Formation of Germany Limited Liability Entrepreneurial Company Mini-GmbH (Unternehmergesellschaft UG)
There are no restrictions on the name given to a GmbH, provided that the name: (1) clearly distinguishes the GmbH from other businesses in the same location; (2) is not misleading; and (3) contains a reference to its limited liability. The name must be authorized by the Chamber of Industry and Commerce, and must end in “GmbH”.
There is a minimum of one shareholder in a GmbH company. The shareholder(s) may be of any nationality and may or may not be a corporate entity. Shareholder names are filed on the public register, however anonymity can be safeguarded by using nominees. A notarized agreement must be drawn up between shareholders.
The share capital should be to at least € 1.00. Only cash contributions are admissible, contributions in kind are excluded. Furthermore, the minimum share capital must be paid in full prior to the application for entry in the commercial register.
Profits made by an Entrepreneurial Company after the formation may be distributed only to a limited extent. 25% of the profits should be transferred to a statutory reserve until the minimum share capital of €25,000 has been accumulated. There is no time limit for this. If no profit is made after formation, no funds have to be transferred to the statutory reserve.
A GmbH is managed and legally represented by its managing directors. There must be at least one managing director (who does not have to be a shareholder or a German resident), however it has to be an individual. Legal entities are not admissible as managing directors. It is not important whether the person permanently lives abroad or whether he or she is a resident or a foreigner. The shareholders may exercise direct influence on the management of the GmbH, by issuing binding instructions or directions to the managing directors (the supreme body of the company). Each executive director represents the company independently, the memorandum of association stipulates otherwise. All managing directors (Geschäftsführer) must sign the commercial register application in person in the presence of a notary.
All GmbH companies must have their statutory registered office in Germany. The administrative registered office however may be located outside Germany (at least in another EU country or the US; in other countries this may depend on their respective corporate laws).
There is no requirement for GmbH company to have a company secretary.
Company meetings need not be held in Germany.
The incorporation of a new company usually takes two to three weeks. The Company may begin trading once a bank account is opened and the share capital is paid.
Basic Tax Notes
All profits deriving from German legal entities irrespective of form, are subject to a corporate income tax of 15% and solidarity surcharge, at a rate of 5.5% of the corporate income tax that is levied by the federal government, and also to the trade tax which is imposed by municipalities. Other forms of taxation that a German legal entity may be subject to are the value added tax, and the tax on wages. In Germany the limited liability company may be subject to payroll taxes as an employer. German accounting rules apply to legal entities with business activities in Germany, and are subject to the German Commercial Code (Handelsgesetzbuch – HGB) – a code law system. Assets and income shall not be overstated and liabilities and charges must not be understated. A turnover tax ranging from 7-19 % may be applied and Trade tax varies according to municipality. Solidarity surcharge is also applicable.
Audit And Financial Returns
Legal regulations regarding accounting and audit in the Federal Republic of Germany, are in compliance with the legislation of the European Community. All legal entities are required to prepare annual financial statements and file these with the German Federal Gazette. Full financial statements comprising a balance sheet, an income statement and explanatory notes to the financial statements. Medium and large sized corporations and LLPs are also required to prepare and file a management report. Certain small and medium sized companies/LLPs have an option to file abbreviated financial statements with the Federal Gazette. Abbreviated financial statements provide for some reduced disclosure, e.g. a condensed balance sheet and less notes disclosures.
Limited liability corporations in Germany, subject to any other requirements which may indicate otherwise, are under the obligation to prepare their financial statements in accordance with accounting principles promulgated by the German Commercial Code (Handelsgesetzbuch). For filing purposes, a GmbH may also prepare additional IFRS financial statements. However these IFRS financial statements can only be used for filing purposes and do not replace the statutory financial statements prepared under the Handelsgesetzbuch that are still the sole legal basis for e.g. determining distributions to shareholders. Irrespective of size, all legal entities must have an audit on their statutory financial statements, which applies also for listed companies. In addition to the audit of separate statutory financial statements of certain parent companies, any group financial statements are also subject to an audit, if a preparation is required by law.
For a small LLP corporation, it may qualify for an audit exemption provided it meets two out of the following three criteria on two consecutive reporting dates.
(1) has an annual turnover of no more than 9.68 million euros
(2) has assets worth no more than 4.84 million euros
(3) has no more than 50 employees