Officially named the Federal Republic of Germany, the country does not require any introduction. Famous for many reasons, a few of which are not so bright, but plenty of reasons to awe and admire this resilient and intelligent nation. The economy of Germany is among the top 5 nations in the world. Innovation, original thinking, scientific discoveries, flawless processes, manufacturing, technology, and numerous other factors contribute to its prosperity and advancement.
Being the second most populous country in Europe (behind Russia), Germany has a high-income consumer economy making it the 3rd largest importer and exporter of the world. Having a company registered in Germany, therefore, is probably a dream for thousands of businesses. Here we share the costs involved in setting up a company in Germany.
Type of companies in Germany
Germany promotes a free-economic system, whereby, a business is allowed to operate in whichever way it finds most suitable as long as it does not violate general principles and German laws. The types of company structures mostly favored are described below, along with the costs involved and the process to be followed for their formation.
GMBH
A GMBH (Gesellschaft Mit Beschrankter Haftung) is the German equivalent of Private Limited Company. A GMBH requires approximately €25,000 to form and register. One or more persons can collaborate for investing the capital in cash or kind; Kind being asset(s) of equal worth, to be specified in the articles of association.
The shares of a GMBH cannot be offered to the public or traded on a stock exchange. The management of a GMBH is ensured through general meetings of its shareholders. A director to oversee day-to-day business affairs is also appointed in the general meeting.
Generally speaking, a GMBH is most suited to small and medium enterprises that require agility and quick decision-making to operate. A sub-type of GMBH is a Mini GMBH which requires the same amount of capital investment, however, to initiate it only requires €1 and gradually worked up to €25,000.
Joint Stock Company
Known as the Aktiengesellschaft (AG) in Germany, an AG is favored by large corporations that require large capital to initiate and operate. Capital in an AG is raised by allowing public subscription of company shares thus making them shareholders in the business. An individual from the public can buy and retain any number of shares as he/she can afford and available on public offering. The trading of shares takes place in a stock exchange.
The minimum required capital to register an AG is €50,000 approximately. Other costs include notarization, state fees, legal fees, court fees, etc.
Limited Liability Partnership
A limited liability partnership is known as Kommandit Gesellschaft or simply KG in Germany. Essentially requiring two or more partners assuming different levels of liability. Partners who contribute to the capital are liable for losses and debts to the extent of their contribution, also known as silent partners. Whereas the general partners, who may not necessarily be contributing partners, assume unlimited liability.
A KG does not have any minimum paid-up capital requirement, however, state fees, notarization costs, and other formation costs do apply. The decision-making power in a KG is held by the general partners, while the silent partners do not have any active role in the management and operations of the company.
Sole Proprietorship
A sole proprietary business is probably the oldest and simplest form of business on the planet. In Germany, legal coverage is provided to sole proprietorships as well. Ideal for individuals with less or no capital investment and who can only manage the inventory they can readily sell or service they can personally offer.
There are no minimum paid-up capital requirements and the entire process of registering a sole proprietary business may cost approximately €100. Einzelunternehmen is the German name for a sole proprietorship.
The breakup of costs involved in forming a company
Depending on the type of commercial operation one may choose, the general head of expenses involved in forming any type of company is listed below:
- Registering with the appropriate authority such as:
- Commercial register (Handelsregister)
- Trade office (Gewerbeamt)
- Tax office (Finanzamt)
- Chamber of Industry and Commerce (IHK) or Chamber of Crafts (HWK) (depending on business activity)
- Trade association (Berufsgenossenschaft)Employment agency (Agentur für Arbeit) (if staff needs to be hired)
There is a fixed fee charged by each authority for registration which depends on the case, type, and activity of the business.
- Notarization
- Translation
- Stamp duties
- Legal fees
- Court charges
Cost arising from the above-mentioned heads of expenses may round up between €50 to €80 approximately (subject to variation depending on the type of business, time of application, etc.)
Process of forming a company
The process of forming and registering any type of business in Germany follows a set course of action. The procedure is very well laid out, and following it makes the process simple and easy.
- Choosing the type of business structure for the company (GMBH, AG, KG, etc.)
- Naming the company (unique and available)
- Executing the deed of formation (in presence of a notary in Germany)
- Preparing articles of association
- Deposit the minimum required share capital in a German commercial bank
- Registering the company with the Commercial Register of Germany
- Duly filled registration application and submission of all required documents
Furthermore, the company is incorporated by submitting the below:
- Application for registration
- Notarized articles of association
- Management board structured (signed document)
- Documentary proof of paid share capital
Note that all documents need to be submitted electronically as the registration of a new business is made by the Commercial Register on an online platform.
Once the documents are submitted for registration the process is initiated. Meanwhile, a business may apply for a trade license from the local office of Business & Standards along with registration at the statistics office, the chamber of industry and commerce, and the labor office.
Business in Germany
Starting a business in Germany is simple. More than 2 million businesses are registered in the country each year, owing to the ease of operation and formation of business. Specifically, entrepreneurs who wish to execute an idea or bring innovation to an existing business, find immense encouragement and support. People at large love to spend their dispensable income on technology, entertainment, and social activities. One just needs to be creative and original in their ideas, a startup can be established within a few days in Germany.
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