Dirk Janzen, MBA

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10115 Berlin


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The German law provides various legal forms for doing business. In this post we will provide you with an overview on the most common legal forms and inform you on the criteria how to choose the „right“ legal form to enter the German and European market. For more in-depth information regarding the specific forms of companies or branches mentioned please click on the respective links on the right or in the text.


General Information

Irrespective of nationality or place of residence, anyone can establish a business in Germany. There is no specific investment legislation in Germany, nor is there a minimum percentage of German shareholdings required for foreign entrepreneurs.


The basic structure of all company forms is stipulated by law which provides for predictability and legal certainty. The same legal conditions apply for foreign and local entrepreneurs.


The German company forms can not only do business in Germany but worldwide. On the other hand foreign business entities can do business in Germany too - dependent on the extent of business directly or through a branch office. Generally speaking the advantage of using a local business form when doing business in Germany or Europe is the local reputation of such legal form, since local population and businesses are used to these business forms.


The main legal forms for doing business under German law are corporations, partnerships and branches. Foreign investors can choose the most suitable legal company form or conduct business via a Germany-based branch office. Either way, establishment procedures are straightforward with well-defined steps.



There are four major forms of corporations under German law (you can click on the links below to get more in-depth information on the specific legal form):



Establishment of a Corporation


A corporation can be established by any number of different shareholders - one minimum. Shareholders can be natural persons as well as other corporations or partnerships. Compensating the limited personal liability of the shareholder(s), corporations require a minimum share capital as seen in the table above. It can be contributed in cash or in kind (e.g. real estate or patents). The establishment must be specified in the Articles of Association and the formation be certified by a notary. At the notarial formation process the shareholders do not have to be personally present but can give power of attorney to a third person though that power of Attorney has to be signed before a notary at the shareholder’s place of residence (depending on the country of residence an Apostle or Legalization might be required as well). Additional establishment steps are necessary for certain forms of corporations.


The establishment procedure ends with registration of the corporation in the commercial register. With the registration the company’s limitation of liability becomes effective. The application for the registration of the company in the commercial register has to be signed by the managing director(s) personally before a notary, who certifies and files it with the responsible commercial register. In case of foreign investors a signing of the documents at a foreign notary can be sufficient if an Apostle or Legalization can be provided. Prior to the corporation starting it’s business, the trade office must be notified of the business activity in question.


Taxation of Corporations


Right after the formation of a corporation it has to be registered with the Financial Authorities. Corporations are liable to corporate income tax, trade tax and solidarity surcharge. In most cases VAT has to be paid as well. The average tax burden of a corporation is less than 30 percent in some regions, due to a locally variable rate of trade tax, it is under 24 percent (Source: German Federal Ministry of Finance, 2014).


Further corporations have to fulfill certain advanced accounting and publication obligations. The extent of these obligations mainly depend on the size of the corporation. In case you require further information on that subject please check out our post on accounting and publication obligations for corporations.

Main Characteristics


In contrast to corporations, partnerships are not independent legal entities but associations of people. Other than corporations, no minimum capital is required for partnerships.


Generally in partnerships, the individual partners are responsible for the liabilities of the company with their personal assets next to the partnership. Limitations of liability for individual partners are only possible to a limited extent (for the KG and the GmbH & Co. KG).



Establishment of a Partnership


The establishment of a partnership is easy and can be completed in just a few steps. There are no form requirements for the formation agreements so no notarization is required (for the GmbH & Co. KG notarization is required to form the GmbH as general partner). At least two partners are required to establish a partnership. A minimum share capital does not have to be raised. Attention should be paid to the fact that the management of the company can only be carried out by partners not external management.


Depending on the type of partnership, the registration with the commercial register is required. The application is signed by all partners and has to be notary certified. In case of foreign partners a signing of the documents at a foreign notary can be sufficient if an Apostle or Legalization can be provided.


