In Germany, the limited liability company is a GmbH, which stands for Gesellschaft mit beschränkter Haftung. That type of business entity, which has legal capacity, can be formed by an individual or another corporation. Due to GmbH’s adaptability and limited liability, it is the most common type of business in Germany.

The general characteristics of the GmbH are as follows:

Capital: This organization must have a minimum share capital of 25,000 euros.

Stockholders: there are no limits to the number or nationality of shareholders.

Directors: According to the Articles of Association, the firm is administered by a supervisory board.

Management: The GmbH may appoint one or maybe more managers who are not required to be shareholders.

Establishment of a GmbH in Germany

The German GmbH is a statutory body with rights and duties distinct from the shareholders. In Germany, the GmbH needs at least one stakeholder and a beginning share capital of 25,000 euros, with a nominal value of 1 euro per share. Before registering, at least 25% of the cash commitment and the whole non-monetary contribution (if applicable) must be paid in full. The initial pay must amount to at least 12,500 EUR. The accountability for the company’s commercial operations is limited to the GmbH’s assets, not the shareholders. For establishing a GmbH in Germany, the following actions must be taken:

• Knowing who will be the shareholders
• Creating articles of incorporation
• Obtaining the necessary share capital
• Getting a notarized certificate
• For registration, a notarized application must be presented to the commercial register court
• The registered court will review the application
• The GmbH will be established with the business registry and will notify all relevant authorities of its formation
• The registration of a commercial operation

GmbH Articles of Incorporation in Germany

All shareholders must sign and notarize the GmbH’s Articles of Incorporation. The following information must be included in the Articles of Incorporation:

• The company’s name and registration office
• The company’s goal of activity or activities; the share capital, including the number and value of shares, or the contribution of the stakeholders
• The company’s name may include the name of a shareholder or the business activity followed by the abbreviation GmbH, and the business activity must be explicitly mentioned in the Articles of Incorporation.

German GmbH registration in the Commercial Register

Following the payment of the capital contribution, the German business may register with the local Trade Register. These mentioned documents must be presented for registration:

• A notarized application forms
• A certified application forms
• The identification of the chief executive if his or her name is not contained in the articles of incorporation
• A list of shareholders, their identity information, and the nominal prices of their corporate shares

Taxation & accounting requirements

In Germany, a limited liability corporation is liable to a corporate income tax of 15%, plus a solidarity surcharge of 5-5.5% of the corporate tax. Therefore, the active corporate tax rate is about 15.8%. Other corporate taxes include the value-added tax & municipal trade tax.

In Germany, the GmbH is subject to German Generally Accepted Accounting and International Financial Reporting Standards. In the case of significant and medium-sized businesses, the yearly financial statements must be reviewed by a statutory auditor.

An EORI number is required for a GmbH trading within and outside the EU.

Establishing a Mini GmbH in Germany

The mini-GmbH is a subset of the well-known GmbH or the German counterpart of private limited liability business. It is essential for investors who want to establish their own company but lack the funds required to open a standard company. In some situations, the sub-form can be utilized to launch the business effectively, and it can then be converted into the GmbH once share capital is attained.

The proper type of business is determined by several elements, including the number of shareholders or the available share capital. We recommend that investors obtain specialized counsel from one of our specialists before making a formal decision based on their company needs.

What exactly is a German mini-GmbH?

In Germany, a small GmbH must have a minimum share capital of 1 euro, while a GmbH must have a share capital of at least 25,000 euros.

However, the mini-GmbH must compensate for the lack of beginning capital by putting a 1⁄4 of its annual profit into reserve until it reaches the minimum share capital of a GmbH. When the target amount is attained, the mini-GmbH will be transformed into a German GmbH.

How can I establish a micro-GmbH in Germany?

A German notary establishes the mini-GmbH in the same manner as the GmbH. The approach, however, is significantly more straightforward, with a mini-GmbH with a stakeholder sufficing to fill out a primary contract.

The founder must also show his or her passport and proof of the minimum share capital payment. A mini-GmbH should have its share capital contributed in cash, as share capital paid in kind is not permitted.

A customized contract is also recommended if the mini-GmbH has more than one shareholder. The company name includes the addition of the kind of corporation, UG, rather than GmbH.

The mini-GmbH must be recognized by the tax office and the social security system. It is also crucial to remember that once this business has been registered with the appropriate authorities, it must apply for any specific licenses for the field of business in which it works.

The notary will transmit the papers to the Trade Register once all of the processes have been completed. Foreign investors establishing a mini-GmbH may also establish a German virtual office to receive the certificate of incorporation.

What are the benefits of a German GmbH?

Aside from the share capital needs, forming a mini-GmbH in Germany provides numerous other benefits. Among the advantages are the simple registration procedure and decreased incorporation charges. Furthermore, the mini-GmbH is the best option for the sole German trader because the founder’s liability is restricted to the company’s assets.

Some investors may find that a mini-GmbH has fewer management responsibilities than a standard limited liability corporation to be a significant advantage. For this corporation, one manager is sufficient, and he is appointed by a shareholder decision (or indicated in the firm’s articles of association).

The following are the primary taxes:

• The corporate tax rate is 15%, and it is the primary tax levied on businesses.
• The value-added tax has a regular rate of 19%, with a reduced rate of 7% for certain types of products and services.
• The withholding tax is applied to payments, interest, and royalties, with 0-25%  depending on the provisions of Double Tax treaties.
• Social security contributions: the firm will generally cover around half of the social security payments; rates vary.
• Other taxes that apply to businesses in Germany include the real estate tax, the transfer tax, and the municipal trade tax.

Mini-GmbH owners will also be expected to comply with annual filing & tax reporting obligations. The tax year can be just like the calendar year, but it cannot extend a twelve-month period in any event. Companies file separate tax returns, which are done online.

Advance corporation tax payments are payable every quarter. Penalties of up to 0.25 percent of the required tax value may be imposed for late or inaccurate submission.

The mini-GmbH keeps one of the essential qualities of the standard GmbH: it is a limited liability business that protects investors in bankruptcy. This business form can be utilized successfully by entrepreneurs as an alternative to the lone trader, a more straightforward business form that does not provide the benefits of limited liability (in this example, the creator is liable for all of his possessions).

While the normal GmbH is generally regarded as the most popular business form and hence the most reliable and trustworthy, the mini variation can be employed by entrepreneurs and subsequently converted to the regular kind once the share capital is met. According to the law, the mini version is a transitory stage, with each such firm eventually growing and becoming a GmbH. Dividend receipt limits for shareholders may apply in this situation of the mini variation.

When deciding on a business structure, or more precisely among a GmbH and a mini-GmbH, it is crucial to examine the share capital and that the mini-edition will be an intermediate phase.

Damalion is an independent consulting organization that offers full-service company formation. We provide an extensive global service network comprised of specialized service providers in strategy formulation, target prioritization, deal sourcing, deal pre-screening due diligence, business model review and study integration workflows, and business diagnostics. Our German expert team can support you in launching your business in Germany. If you need further information on establishing a GmbH in Germany, contact a Damalion expert.