Company formation – information and checklist

Setting up a company – well informed and step by step to your own company. Anyone who wants to set up their own company has made a big decision, which apart from joyful excitement may also instil a little respect.

But before the implementation of the unique business idea and the realisation of the highest dream job can begin, the first bureaucratic hurdle must be overcome: the formation of the company.

Topics in our legal advice

Our lawyers have provided you with basic knowledge with helpful detailed questions on company formation, an overview of company forms and a practical checklist in this article.

Table of contents

1. Forming a company – the basics
2. Advantages of the sole proprietorship
3. Company forms
4. Forming a company – checklist
5. Paying attention to the details
6. Obtain legal advice

Good to know – Basics of Company formation

What is meant by a company? When we talk about companies here, we mean associations of persons under private law that come together through a company agreement to achieve a specific purpose. These companies are legal entities under private law. There are partnerships, corporations and sole proprietorships.

Company formation – what are the advantages?

First of all, you are probably wondering what advantages a company, be it a partnership or a corporation, has over a sole proprietorship. At the top of the list of pros of a corporation is the limitation of liability, which, for example, limits the economic risk to the capital contribution in the case of a GmbH or UG. Anyone who has a partnership or sole proprietorship is also liable for the company’s debts with their entire private assets.

Company law regulates all essential concerns of the internal and external relationship of companies, including the topic of shareholder resolutions. This means that you operate within a framework of commercial law with a very high degree of legal certainty. At the same time, depending on the legal form, you have varying degrees of freedom in drafting the articles of association.

The corporate income tax applied here is also usually more favourable than the income tax for a sole proprietorship.

And finally, the simple transferability of shareholdings is an advantage.

Among the company forms, the GmbH is the most common in Germany. It enjoys a high reputation and creates trust among business partners.

And what are the advantages of the sole proprietorship?

For the sake of completeness, the advantages of a sole proprietorship should of course also be listed here. For one thing, it is much easier to set up a business, as no share capital is required. Here you can make all business decisions on your own without having to consult with anyone and the profits belong to you without restriction.

Who can establish a company?

All natural persons, provided they have full legal capacity, can take over the management. Depending on the legal form, a single founding member is sufficient (e.g. GmbH), while other forms require at least two persons for formation (e.g. GbR).

What are the costs of setting up a company?

Company formation: The costs vary depending on the form of company. Overall, you can expect costs to range from 600 to 1,000 euros. In the case of a GmbH, for example, the share capital of at least 25,000 euros must be paid in. The GbR, which does not require any share capital, is more favourable.

What form of company may it be?

Company law recognises various legal forms. Their choice needs to be carefully considered, as it has implications for tax and liability issues. Here we have listed the most important company forms and their relevant differences:

GmbH – the limited liability company

The limited liability company is the most common capital company in Germany. One or more persons can found it. The partner or partners are not liable for the company’s debts. For this purpose, a share capital of 25,000 euros must be raised at the time of formation, which can be made either in cash or in kind. Notarial certification is required for the formation, transfer of shares and amendments to the memorandum and articles of association. Please also read our information on the subject of GmbH managing director liability.

GmbH & Co. KG – the limited partnership with a GmbH as liable general partner

The GmbH & Co. KG is a limited partnership (KG) in which the personally liable general partner is not a natural person, but a GmbH or UG that is only liable with its assets. This legal form combines the advantages of a partnership with those of a limited liability corporation. This offers the possibility for silent investors to participate. Since two companies have to be founded for this purpose, the costs are comparatively higher and the administration more complex.

GbR – the civil law partnership – company formation

At least two persons are required to establish this partnership, which can be done informally. The common purpose may be any lawful activity. All partners are personally liable for the full amount of the company’s debts. The company name must contain at least the surnames of the partners.

OHG – the general partnership

At least two persons are required to form this partnership. The OHG is a modification of the GbR for the area of commercial transactions. All partners are personally liable for the full amount of the company’s liabilities. The OHG is a merchant within the meaning of the HGB and must be entered in the commercial register.

Formation of a KG – limited partnership

The KG is also a partnership and a special form of the OHG. There are two different types of partners here: the general partner is personally liable for the full amount, as in the case of the OHG or GbR, while the limited partner’s liability is limited to a freely selectable asset contribution. The limited partner’s limitation of liability must be entered in the commercial register.

UG – the entrepreneurial company (limited liability)

This form of corporation is a modification of the GmbH with lower share capital (from as little as 1 euro), but the suffix “(haftungsbeschränkt)” is required in the name and a reserve of one quarter of the annual surplus must be formed in the annual financial statements in order to build up equity capital.

AG – the public limited company

Three bodies are mandatory for the AG corporation: the general meeting of shareholders, the executive board and the supervisory board. Liability here is limited to the company’s assets; the shareholders are only liable for the payment of their contributions. Shares can be transferred without notarisation. Through an IPO or a short-term capital increase, the public limited company can provide financial liquidity more quickly. Information on the topic of pre-IPO shares can be found here.

Checklist: Setting up a company step by step

Company formation: Have you decided to set up a company on the basis of a business plan? Have you decided on financing and marketing? And have you already chosen the form of company that suits you best? Then you can start now! Our checklist provides a good overview of the process of setting up a company.

Step 1: Company name

The right company name should first appeal to you. Besides considering whether it appeals to the target group and is not misleading, it is legally required by the HGB that the name is not already used by another company, is not misleading and has distinctive character. A statement from the Chamber of Industry and Commerce is obtained for this.

Step 2: Purpose of the company

The purpose of the company can be profit-oriented or non-profit. Depending on the legal form, a specific corporate purpose must be defined; for example, in the case of a general partnership, it is tied to commercial business.

Step 3: Articles of association

A written and, depending on the legal form, notarised memorandum and articles of association regulates all internal and external relationships of your company and is required for the formation of the company.

Step 4: Notarial certification

To set up a GmbH, Gmbh & Co. KG, OHG or UG is required to be notarised.

Step 5: Share capital

First of all, you must open a company account into which the share capital required depending on the legal form is paid.

Step 6: iG – a company in formation

Company formation: Between notarisation of the memorandum and articles of association and entry in the commercial register, the limited liability company exists as a so-called founding company (pre-GmbH).And how long may a GmbH in formation take? In the case of a properly prepared formation of, for example, a GmbH, the formation period is 3-4 weeks. It is therefore worthwhile to get started early and well informed.

Step 7: Registration in the commercial register

When is a company incorporated? A corporation is not established as a legal entity until it is entered in the commercial register. Only now does the corporation acquire legal capacity and only now does the limitation of liability of the corresponding legal form apply. The date of formation is the date of entry in the commercial register.

Step 8 in Company formation: registering a trade

The company must be registered with the competent trade office at the municipal or district level.

Step 9: Registration with the tax office

Registration is usually done by means of a tax registration questionnaire.

The devil is in the detail – pay attention when setting up a company

Already during the formation of a company, you will repeatedly come across issues that may leave you somewhat perplexed. Whether it is the so-called shelf company that you want to fall back on because you do not have the time to set up a new company. You may already have to deal with public procurement law when setting up a company or later when selling shares.

This means that if you are looking for a co-partner or want to sell shares, this may be subject to public procurement law. We will be happy to advise you on these and other topics such as powers of attorney, insurance or sample protocols.

Legal advice for start-ups and Company formation

As a commercial law firm, the Herfurtner law firm is available to advise you on many issues on the way to setting up a company. Our law firm has offices in Munich, Frankfurt and Hamburg.

If you have invested in or made payments to one of the companies on this list, our lawyers will be at your disposal at short notice.