Being the 4th largest economy in the world, Germany is a center of attraction for entrepreneurs who want to establish companies and expand their business networks from all over the world, as it is the central country of the European Union and with its stable investment climate. There are several ways for a business person to chase global opportunities in the German market. These are starting a new company, buying an existing company, or opening a branch.
There are many different legal forms of company types in Germany. These can be grouped under two general headings: 1) Capital Companies 2) Partnership Companies. Let us explain these types of companies in more detail.
There are three types of capital companies in Germany. These are:
The most striking feature of capital companies is that the shareholders do not bear responsibility for the company’s debts with their assets. When the company is insolvent, the company’s obligation is limited to company assets, and there is no recourse to the partners’ personal assets. The company has a legal personality and can borrow, lend, sue, and acquire property independent of shareholders.
Now let’s get to know these types of companies more closely.
It is the largest capital company type, and with this type of company, you can spread your share structure by being listed on the stock market. A company with an AR structure has a strong sense of institutionalism and professionalism. The share capital is a minimum of € 50,000, divided into individual shares. Therefore, partners can be easily changed by contract without any high cost or bureaucratic burden. The organizational structure of this type of company is regulated in detail by law. The AG’s organizational structure is highly institutional as three bodies (executive board, supervisory board, and general assembly) work side by side.
GmbH is the most preferred company type. There are more than one million GmbH companies in Germany. The minimum capital amount must be € 25,000.00. There are 2 main bodies in a GmbH: 1) the general manager responsible for the external representation and 2) the general assembly, which is the decision-making body where the shareholders come together. A controlled committee is optional and only legally binding if the company has more than 500 employees. A company can be established with a single partner, and the partner can also be the company’s General Manager.
Unlike GmbH, the minimum capital is only €1. Thanks to this type of company, entrepreneurs who do not have sufficient capital to establish a company such as GmbH have the opportunity to set up a corporate company. It is important to note that when 25% of the annual turnover reaches 25,000.00 €, the UG can be converted into a GmbH. In this respect, it offers the advantage of establishing a company with limited liability without having a high capital. A company can be established with a single partner, and the partner can also be the company’s General Manager.
The main difference between capital and partnership companies is that the shareholders are unlimitedly liable for all their personal assets. No minimum capital requirement is required to establish a company in this type of company. In addition, the company has the advantage of tax deduction in the amount of 24,500,00 € per year in the trade tax. Partnerships can be established with at least two persons or legal entities.
There are 3 types of partnership companies in Germany. These are:
Now let’s get to know these types of companies more closely.
It is the easiest way to partnerships. It provides an easy transition to self-employment. The activities of the company are carried out by issuing the main contract. Organizing a GbR is easy to run because shareholders are very flexible in changing the articles of association, and the company can structure it however they want. Legal requirements for such changes are minimal. Besides, the company does not have a particular title, the names and surnames of the shareholders must be stated in the company title. As GbR is a type of small business, it cannot be allowed to sell more than €500,000.00. After this limit is exceeded, the legal form of the company must be changed. The most preferred strain is OHG.
OHG’s articles of association must be notarized, and the company must be registered in the trade registry. These increase the costs of attorneyship and notary public. The accounting system should be more comprehensive than the GBR. Double-entry accounting should be maintained. It is subject to corporate tax due to its registration in the trade registry.
It is desirable for traders who want to raise capital or shareholders who do not wish to be individually accountable and do not want to be board members. There is a distinction between commanditist (limited partner) and complementary (general partner) or complementary. Complementary is the general manager and external representative of the company. The commanditist is only responsible for his contribution, and the amount of responsibility is determined in the articles of association. As a result, the Complementary also has limited liability and, despite being a Körpergesellschaft, no one in the company is personally liable.
As can be understood from the detailed explanations above, there are many different types of companies in Germany. The nature of the work to be done, the amount of capital, estimated sales volume, and tax advantages are evaluated, and the most suitable company type is decided with good consultancy. It is possible to switch from one type of company to another as needed. Of course, these transition processes involve attorneys, notaries, and consultancy fees.
