What Are Business Legal Forms in Germany
What are your options?
Around 80 % of businesses in Germany start with a sole proprietorship. But what are the other legal forms in Germany?
German legal forms of companies: Overview and criteria
You can become self-employment in Germany as a sole proprietor, partnership or corporation. The choice of legal form in Germany while setting up a business depends on various factors such as start-up capital or liability.
Basically, a distinction is made between legal forms for sole proprietors as well as partnerships and corporations.
On this page, you will learn which legal form in Germany is suitable for whom and compare legal forms such as the sole proprietorship as a small business, the GbR, the GmbH and the UG.
What are legal forms in Germany?
A legal form in Germany creates a legitimate framework for entrepreneurial activity. The choice of legal form impacts your tax and accounting obligations, the liability of your company.
The type of legal form in Germany determines the formalities involved in setting up a company as well as the way potential investors and banks assess your company.
Sole proprietors
- Freelancers
- Small trader
- Merchant e.k. as a fully qualified merchant under commercial law.
Partnerships
- Civil law partnership (GbR)
- General partnership (OHG)
- Limited partnership (KG)
Corporations
- GmbH
- UG (limited liability) as a mini-GmbH
- AG
- KGaA
Other
- Societas Europea (SE), a public limited company under European law.
What is the legal form in Germany for a sole proprietor?
A sole proprietor is anyone who sets up and runs a business alone, as a one-person entity. Several legal forms are possible for a sole proprietor in Germany.
A solopreneur can choose between different legal forms in Germany.
- Freelancer
- Sole trader
- Merchant e.K.
- 1-person corporation: 1-person GmbH, 1-person UG, 1-person AG
Legal forms in Germany for a freelancer or a sole trader?
Another fundamental factor influencing the choice of legal form for companies is whether the entrepreneur operates a trade or exercises a liberal profession as a self-employed person.
The freelancer differs from the commercial entrepreneur in that he does not pay trade tax. Businesses with commercial legal forms require registration with the Trade Licensing Office and are obliged to pay trade tax and become members of the Chamber of Industry and Commerce (IHK) or Chamber of Crafts (HWK). There are two types of commercial entrepreneurs, the small trader and the fully qualified merchants according to the Commercial Code. Fully qualified merchants are subject to stricter legal rules.
Legal forms for freelancers
Freelancer
Small business legal forms
Small trader
Commercial legal forms
Merchant e.K.
Civil law partnership (GbR)
GbR commercial
Partnerships
Partnership (PartG)
Corporations
Partner company with limited professional liability (PartG mbB)
Corporations
Can a freelancer set up a GmbH?
In theory, yes.
A GmbH is a commercial legal form in which an entrepreneur has to pay a trade tax. The advantage of freelance status is precisely that you do not have to pay this type of tax.
In some circumstances, freelancers may want to set up a GmbH for their business. Sometimes freelancers just want to limit their liability completely to the company assets. For this, they accept the disadvantage of trade tax.
Sole proprietorship with unlimited liability
- Freelancers:
For solopreneurs in a liberal profession - Sole Traders:
Commercial self-employment with simpler legal requirements - Kaufmann e.K.:
The so-called Vollkaufmann, which is subject to the regulations of commercial law.
Sole proprietorship with limited liability
- 1-Person-UG (haftungsbeschränkt):
The mini-GmbH with low requirements for starting capital - 1-person GmbH:
A proper GmbH with the sole founder as the sole shareholder - 1-person AG:
A very elaborate form of company for the sole founder
Which legal form in Germany is best for 2 people?
As soon as more than 1 person establishes a company in Germany, it becomes a partnership. The simplest form of a partnership in Germany is called GbR, also called BGB-Gesellschaft.
This is a safe way for founders to startup a business, especially because the financial risks are manageable. This is because with a GbR, the partner has unlimited liability.
When the company grows, the founding team can switch to a general partnership. In a sense, the OHG is the logical successor to the GbR.
If the founding team wants to limit liability from the outset, the UG (limited liability company) or the GmbH (limited liability company) are possible alternatives.
What are the legal forms for individual and partnerships in Germany?
There are a number of possible legal forms for sole proprietors, with which an entrepreneur can reduce his or her entrepreneurial risk.
Two or more entrepreneur or partners, on the other hand, set up a company in Germany. The most important company forms in Germany include partnerships and corporations.
Partners in a partnership type, on the other hand, are liable with their private assets. However, in a corporation partners have limited liability.
Unlimited Liability
Sole Proprietor
Solo-entrepreneur:
Small trader
Merchant e.K.
Partnerships
Partnerships:
GbR
OHG
KG
GmbH & Co. KG
Limited Liability
1-person GmbH
1-person AG
Corporations:
UG
GmbH
AG