Before business activities are carried out by the partnership, the trade office must accordingly be notified.


Taxation of a Partnership


The partnership itself is not taxed (in contrast to corporations), but the individual partners are (therefore partnerships are so-called „tax-transparent“). The taxable profit is determined at the level of the company and allocated to the partners according to their stakes. The partnership itself is only subject to trade tax.


The average tax burden on companies is less than 30 percent, in some regions of Germany, due to a locally variable rate of trade tax, it is under 24 percent (Source: German Federal Ministry of Finance, 2014).


The accounting obligations and publication requirements for partnerships are less extensive than those for corporations.

Main Characteristics


A branch office has no independent or separate legal personality distinct from the head office itself. In legal and organizational terms, it is part of the head office business and is thus subject to the law governing the head office. Respectively parties of the contracts the branch office concludes are the head office and the third party (and not the branch office). In this context, the foreign head office company is fully liable to the extent of its own assets for any claims creditors might assert against the branch office. Any obligations or debts incurred by the branch office are also legal responsibility of the foreign company.

Once an office is used by a foreign company for commercial activities, it generally must be registered as a branch office in Germany. This is typically the case if the foreign company has a permanent representative who conducts the commercial activities of the company in a sustained manner.


Branch Offices

Taxation of Branch Offices


A branch office is subject to taxation in Germany if it is considered as a permanent establishment according to the applicable double taxation agreement. An autonomous branch office is generally regarded as a permanent establishment, whereas a dependent branch office is only ever considered a permanent establishment under certain conditions.

A German permanent establishment of a foreign corporation is taxed in Germany according to German taxation rules for corporations (corporate income tax, solidarity surcharge and trade tax).

Choosing the „right“ legal form for doing business in Germany and Europe is essential since the effects of that choice are diverse. Decisive criteria for the choice of legal form generally are:


- Limiting the personal liability of the shareholder(s)

- Formation requirements and costs

- Business reputation and image of the legal form (not necessary the same as image creditors which - prefer the personal liability of partnerships)

- Administrative efforts of the legal form (e.g. accounting and publication requirements)

- Transferability of shareholdings and entrance/exit of (further) shareholders

- Terms of Taxation


Be sure to request professional advice when choosing the legal form for your new business, since it effects various interests of the business and it’s shareholder(s). Also be advised that the use of out-of-the-box standard contracts can have legal, tax or commercial consequences that were not intended. Thus have the formation documentation tailored to your business’ and it’s shareholder(s) individual requirements.


Criteria for choosing the "right" legal form

Main Characteristics


A corporation is a legal entity, meaning that the holder of rights and obligations is not the individual shareholder, but the company itself. The corporation itself concludes contracts, holds assets and is liable for taxation.


Corporations require a minimum share capital to be raised by the shareholder(s). The liability of the corporation is limited to the corporation's business assets, including share capital. Whereas the liability of the shareholder(s) is limited to the share capital invested. Mainly due to being a separate legal entity, the limited liability of the shareholder(s), the transferability of a shareholding and it’s reputation (especially regarding the AG, the GmbH and the KGaA) corporations are the most common form of doing business in Germany for larger, established companies (please see the main criteria for choosing the „right“ legal form for your business at the end of this post).

The main feature of a partnership is the personal commitment of the partners to their working efforts to the partnership. Any partnership requires at least two partners. There are four major forms of partnerships in Germany (you can click on the links below to get more in-depth information on the specific legal form):

As already mentioned foreign business entities can do business in Germany too - directly or through a branch office, whereas in many cases the latter is required. Any foreign company with a head office and registered business operations outside of Germany can establish a German branch office. A branch office is a suitable business form for a foreign company wanting to establish a presence in Germany for the purpose of initiating business and maintaining contacts with business partners.


In Germany, there are two kinds of branch establishments which primarily differ due to the degree of the independence from the head office company (you can click on the links below to get more in-depth information on the specific form of branch office):



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