Establishment of a Limited Liability Company in Germany

Foreign businesses may establish their German operations as companies, partnerships or branches of the parent entity. The most commonly used company form in Germany is the Limited Liability Company (Gesellschaft mit beschränkter Haftung - GmbH). This form is favoured for its simple and flexible corporate and financial structure. The liability of shareholders is limited to the GmbH’s share capital.
Every place in Germany may be appointed as corporate seat of the GmbH, regardless whether this is also the place from which the company is managed.  According to that, headquarters may also be abroad; in particular is an exclusive business activity within a branch in another EU member state possible. However, it is mandatory to state a domestic business address in any registration of a GmbH, and this address is entered and published in the Commercial Registry.

For the incorporation of a GmbH, any business purpose is possible.

Capital requirements

The minimum share capital of a GmbH is EUR 25.000,00 and it is payable in cash or contribution in kind. Only 25 % (subject to a minimum of EUR 12.500,00) of the share capital has to be paid in upon establishment. On formation, each shareholder receives a single share in the amount of the share capital he holds. If contributions in kind should be made (e.g. machinery, patent rights or claims), both the object of the contribution in kind and the amount of the share, to which the contribution referrers must be fixed in the contract.

A GmbH does not issue share certificates and its shares are not freely transferable. Shares may be transferred to another shareholder or a third party by assignment. The contract of assignment requires a notarised agreement in order to be effective. Quite apart from any restrictions that may be laid down in the articles of association, shareholders have the right of first refusal before a shareholder may transfer his interest to an outside party.


For incorporation of a GmbH there must be at least one shareholder. Any number of additional people can take part at the constitutive act. Possible partners are both natural and legal persons, as well as other incorporated entities, e.g. General Partnership (Offene Handelsgesellschaft – OHG), Limited Partnership (Kommanditgesellschaft – KG). The establishment requires a company agreement (articles of association) which must include at least the firm, headquarters and business purpose of the GmbH, as well as the amount of share capital and the acquisition of capital contributions by its shareholders.

The supreme and deciding authority of the GmbH is the shareholders’ meeting in which the entirety of the shareholders is represented. Its competence covers all matters of the company, unless the GmbH Act (GmbH-Gesetz – GmbHG) or the articles of association provides otherwise. In these meetings the shareholders adopt resolutions. If a resolution is adopted unanimously, the shareholders may waive any formal requirements provided that stricter requirements are not specifically required by statute or the GmbHs articles of association. The shareholders may e.g. vote by e-mail. 

In the absence of specific majority requirements set out by statute or in the company’s articles of association, a simple majority is required to pass the shareholders’ resolutions. Nevertheless, certain decisions require a majority of at least 75 % of the votes cast. This is necessary for e.g. amendments to the articles of association, capital increases or decreases, mergers etc.

The liability of the shareholders is limited to the paid-up capital. The limitation of the shareholders’ liability becomes effective only upon registration of the GmbH in the Commercial Registry. The personal assets of the shareholders are not involved in the responsibility of the company. For losses from ordinary business activities of a GmbH, the shareholders are liable only if they caused these losses in an unlawful failure.

Management, Representation

The GmbH is managed by at least one general manager (Geschäftsführer) who does not need to be a shareholder, but can not be a legal entity. The shareholders may remain involved in the management of the business (even on day-to day basis) by means of general or specific instructions to the general manager(s). The general manager reports directly to the shareholders and may be removed by the shareholders at any time.

By operation of law, the management of a company generally has unlimited powers to represent the company with regard to third parties. If the management contains more than one person, all members have to act together to validly represent the company, unless the company’s articles of association provide otherwise. The general manager has collective signing authority with a second managing director or a procurist. If there is only one general manager, he has single signing authority. The members of the management are required to act in good faith and in the best interests of the GmbH. In some cases, the members of the management (and the supervisory board, where applicable) may become liable for damages caused by a breach of their duties, in particular if they act with gross negligence or with intent. 

