One important question for company founders relates to the right legal form. This determines the legal framework in which the company operates and has a number of legal, financial, structural and personal consequences – in terms of liability, share capital and tax, for example.
There are essentially three types of company, which also differ in terms of legal liability. Here is the most important information on each of them:
• As an Einzelunternehmen (or ‘sole trader’), you are the exclusive owner of the business and you need no minimum capital, for example. However, you are also solely liable for the company’s debts with your personal assets.
• In a Personengesellschaft (or ‘partnership’) such as a GbR (Gesellschaft bürgerlichen Rechts, or ‘civil law partnership’) or OHG (Offene Handelsgesellschaft, or ‘general partnership’) you can form a company with one or more partners. No minimum capital is required here either. You run the company together with the other partners, but you and your partners are also personally liable for the company.
• You can form a Kapitalgesellschaft (or ‘corporation’) alone or with other partners, such as a GmbH (Gesellschaft mit beschränkter Haftung, or ‘private limited company’) or an AG (Aktiengesellschaft, or ‘stock corporation’). The formalities are more complex here – for example, you need a notarially certified memorandum of association and a certain amount of minimum capital. As a partner, however, you are not liable to pay any debts with your private assets; the liability is limited to your capital contribution, i.e. your share of company assets. A corporation is the preferred legal form if there are plans to involve other parties (business angels, venture capital companies) in the shareholder group in the future.
There are of course other legal forms for companies. The specific legal form that best suits your plans depends on various factors and must be carefully considered. You should therefore seek further information from the Chamber of Commerce and Industry (IHK) or the Chamber of Crafts (HWK)in your region, or contact the head office of the Institute für Freie Berufe (IFB) (PDF on external server). The Bavarian Chamber of Notaries (PDF on external server) and the Federal Ministry for Economic Affairs (BMWi) (PDF on external server) have produced further information on this subject.
You can also get comprehensive advice from an accountant, notary or lawyer and other useful contacts who are familiar with the process of starting a business.