after the inception of the companies. The employers get access to a supply of well-trained employees and this can be obtained by either going to various job portals or using the services of a recruitment agency. This makes the selection process relevant so that the employees can produce the best candidates for the open positions. 

The companies have to follow the local accounting standards and the requirements for filing and auditing their financial statements. The existing GAAP of Germany is acknowledged for accounting purposes together with International Financial Reporting Standards. The annual financial statements, management reports, and other documentation should be filed by companies that are medium or large within three months after the fiscal year, which may also be the calendar year. This means that these types of companies must also audit these documents. 

Germany is among the most desirable destinations for investment among all the countries within the European region. Its strategic position for other EU markets, as well as its good infrastructure and the highly educated labor force, suggest that it is suitable for investment in several areas of business activity. One of the significant sectors is the research and development department although investment ventures are available, especially in the major cities.

How Does Company Information Change Updated?

If the business owners have to make a change regarding the trade or the business activity then they can do it with the help of a single point of contact. These changes require propositions when the company changes its activities or the location of the branch in Germany. Business owners must also make the relevant authorities aware of the presence: 

• All changes concerning the geographical scope of the extensive business activities (apart from the change of the main activities themselves).
• The changes in the company names;
• The changes that take place in the organizational structure of the business that is enrolled in the commercial register.
• Changes in the information published about the company directors.

Some fees will be associated with the newly registered changes. If you want to de-register a company, that is no longer operating its activities, our team will be able to assist you.

Foreign Investment and Company Formation in Germany

Germany is one of those countries that are rather liberal in terms of foreign investment and the Government encourages projects that result in the generation of employment opportunities. The main conditions for entrance of foreign entrepreneurs are established by the foreign trade law. There are a few restrictions such as in defense and there are conditions that need to be met for public order.

The foreign investors investing in Germany are given the same privileges as other investors in the country in matters concerning to the opening of a company, acquisition of special permits and license, application of building permits as well as investment incentives. The procedure of the formation of a Company in Germany is not complex but some of the investors may lack proficiency in the language. In such circumstances, we suggest that you contact our team who has dealt with the foreigners and who will assist with the correspondence with various German bodies. If you wish to start a company in Germany, we can help you so that you can begin the process of company formation with minimal hassle.

How Much Does It Cost To Start A Business In Germany?

• Company Formation Fee: The costs for legal entity formation for incorporating a company in Germany are roughly about 2,000 euros.
• Virtual Office Costs: A virtual office package costs approximately 208 euros every month.
• Accounting Costs: Accounting service providers for German companies start from 100 euros per month.
• Registration Fee: The registration of a GmbH in Germany may cost approximately 400 euros, plus other fees such as notary fees.
• Minimum Share Capital:
  • For a limited liability company (GmbH), the minimum value of the share capital is 25,000 euros.
  • For a Mini GmbH, the minimum share capital is 1,00 euro.

Please Note: All costs mentioned above are estimates and may vary on a case-by-case basis. Please contact us for an accurate quote tailored to your specific needs.

To start a company in Germany you are required to go through some pre-requisites. First of all, check that the chosen type of company is the right legal structure for the business. Then, ensure you fulfill the share capital regulations that have been put in place. For example, the minimum amount of capital required when registering a limited liability company is 12,500 euros.

Special Incentives In Germany

Some of the tax incentives when doing business in Germany are direct subsidies, grants, and loans. Additional measures can also be used as federal or regional ones; that is why we encourage investors to get in touch with us before starting new ventures. Depending on the type of business, we can also assist the entrepreneur about which specific solution is ideal for him or her in terms of tax incentives. The country is very popular for its emphasis on Research & Development projects through other fields like renewable energy, social housing, health care addition to, agriculture, etc.

What Is The Time Frame For Incorporation Of My Company In Germany?

Before starting a business in Germany, a legal entity can be registered in this country in about 11 days if investors adhere to all of the presented steps and have proper documents. 

Having the right legal advice when drafting the incorporation is important to investors as it ensures that all the papers that is used is legal and that the process is smooth. The lawyers in Germany that specialize in company incorporation can be of assistance to investors in starting a business. We can accompany the client at all these stages and offer individual consultations, if necessary when starting a business in a certain field of activity. Also we can help the business owners to apply for more special permits and licenses once the business is registered.

After incorporation, the company may require special permits/licenses as well as EORI number registration in Germany if the company is involved in trading within and outside the EU region.

Hire Employees in Germany

The recruitment procedure in the German market is often long which is why it is better to hire a recruitment agency to select the proper candidates for the positions.

Before hiring a foreigner, the entities should know that apart from the passport, a residence permit is required. The residence permits encompass work and residence permit authorization. These permits are obtained from the embassy or general consulate from the home country of the applicant or from the Alien Registration Authority in the case where the applicant is already residing in Germany. Generally, a residence permit is given with a validity and thus it is recommended that employment contracts be made only on that validity.

As a general rule, the following documents should be submitted once the contract has been signed.

• The Wage Tax Card;
• The German social security card;
• The Certificate of Receipt of Child Allowance;
• The Holiday Certificate;
• Recognition of assets generating advantages: work reference or leaving certificate, for foreign employees from a non-member state of the EU – a residence permit.

What Are The Factors of Interest For The Foreign Investors?

Germany is still ahead of all other countries in Europe in terms of attractiveness for investments. The largest market in Europe and the central strategic position makes Germany the third powerful economy in the world. The key economic feature of Germany is that 85% of all enterprises belong to the category of small and medium-sized enterprises (SMEs). This is the reason why Germany is famous for the quality of its products, the exports also help define the high standard of the German economy. The economy is dominated by the service sector contributing to about 70% of the total GDP, followed by the industry with 29.1%, and agriculture 0. 9%. People who wish to engage in business ventures in Germany should note that the rights of investors are protected by the clear and rational legal systems. Indeed the legal system is emulated by many jurisdictions and the country occupies the fourth place in the top of the legal security issue.

Germany is also in the top of innovations, due to the beneficent cooperation between the industry and the research institutes. Investors engage in import and export activities in Germany, and EORI registration is necessary for these.

What are the benefits of a holding company in Germany?

The holding company can immersive several benefits which make Germany an attractive country for the foreign investors. The benefits include the following: 

• No withholding taxes on the shares to be received as dividends locally as well as those to be paid abroad;
• No withholding taxes on liquidation distributions;
• The exclusion of capital gains when it comes to the sale of shares 
• The deductibility of finance costs;
• Current value depreciation and goodwill liberal anti avoidances legislations and thin cap Rules.
• There are no controlled foreign corporation rules;
• A well-developed and extensive system of double taxation avoidance treaties;
• The low corporate income tax rate at 15%.
• Relatively low VAT rate (19% and occasionally only 9 %) and there is no exit taxation either.