Establishing a German Company

von | 23. August 2003 | German Business Law

Several options exist for establishing a German company, three of which will be discussed here. The first is the “Gesellschaft mit beschränkter Haftung” (private limited company), the second being the legal form of an “Aktiengesellschaft (public limited company) and finally the “Gesellschaft mit beschränkter Haftung & Co. KG” (private limited company with a limited partner). Actually there exist more options, for example the cooperative (Genossenschaft), the mutual insurance association, the partnership limited by shares (Kommanditgesellschaft auf Aktien) and the European Economic Interest Grouping (Europäische Wirtschaftliche Interessenvereinigung).

1. Private international law 
Corporations raise a variety of conceptual problems. Assuming a german court has jurisdiction you next need to think about which state´s laws should apply where the case involves contact with several different states. Under German private international law traditionally all rights and obligations respecting a company were deemed to be created by the law of the situs of the company. The situs of a company was determined by the seat of the legal headquarter of the company. Thus all questions concerning the legal status of a corporation, such as whether the individual members are personally liable, whether its transactions are ultra vires, or whether it may be represented in legal proceedings by its directors, were determined by the rules of the state in which the corporation had its social seat (headquartes). Consequently foreign companies created by the law of the place of incorporation and having their headquarters in Germany could not be recognized. Since the ECJ decided in 2002 in the Überseering-case (C-280/00) that German international company law was not conform to EC-law, the Bundesgerichtshof (German Federal Supreme Court) held that, notwithstanding the fact which company law has to be applied, foreign companies have to be recognizied in Germany even if they have their headquarters in Germany. This has been decided expressely for US-corporations in 2003 (BGH, 29.01.2003, VIII ZR 155/02).

2. Private limited company 
A private limited company can be established by just a single shareholder. A minimum nominal capital of EUR 25,000.00 is required for this form of business. The original shares must be fully subscribed. Shareholders are obliged to pay their contributions into a special account of the company at the time of its establishment. The establishing of the company must be notarised. Pursuant to section 11, subsection II of the German limited-companies act, the shareholders who are about to establish the company and hence become its owners are personally liable until the company has been registered. Registration takes place a few weeks following notarisation if all the applicable requirements are fulfilled. The local court where the company is to be registered occasionally requires amendments to or modifications of the partnership agreement, specifically with regard to the company’s name. The company may, however, start doing business even prior to its registration once the partnership agreement has been notarised and registration has been applied for. Personal restrictions with regard to a company’s shareholders do not exist. Nationality, religion or other personal criteria are not relevant. Even foreign companies can be shareholders. Their legal capacity is subject to the law of the country where the corporate shareholder has its registered office.

3. Public limited company 
The minimum number of shareholders required for establishing a public limited company is five. The minimum share capital of such a company totals EUR 50,000.00. The establishing of the company must be notarised. Establishing a public limited company is a very time-consuming process because preconditions are very complex and subject to strict regulations.

4. Under certain conditions, it may be favourable to establish a “Gesellschaft mit beschränkter Haftung & Co. Kommanditgesellschaft (KG) which is in fact a partnership with just one fully liable partner. The legal form of the GmbH & Co. KG is as follows: the GmbH is the fully liable partner of the KG which, for its part, is a limited partnership. German law requires the existence of a GmbH as a condition precedent for the KG. The liability of the partners of the KG is limited by their shares. The shareholders of the GmbH may be identical to the shareholders of the Kommanditgesellschaft (KG). The GmbH & Co. KG is a very flexible company. It offers a number of advantages, including, but not limited to reduced risk in the event of bankruptcy and certain tax benefits.
The internal structure of the KG is as follows: pursuant to the German commercial code, one fully liable partner and one limited liable partner can establish a Kommanditgesellschaft. The fully liable partner can be a private limited company which has managerial power. The chief executive officer (Geschäftsführer) of the private limited company is hence the only legal representative of both the GmbH and the KG. However fully liable partner of a private limited company may also be a public limited company, a cooperative or any other legal entity or natural person.

5. The GmbH and the GmbH & Co. KG can be registered within a short time, whilst registration of a public limited company takes longer.

6. The first step for establishing a German company is setting up its memorandum of association which must be notarised by a notary public in Germany. The following information and documents are normally required to this effect:

the number of shareholders
the shareholders’ names
the shareholders’ professions
the shareholders’ dates of birth
in the event that a foreign company is a shareholder, its registered office and the names of the members of its board must be recorded
German translations of the instruments appointing the members of the boards as representatives for the company’s shareholders.

It is not necessary for a person wishing to establish a company to come to Germany. All the necessary contracts can be made by a representative who requires a written power of attorney. The signature of the person who is represented must be authenticated by a notary public (or by a German consular officer, respectively). The company’s future chief executive officer (Geschäftsführer) must personally sign the application for registration. This signature must also be authenticated by a notary public.
Under certain conditions, the German notary public must refuse a company’s registration if this registration would violate German immigration laws. These cases are extremely rare, however.
The whole registration procedure, including notary public’s and legal consultant’s fees costs no more than EUR 3,000.00.
I hope that these explanations have answered your questions in sufficient detail. Should you need any further information, however, please feel free to contact me at any time.