There are more than 1 million GmbH capital companies in Germany. It is the most common type of company. It corresponds to the limited company type in Turkey. GmbH is formed by registering the company’s articles of association in the trade registry. Shareholders make their decisions at the general assembly. The articles of association must specify the number and par value of the shareholders’ shares. The nominal amount must be in total Euros; therefore, the minimum nominal amount is EUR 1.00. A single person can also establish a GmbH. When it is established with more than one shareholder, one or all of the partners may be a legal person. Starting a company in Germany takes place in the presence of a notary public. Suppose it is not possible for the shareholders of the company to be established to come to Germany. In that case, it is possible to carry out the transactions by issuing a power of attorney on behalf of a third party with any notary public in Turkey.
After the notarization of the Articles of Association, the Associate Company (VorGmbH, GmbH i.G.) is considered to have started its operations. Afterward, the Limited Company is considered to be legally established by the registration of the company in the Handelsregister by Amtsgericht where the company headquarters is located.
The company may perform any activity that is legally permitted. The capital of the GmbH company is minimum 25,000,00 EUR. At least half of the capital must be paid in cash or in-kind when an application is made for registration in the trade registry. Upon company registration, the general manager must make a statement that the minimum ordinary capital has been paid.
The necessary procedures for the establishment of the company are as follows:
When the nominal capital is set, and the articles of association are notarized, the Notary GmbH must apply for registration in the trade registry with the following documents:
After GmbH (Limited company), the most common type of Company in Germany is AG (Aktengesellschaft), ie joint-stock company. Like other capital companies, a joint-stock company can be established by one or more natural or legal persons. In joint-stock companies, as in limited companies, the articles of association of the company must be notarized.
According to German legislation, a joint-stock company must be established with a capital of at least 50,000 Euros, and this capital must be divided into shares. Each share must be worth a minimum of 1 Euro.
The establishment of joint-stock companies is briefly as follows:
Pre-establishment consortium: It covers the process from notary public approval of the company’s articles of association.
Associate Company (Vor-AG): In the period between the notary approval of the company’s articles of association by a notary public and its registration in the trade registry, the company in question is legally in the status of a subsidiary company.
It becomes a Joint Stock Company (AG) after registration in the trade registry.
The tax types that joint-stock companies are liable for are:
Corporate Tax (Körperschasteuer)
Tax paid in case of withdrawal of profit from the Company (Kapitalertragsteuer)
Trade Tax (Gewerbesteuer)
Value Added Tax (Umsatzsteuer)
Immovable Transfer Tax
Establishing a sole proprietorship may be an option if the business you intend to establish has a low annual sales volume and if you want to start a business quickly away from bureaucracy. In this type of company, your earnings are taxed according to income tax, not trade tax. There is a tax exemption of up to 24.500 EUR. The entire profit is at your disposal. In addition, as a result of your commercial activities, you are responsible for all your assets.
You do not need to put up capital to establish a sole proprietorship. However, if your invested capital exceeds EUR 25,000, the type of company must change. Again, although it differs according to the states, you need to change the type when your company’s annual turnover exceeds a certain amount or when you employ more than 5 workers. Also, annual financial statements do not need to be presented clearly, so you avoid bureaucratic work and, therefore, accounting-related processes.
Whether your business qualifies as a small business (Kleingewerbe) or a commercial enterprise (Eingetragener Kaufmann or Eingetragener Kauffrau), you must be registered in the trade registry.
In Germany, small businesses (Kleingewerbe) are not expected to be registered in the trade registry, while commercial enterprises must be registered in the trade registry. Freelancers (self-employed) are not considered small businesses.
There are different processes to starting your company, depending on whether you are a small business, freelancer, or commercial enterprise.
If you are entering small business status, you must register with a trade office that will report to the tax authority on your behalf. When you fill out and send a tax form that will reach your address from the tax office, your company’s first steps are taken.
If you are a freelancer, you must register directly with the tax office instead of the trade office.
Commercial enterprises, on the other hand, must register with the trade registry through a notary public before registering with the trade office.
The GmbH establishment is not dependent on the nationality of the shareholders or managing directors. Even foreigners can set up a GmbH without permission or be appointed general manager. There is no need for a residence permit to move an existing company in Turkey to Germany or to establish an individual company in Germany. In this regard, German legislation has no legal obstacle for foreign nationals.
A foreign manager with a residence or residence permit, i.e. residing in Germany, can manage a GmbH without legal obstacles. The same applies to EU citizens with freedom of movement.
Can a foreign person who is not an EU citizen and does not have a residence permit from the company’s General Manager?
