Company Formation in Germany
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Company Formation in Germany
What are my possibilities when setting up?
The answer to this will obviously depend on the nature of your business.
There are obviously a number of legal procedures to complete when setting up a company, the most common of which are set out below:
- Individual Proprietorship - around 91% of all enterprises are single-proprietor firms (einzelfirma), and these employ 35% of the total workforce
- Offene Handelsgesellschaft or OHG is a general partnership
- Limited Company - The nearest equivalent to a limited company is a GMBH, short for Gesellschaft Mit Beschrankter Haftung. After single proprietor firms, limited liability companies are the most common. Shareholders' liability is limited to the total amount of legal capital which is set at a minimum of 25,000 Euros
- KG short for Kommanditgesellschaft or limited partnership
- KGAA abbreviates Kommanditgesellschaft auf Aktien which is a public limited company in the form of a limited partnership
- GMBH und COKG is a private limited company within a limited partnership
- AG denotes Aktiengesellschaft. It is basically the equivalent of a public limited company
- Branch or subsidiary of a foreign company. In Germany, a subsidiary (Tochtergesellschaft) is considered to be a separate legal entity distinct from the parent company, and generally takes the form of a GMBH
- Contrastingly, a branch (Zweigniederlassung) or representative office (unselbstandige Zweigstelle) is not seen as being disparate and legal, and other transactions are accountable to the parent company. However, under German law there is a distinction between the two kinds of branches. The Zweigniederlassung can, if need be, operate alone, and can in theory exist by itself with its own manager, bank account, etc. An unselbstandige Zweigstelle, however, normally cannot. Once trading starts, the former must register in the commercial register of the local courts, whereas the latter only need notify the local trading office
- Joint Venture Company (JVC). An alternative to setting up a company or a branch office is to establish a JVC. The definition of a JVC is: an undertaking established between a foreign (non-resident) company and a domestic (resident) company, or another foreign company, in order to start up or improve distribution, acquisition, production or research and development. A JVC may be formed with any of the company formations described above, but in practice a GMBH has certain advantages
What procedures must I take to establish myself?
Company formation in Germany is a 9-stage process, as follows:
Check the company name at the local chamber of industry and commerce. This takes a day.
Notarise the articles of association and foundation agreement. Fees depend on the share capital value for this one-day process.
Deposit capital in a company bank account. A fourth of each share needs to deposited by the time of registration. This takes one day.
Applicants must submit the articles of association to the Commercial Register. This takes approximately 10 days.
All new start-up companies must notify the Office of Business and Standards of their existence. This takes 3 days and costs approximately €40.
Within a week of establishing the business, register with the relevant professional association. This takes 1 day and can be done at the same time as stage 5.
- Notify the local labour office of the company's establishment, who then issue the company with an eight digit number, enabling the company to report social security. This takes one day and is simultaneous with stage 5.
- Register the employees for health and social insurance - a process which takes a day and can be done at the same time as stage 5.
- After it has been notified by the trade office of the company's activity, the Tax Office will mail a questionnaire to the company in request of the company's business data, which needs to be completed and mailed back to the Tax Office. This takes one day.
Before you launch your new firm, you must deal with a few formalities and register your firm with the following authorities:
The Tax office (Finanzamt) - If you are offering a professional service, you only need to apply for a tax number from the tax office.
The Trade Office (Gewerbeamt) - Anyone else setting up a business must register with the Trade Office of the municipality in which the firm is situated. For that, you will need:
- Valid ID or passport
- Residence permit
- Depending on the sector, a permit or authorisation
- A Craft Card (Handwerkskarte) if you are setting up in business in the craft sector. It'll be between 10 and 40 Euros for the registration fee
The trade office will inform the following authorities, with whom you also have to be registered: Tax Office; Accident Insurance Fund; Chamber of Industry and Commerce or Chamber of Crafts; local employees and customers, etc).
Be responsible: check whether all of these bodies have actually received the information.
