Founders should decide on the legal form early to ensure legal protection. Setting out your startups’s goals and the amount of available capital can ease this decision. Click here for an overview of legal forms in Germany.
How do I find the right legal form?
The legal form defines the framework of an economically active company. The various legal forms differ mainly in terms of ownership and risk distribution as well as the liability of the managing directors. However, not all legal forms are suitable for founding a startup.
1. Civil law partnership (GbR)
This is a simple, flexible and informal partnership that is sealed by a contract between two people. The purpose of a GbR can be of an economic or non-economic nature.
Advantages:
A GbR can be set up informally and does not require any minimum capital. The partnership does not have to be registered in the commercial register. This legal form also gives your company a great deal of flexibility, as the structure of the company is not subject to stringent requirements. Taxation is also straightforward as a GbR is transparent for tax purposes. Thus, income is attributed directly to the partners and declared under their personal income tax.Disadvantages:
As a partner in a GbR, you are personally liable with your private assets for all of the company's business dealings. This can be a major risk, as each partner can be held jointly and severally liable for all of the company's liabilities. If a partner decides to leave the company, this can jeopardise the existence of the company, as GbRs are usually dissolved in such cases. In addition, a GbR is not a legal entity and cannot act independently e.g., like a GmbH. This could also mean that you are not recognised by larger business partners.Civil law partnership pays off in the following cases:
A GbR should be used for small, low-risk projects. The partners should know and trust each other as the company’s existence may depend on it.
2. (Limited liability) entrepreneurial company (UG)
UGs are a type of mini-GmbH and are a cheaper alternative to the usual GmbH. UGs are formed by notarised articles of association. A simplified formation using a so-called model contract is also possible.
Advantages:
UGs are characterised by significantly lower startup capital of at least EUR 1. If you set up your business as a UG, unlike a GbR, you are not liable with your private assets and therefore have more financial security. However, UG startups remain quite flexible, as the management and distribution of profits can be freely determined. Once your startup has generated the startup capital for a GmbH, you can also convert it into a GmbH.Disadvantages:
Due to its reputation as a “mini GmbH”, your company may not be considered as trustworthy by some partners as a “real” GmbH. And despite its advantages, the low share capital can have negative aspects. If your startup runs into financial difficulties, creditors run a higher risk and obtaining a loan may be difficult. In addition, UGs are obliged to invest 25 percent of their annual net profit as reserves which could decelarte the company's growth, if fewer investments can be made as a result.(Limited liability) entrepreneurial company pays off in the following cases:
A UG is attractive, if you want to found a startup without the capital needed for a GmbH. By limiting your liability, you can limit your personal risk, but careful (financial) planning should always precede the foundation.
3. limited liability company (GmbH)
The GmbH is a common legal form for companies in Germany. It is founded by means of a partnership agreement (articles of association), which must be notarised. The GmbH is then entered in the commercial register.
Advantages:
Similar to a UG, your GmbH is subject to a limitation of liability and you cannot be liable with your personal assets, so the personal risk is lower. As a legal entity, your startup can act independently and has more legal security and integrity. This legal form also leads to more flexible structures within your company, e.g., in the distribution of voting rights among the shareholders.Disadvantages:
The cost of setting up a private limited company is probably its biggest drawback. Apart from the cost and the bureaucratic steps involved, a share capital of EUR 25,000 must be available (50 per cent in liquid assets and 50 per cent in fixed assets). The legal form of a GmbH is also subject to a number of legal regulations. Accounting and disclosure requirements, among others, require special attention and administrative resources.GmbH worthwhile in following cases:
A GmbH is perfect for founders who want to benefit from limited liability and are willing to meet the administrative requirements at the same time. The GmbH legal form provides a solid foundation for companies of all sizes and is often chosen due to its limited liability and professional, reputable image.
Detailed article on different legal forms for startups:
Startup City Hamburg
Choice of legal form
General introduction to choosing the right legal form, followed by a brief description of the most common legal forms
Handelskammer Hamburg
Types of foundation
Overview of the different types of startups. Particularly relevant for digital founders: as an individual/team, spin-off or spin-off foundation
Gründungswerkstatt Hamburg der Handelskammer Hamburg
Entrepreneurial company (UG)
Comprehensive information on the UG (haftungsbeschränkt)
Existenzgründungsportal des BMWE
Limited Liability Company (GmbH)/Unternehmergesellschaft (UG)
Comprehensive information on the GmbH and UG (haftungsbeschränkt)
Handelskammer Hamburg
Civil law partnership (GbR or BGB-Gesellschaft)
Comprehensive information on the GbR or BGB company
Handelskammer Hamburg
Consultancy & Coaching
General legal information
General information on legal issues as part of business support
hamburg.de
hei. Seminar programme ‘Law’ – Calendar
Overview of all hei. dates and seminars from the hei.scheckheft programme. The hei.scheckheft is a compilation of various seminars that are relevant for founders. A subsidy of EUR 500 is available for hei. seminars.
hei. Terminkalender
Bucerius Gründerkompass Law
A workshop for startups focusing on the legal hurdles in the various phases of market entry (is held annually)
Bucerius Gründerkompass Recht
Notary search (via search engine)
Fee-based consultation request for notary search
Hamburgische Notarkammer
Software & Templates
German legal forms for companies
By answering a few questions about the startup, this legal form finder helps you to decide on a suitable legal form.
Gründerplattform (BMWK)
Sample template for the formation of a civil law partnership (GbR)
Sample contract for the formation of a civil law partnership (also known as a BGB partnership).
Handelskammer Hamburg
Last accessed: Feb 2024