A stock corporation (Aktiengesellschaft, AG) generally enjoys a high market reputation among business partners. However, the founding formalities and costs of an AG are relatively high, and the AG is subject to extensive organizational obligations in day-to-day business. The AG is liable to corporate income tax, solidarity surcharge and trade tax. Formation Requirements In principle, an AG can be established by any individual. Generally speaking, there are only two founding obligations to be observed. First, an AG must have a minimum share capital of EUR 50,000 (which must be fully subscribed by the founding shareholders) and articles of association need to be certified by a notary. Appointing the Management The founding shareholders appoint the first auditor (AbschluÃŸprÃ¼fer) and supervisory board (Aufsichtsrat), which in turn appoints the first management board (Vorstand). The appointment of the first auditor and supervisory board must be notarized. The founding shareholders must also prepare a formation report with the relevant details of the establishment of the AG. This report has to be scrutinized by the boards. The AG is managed by its management board. Neither supervisory board nor shareholders can exercise direct influence on the management board. Registration The AG comes into existence upon registration in the commercial register (Handelsregister). The application must be signed by the founding shareholders, the members of the supervisory board, and the management board before a notary. In addition, an AG must be registered with the local trade office (Gewerbe- oder Ordnungsamt).
The Mini-GmbH (Unternehmergesellschaft UG, haftungsbeschrÃ¤nkt) is not a separate 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 1.00. In order to compensate the initial absence of capital the company has to retain a quarter of its annual profit until it has accumulated the minimum shareholder capital of an ordinary GmbH (which is EUR 25,000). The accumulated capital can then be converted into share capital and the Mini-GmbH altered into a standard GmbH. 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.
The German limited liability company (Gesellschaft mit beschrÃ¤nkter Haftung, GmbH) is the most widely used legal form for corporations. It combines high flexibility with relatively few obligations. A GmbH is liable to corporate income tax, solidarity surcharge and trade tax. Setting up a GmbH is easy and uncomplicated and can be accomplished in just a few steps. Share Capital 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. Formation Procedure 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. Management 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. Registration In order to be valid, the GmbH must be entered into the commercial register (Handelsregister). All managing directors (GeschÃ¤ftsfÃ¼hrer) 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 (Gewerbe- oder Ordnungsamt).