Currently, there is a consensus that general managers do not need any residence permits. Discussions are centered on the fact that general managers should have the opportunity to reside for at least three months in a calendar year. Therefore, we recommend that the trade registry be clarified regarding this situation because there is no standard practice across the country. Those who are EU Citizens and do not have a residence permit but wish to be self-employed in Germany do not need a special work permit. A self-employed person can perform their self-employment without needing any other license after obtaining a residence permit. For a planned stay of fewer than 90 days, only an application for a ‘Schengen Visa’ is sufficient. For an intended stay of more than 90 days, a self-employment visa (i.e. ‘national visa’) must be applied for at one of the German consulates abroad. The relevant consulate then forwards this request to the responsible immigration office. The Immigration Office planned in Germany and located at the place of residence then decides on this request. This process can take two to four months.
A foreign company can operate in Germany in four ways:
Although the subsidiary in question is a subsidiary or subsidiary of another company in which the majority of the shares are held, it has its legal personality. The said company may be established as a Joint Stock Company (AG), Limited Liability Company (GmbH), Limited Partnership (KG) or a sole proprietorship. You can refer to the above explanations regarding these companies’ establishment stages.
Branches do not have an independent legal personality. There is a subsidiary of the parent company. The point to be noted here is that there is an organized network of its own within the borders of Germany. In addition, the branch must operate in the same field as the parent company. Even if the branch does not have its assets, it is necessary to have a bank account and accounting. The branch should be able to operate independently, and the manager who manages the branch should also be independent and have the authority to represent and work the branch independently.
Subsidiaries operate under the parent company abroad; unlike subsidiaries/affiliates, they do not have a current area of independent action. The activities of the subsidiaries are generally to assist the parent company and carry out some organizational operations.
The representative office may operate independently, but the subject of activity of the company to which it is affiliated is not specified here. Representations are not required to be registered in the trade registry. The said representative office can only carry out market research and promotional activities in Germany. The managers or employees of the existing representative office do not have the right to sign contracts and issue invoices. The central company must issue these.
Investment Incentives in Germany
In Germany, incentive programs are given depending on conditions such as the employment the investment will bring and its contribution to the development. Incentives are provided in the form of grants, loans and guarantees. There are more than 3000 incentive applications to different sectors in Germany. Development, R&D, and personnel employment incentives are the leading topics. In addition, there are incentives in the form of affordable public loans and loan guarantees. Since the incentive programs are comprehensive, we recommend making the necessary examinations and applications through an investment consultant in line with your business plans.
First, you need to create a business plan. Before starting a business plan, visiting Germany and making business contacts and connections with a local partner is extremely important. Again, starting with the support of a consultancy company that knows the German market well will be the lowest cost strategy and will provide you with investment consultancy and market research services.
We recommend that you create your vision and at least a 3-year strategy plan within the framework of the business plan. Within this strategy plan, it is crucial to determine the sector and business in which you will operate, clarify your goals and objectives, and draw up your investment budget.
The next step after research and planning is to take action. The strategy with the lowest risk and cost in a foreign market is to advance through partners or consultants who know the German market well.
Opening an office in Cologne, MHR & Partners established local partnerships in Germany, the Netherlands, England, and Belgium as part of its strategy to become a global company. With the help of these partners, we offer end-to-end turnkey solutions and consultancy services for you to establish a business from scratch safely and quickly and manage all the processes you may need after the establishment.
You can contact Sworn-in Certified Public Accountant Mehmet Akif Özmen directly (+90 542 830 3408 or email@example.com) to set up a business in Germany.
As MHR & Partners, we are directly and indirectly active in more than 20 countries worldwide. We aim to operate with 10 branches in 100 countries in 10 years. We offer you end-to-end consultancy and support services in establishing a company, obtaining a residence permit, and in all operational processes abroad, primarily financial issues.
Our priority is to provide consultancy services to companies with a growth vision and business strategy abroad. We attach particular importance to the uninterrupted continuation of our services with the assurance of MHR & Partners (Mühür YMM AŞ) after the company establishment stages. Our core mission is to be a safe harbor and provide sustainable services.
We want to be a bridge to our customers’ business plans for growth and development, even in the most remote parts of the world.
To establish a business in Germany, you can contact Sworn-in Certified Public Accountant Mehmet Akif Özmen directly (+90 542 830 3408 or firstname.lastname@example.org). If you wish, you can reserve a meeting by filling out the form below.
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