The Health Office (Gesundheitsamt) - Depending on which sector you are involved with, you might require a permit or a certificate of non-objection from the health office. For example, this would apply to businesses associated with catering and the sale of foodstuffs. In the case of start-ups in catering or childcare, the Health Office and the Trade Supervisory Office will also examine the standards of hygiene in your workplace.
Furthermore, you will need a Certificate of Good Conduct from the constabulary, and confirmation from the Chamber of Industry and Commerce that you have satisfactorily completed a programme on hygiene and the handling of food.
The Construction Office (Bauamt) - If you wish to use spaces/locations previously used for other purposes than your future operations room, you will need to apply for a 'change in use', available from the relevant Construction Office. The planning of rebuilding work and of new buildings for commercial purposes must also be coordinated in good time with the construction office.
The Trade Supervisory Office (Gewerbeaufsichtsamt) - Find out in good time before operations commence whether the rooms you plan to use meet legal requirements.
The Occupational Accident Insurance Fund (Berufsgenossenschaft) - The Berufsgenossenschaft (BG) is the statutory accident insurance fund for staff members and also - depending on the sector - for the self-employed. If you employ staff, you must insure them at the relevant BG. Depending on the sector, you may be required to insure yourself there as well. If not, you can insure yourself on a voluntary basis. Enquire at the Association of Occupational Accident Insurance Funds (Hauptverband Der Gewerblichen Berufsgenossenschaften - HVBG).
The Commercial Register (Handelsregister) - Unlike smaller businesses and companies organised as a GBR (Gesellschaft Burgerlichen Rechts), all companies must be enrolled in the commercial register at the local court (Amtsgericht). The commercial register is public and provides information about the company (name of company, name of owner, etc.).
The Chamber of Crafts (Handwerkskammer) - Being a member of the EU, you will benefit from the freedom to set up a business in the craft sector. The requirements for documentation of qualifications are based on EU law. Accordingly, you need to have been active for between three and six years as a self-employed person or a company director in the relevant occupation.
If you fail to present documentation of the required number of years, you can still register as a craftsman in Germany if you have obtained a qualification equivalent to the German master-craftsman certificate (Meisterprufung). You could demonstrate your skills by way of a diploma, examination certificate or other proof from your country of origin. If the foreign certificate lacks evidence of required skills and knowledge, you can obtain these in an adaptation course or an aptitude test. Occupational experience alone is not sufficient for craft occupations within the health sector.
By choosing to incorporate an offshore company in Germany, business owners and investors can set-up a business outside the jurisdiction of its operations. Offshore companies are traditionally, but not exclusively, incorporated for lower fees and taxes. Business owners must abide the regulations of the offshore jurisdiction, and must not trade within the jurisdiction.
The benefits are vast. As aforesaid, reduced tax and fees are often big factors when considering offshore incorporation. A company may also choose and offshore location to:
- Simplify set-up and maintenance - entrepreneurs may find bureaucracy and red tape less of an obstacle in offshore jurisdictions
- Assume anonymity - the names of owners and directors are not for public record, and references to the company may only be made in its registered agent
- Ensure legal protection - for instance, some jurisdictions favour corporate governance, meaning a company is only liable to offshore laws as opposed to those in its areas of operation
- Protect assets - business owners may opt to arrange their assets and transactions in such a way that protects them from liability
Characteristics of an offshore company:
- Memorandum and Articles of Association
- Certificate of Incorporation
- Registered Office/Agent
- Shareholders / Members
- Directors / Managers
- Company secretary
- Statutory Register
Traditional locations for offshore incorporation are tax havens, such as the British Virgin Islands, Panama and Monaco. Other favoured areas include India, the Bahamas, Dubai, the Cayman Islands, Cyprus, Seychelles, Marshall islands, Delaware, Turks & Caicos Islands, Hong Kong, Jersey, Guernsey and the Isle of Man.