Generally there is no compulsory corporate body, but a GmbH with more than 500 employees may be required to set up a supervisory board which must partly consist of representatives of the company’s employees. If the employees number is between 500 and 2.000, one-third of the seats fall to the representatives of the employees. The remaining two-thirds are elected by the shareholders. If the employees’ number is more than 2.000, the supervisory board comprises 12 seats. It rises to 16 where there are at least 10.000 employees and to 20 where the number of employees exceeds 20.000. In each of these cases, half of the seats fall to the shareholders und the other half to the representatives.

In some matters the shareholders have reclusive authority to decide. The following matters require the approval by the general assembly: the approval of annual accounts, the appropriation of profit, the appointment and dismissal of the managing directors, regulations for auditing and monitoring of management, the issuance of procuration or commercial powers of attorney for the entire business and the legal representation to the managing directors.

The appointment of one or more procurists is permitted. He represents the GmbH either individually or together with a managing director or another procurist.

Commercial Register

Companies have a separate legal personality. In order to form a GmbH, it is necessary to execute an incorporation deed before a notary. The GmbH comes into existence only upon registration in the Commercial Registry.

The deed of incorporation, a list of all shareholders and information relating to the general managers of the company must be filed with the Commercial Registry. That includes the company’s articles of association and notarised samples of general managers’ respective signatures. Any changes of this information must also be notified to the Commercial Registry.

Expenses and Taxes

When establishing a GmbH the shareholders must bear court expenses and notary fees for the certification of documents and the application with the Commercial Register. Furthermore, the costs of notice in the electronic German Federal Gazette (Bundesanzeiger) are to be worn. The total costs for the establishment of a GmbH with a share capital of EUR 25.000,00 usually amount to EUR 450,00 to EUR 550,00. Depending on the effort required, legal fees in an amount of approximately EUR 2.000,00 are to be worn. The registration of a company in the Commercial Registry normally takes between two and four weeks, provided that the required documents are complete.

Profits of the GmbH are subject to corporate income tax (Körperschaftssteuer). The tax rate is a flat rate of 15 % and applies whether profits are retained or distributed to the company’s shareholders. If profits are distributed to a domestic shareholder they are subject to witholding tax (Abgeltungssteuer). The tax rate is a flat rate of 25 % plus 5,5 % solidarity tax. In addition to the corporate income tax, company profits are also subject to a trade income tax (Gewerbesteuer) levied by the relevant local authority area.

Shelf Company

The delay associated with the registration procedure at the Commercial Registry can be avoided by acquiring an existing company (“shelf company”) from an incorporation agent for a fee. These companies are established by professional companies operating as legal services, equipped with the share capital and kept in stock. Despite full payment of share capital, guaranteed freedom of encumbrances and the lack of previous participation in economic transactions, acquiring a shelf company shall be deemed as an economically reestablishment. The jurisdiction aims that the GmbH exists as a loose entity; and in connection with the acquisition will be equipped with a company. As a result, the above regulations for establishing a GmbH, those designed to ensure the capitalization of the company are applied consistently. Furthermore the acquisition of share capital of the GmbH is also subject to the register court. Accordingly, the economic reestablishment is to disclose to the register court and the general manager of the GmbH has to assure that the shares have been provided. This insurance of the CEO shall demonstrate that if the company has already incurred losses, shareholders’ payments are not used up in whole or in part. Unless the disclosure of the reestablishment of the GmbH remains undone, this leads to a personal and generally unlimited liability of the shareholders. The liability model of impairment which is relevant for the legal formation of a GmbH may also apply in this case. The amount of shareholders’ liability corresponds in each case the difference in value between the share capital and the actual company’s assets at the time of disclosure. The defining period for the liability of the shareholders is insofar the period between the acquisition of the shell company and the disclosure of economic reestablishment. Finally is to note that the impairment as result of the undone disclosure does also impact those shareholders who were not involved in the process of economic reestablishment. Now also the shareholders who share their interest in the company after the reestablishment shall be affected by impairment. Concerning impairment it is irrelevant whether the new shareholders had positive knowledge about the economic reestablishment or not.

Corporate governance

All quoted companies in Germany, that means those with stock or capital market listing, and other “public interest entities” must follow the German Code of Corporate Governance issued by the Federal Ministry of Justice. The Code is intended to make the rules applicable to corporate management and supervision transparent for national and international investors in order to strengthen their trust in the corporate management of German companies.


Raymond Kok, Shanghai