Guides to living in Germany. Limited liability company (LLC) Germany. Many people opt for a company formation with limited liability when starting a new company in Germany. The most popular limited liability company (LLC) forms are GmbH and UG. Here is all you need to know about starting a limited liability company (LLC) in Germany:
Limited liability in Germany
Limited liability company forms GmbH and UG, are both very popular business forms among founders for a simple reasons: their liability is limited to the company assets, while the shareholders’ private assets remain untouched. Making them less financially risky, but certain capital requirements need to be met.
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Gmbh requires a minimum share capital of 25,000 euros, and only takes 1 euro per shareholder to set up a UG. For founders who starts with little equity, the UG is a more attractive business form. As compensation for its low credit rating, every UG has to set aside 25% of its annual net profit as reserves until the equity reaches 25,000 euros.
German residence permit
Both Gmbh and UG need at least one managing director. Germany requires them to provide a German residence permit (Aufenthaltserlaubnis) or a settlement permit (Niederlassungserlaubnis) to be able to register the company. In the instance you do not have a visa or residence permit that allows you to carry out self-employment work, you’ll have to get the paperwork sorted before you can set your company.
Schedule a notary appointment
A notary appointment is also required to set up a GmbH or UG, with all managing directors being in attendance. while shareholders have the option of being represented by an attorney.
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From August 2022, founders have two options in theory; attending the appointment in person or via video call. In reality, however, the digital option might not be available in every case. If available you will need the following forms of valid electronic identification to make use of it:
- EU / EEA citizens: ID or passport with eID function
- Other citizenships: Electronic residence permit (eAT), such as an EU Blue Card, ICT card or Mobile ICT card
You may not be able to start a Gmbh or UG in Germany If you are not able to attend the notary appointment in person, or you cannot provide the correct electronic identification to appear via video call.
10 steps to setting up a GmbH or UG in Germany
The formation process is exactly the same for both legal forms and quite complex. The following is a checklist guiding you through the process.
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1. Make some basic decisions
You first need to consider some basic foundational questions like
- Share capital and how much its going to be.
- Who will be the managing directors?
- who are going to be the shareholders of your company?
2. Determine your company name and purpose
You need to find a name that not only sounds right, but also sticks in the minds of your customers. Most importantly you need to make sure the name is permissible and not already taken. You also need to create a company objective determining your new business activities. You should;
- Confirm the availability of your chosen domain and trademark
- Familiarise yourself with the formal requirements
- Check with the chamber of industry and commerce (IHK)
3. Make clear financial questions
Next step is to consider important financial details, especially concerning the share capital:
- Make it clear how the company shares will be divided among shareholders
- Estimate total formation costs
4. Musterprotokoll versus articles of association
A Musterprotokoll also known as a standardised founding document template, is required for both legal forms. You can also draw up your own articles of association and customise them to suit your business arrangement:
- Confirm your business meets the requirements to use Musterprotokoll
- If possible decide the best variant for your company
- Get a lawyer to draft your articles of association if you don’t want to use Musterprotokoll
- Consult a lawyer specialised in company law when in doubt.
You are only eligible to use a Musterprotokoll if:
- Less than three shareholders
- Not more than one managing director
- Your company’s fiscal year is the same as the calendar year
5. Schedule a notary appointment
To setup your Gmbh or UG you need to schedule a notary appointment to certify the formation documents and prepare the commercial register insertion. you should:
- Gather all required documents ahead of time and clarify the details
- Let your formation documents be certified by a notary.
6. Open a bank account for your business
Soon after your notary appointment you should open a business account for your new company. Managing directors are required at the bank appointment and depending with the bank, shareholders might also need to be present. You have to:
- Attend the bank appointment and transfer your share capital into the new account as a cash deposit
- Send receipt of deposit to your notary
- Clarify all details with your bank beforehand
7. Conclude your commercial registration
Once all necessary documents are received by the notary, they will send your data to the commercial register. Then you need to:
- Label your letter box at your business address
- Pay the commercial register invoice
- Register your company and all beneficial owners with the German transparency register
8. Apply for trade registration
You also need to register with the trade office after you have been entered into the commercial register. This may be done in person, writing and sometimes digitally.
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9. Get a tax number
To receive your tax number and be able to issue invoices you need to:
- Seek consultation from a tax advisor
- Register your company with the tax office online using ELSTER
10. Start your business
You can begin running your business now, all you need to do is:
- Prepare your opening balance sheet and transfer it to the commercial register
- Register with the Chamber of Industry and Commerce (IHK) or the Chamber of Crafts (Handwerkskammer)