Private Limited Liability Company (GmbH)

The German private limited liability company (Gesellschaft mit beschränkter Haftung, GmbH) is the most widely used legal form for corporations. It combines high flexibility with relatively few obligations.

Since November 1, 2008, a reform of the GmbH Act (facilitating the establishment and running of a GmbH) has become effective. The reform's main achievement is the establishment of a new category of limited liability company, the limited liability entrepreneurial company (Unternehmergesellschaft, (haftungsbeschränkt)), or "Mini- GmbH".

The minimum share capital required to establish a GmbH is EUR 25,000 (this can also be made up of contributions in kind). At the time of registration, at least half of the minimum capital (i.e. EUR 12,500) must be actually and verifiably contributed on a bank account.

The formation procedure of a GmbH is fairly uncomplicated, as it is established by the founding shareholder(s) executing a deed of formation and articles of association in the presence of a notary.

For uncomplicated standardized formations of a GmbH, the GmbH Reform will provide model articles of association (for set-ups by cash subscription with a maximum of three shareholders and one managing director). These articles must still be notarized, but for a reduced fee.

In addition, sample deeds are also provided by the chambers of industry and commerce (Industrie- und Handelskammer, IHK).

The estimated total costs for the formation of a standard GmbH are approximately EUR 750 to EUR 1,000 plus fees for legal counsel if a lawyer is employed to draw up the articles of association. Ideally, the time period required for the formation of a GmbH is two to three weeks.

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). By issuing binding instructions or directions to the managing directors, the shareholders may exercise direct influence on the management of the GmbH.

In order to be valid, the GmbH must be entered into the commercial register (Handelsregister). Please see below for a detailed description on how to register with the commercial register.

All managing directors (Geschäftsführer) must sign the commercial register application in person in the presence of a notary. 

Once registered in the commercial register, the GmbH becomes a legal entity. The GmbH must then be registered at the local trade office (Gewerbeamt).

The Mini-GmbH is not a new legal form of company, but a GmbH which has a minimum capital of less than EUR 25,000 and where cash subscription is required. This means that it is possible to set up a company with limited liability in Germany with capital of only EUR 1.

In order to compensate the initial absence of capital the company has to retain a quarter of its annual profit until it has the accumulated the minimum shareholder capital of an ordinary GmbH (EUR 25,000). The accumulated capital can then be converted into share capital and the Mini-GmbH altered into a standard GmbH.

Establishment costs will be reduced to a total of around EUR 300 - due to the low share capital and the model articles of association.

Except for the abovementioned specific provisions the Mini-GmbH - by terms of law- is generally subject to the same duties and rights as the standard GmbH.