Forming a GmbH: What You Need to Know

Many entrepreneurs choose a GmbH (Gesellschaft mit beschränkter Haftung — private limited company) because of its limited liability. In the event of insolvency, only the company's assets including the share capital are at risk, not the shareholders' personal assets — a major advantage! But what are the requirements, and how does the formation process work? You will find the most important answers here.

The legislature has set clear rules for GmbHs; the details can be found in the Act on Private Limited Liability Companies (GmbHG).

The most important requirement is that you contribute share capital (Stammkapital) of at least 25,000 euros. This requirement can be satisfied by a cash contribution or a contribution in kind. In the case of a cash contribution, you must have paid in at least 12,500 euros by the time the company is registered in the commercial register.

Do you wish to form a GmbH and contribute the share capital by way of contributions in kind? The following assets are among those that qualify:

- Real property

- Company cars

- Office equipment and office furnishings

- Machinery

Have these assets valued by a tax adviser, an auditor, or an independent expert!

There are further requirements in addition to the above. A GmbH requires at least one shareholder and one managing director; you will also need articles of association (Gesellschaftsvertrag), a managing director's service agreement, and a business bank account.

The Mini-GmbH as an Alternative

For some founders, the GmbH idea founders on financial grounds. The Unternehmergesellschaft (haftungsbeschränkt) — also known as the "Mini-GmbH" — allows them to go ahead with their business start-up nonetheless. With this legal form, share capital of as little as 1 euro per shareholder is sufficient; in return, the legislature requires the company to use a portion of its profits to build up the share capital.

As with all business start-ups, thorough preparation is advisable. Work with the support of a tax adviser to develop a detailed business plan!

You then proceed to initiate the actual GmbH formation. Bear in mind that until it is officially entered in the commercial register, your company has the status of a GmbH in formation (GmbH in Gründung). This means that the shareholders are also personally liable. Avoid risky business decisions during this period!

To register your company in the commercial register, follow these steps:

1. 1Have a solicitor draft a bespoke set of articles of association. Alternatively, you may use the standard template protocols issued by the state — this saves you the legal fees. You will also need a service agreement for the managing director.
2. 2Have the articles of association or the standard template protocol notarised by a notary.
3. 3Use this document to open a business bank account.
4. 4Pay in the cash contribution.
5. 5Your notary will then forward the application for registration in the commercial register to the competent local court (Amtsgericht). Official registration typically takes a few weeks.

In theory you can manage the GmbH formation on your own — only notarisation is mandatory. In practice, however, there are strong reasons to engage a competent tax adviser. Guhr Steuerberatung offers comprehensive support and valuable guidance!

How much does it cost to form a GmbH?

In most cases, the costs of forming a GmbH amount to approximately 1,000 to 3,000 euros. The fees for the notary and the local court are unavoidable. In addition, many founders engage a tax adviser and a solicitor. This increases the costs but proves to be a sound investment in most cases.

When is it worth forming a GmbH?

The defining characteristic of a GmbH is that personal assets are shielded from liability — a fundamental difference from other legal forms. Shareholders thereby minimise their financial risk. In the event of insolvency, creditors have access only to the company's assets. The drawbacks are the high minimum capital requirement and the extensive administrative burden.

What do you need to form a GmbH?

A key hurdle is the required share capital of 25,000 euros. You contribute this as a cash or in-kind contribution, or a combination of the two. If you lack this capital, forming a Mini-GmbH is recommended. You should also be aware of the numerous formal requirements. A GmbH is, for example, based on articles of association that must be notarised.

Can you form a GmbH with 12,500 euros?

The minimum capital is in principle 25,000 euros — however, it is sufficient to have paid in 12,500 euros by the time of the application for commercial register entry. The shareholder or shareholders are personally liable for the remainder. Where the share capital is higher, the minimum contribution must be at least one quarter. With share capital of 100,000 euros, this means you must contribute at least 25,000 euros by the time of the application.