Overview of Legal Forms

The choice of legal form is an important point on the checklist for setting up a company. There are three types of legal forms: individual enterprises, partnerships and corporations. The chosen legal form not only influences the entire process of setting up a business, including the formal requirements and the associated costs, but is also subject to various regulations, for example with regard to tax law or the amount of start-up capital. It is therefore crucial to choose the right legal form carefully so that it suits the company.

What Legal Forms are there?

In Germany, founders can choose from numerous legal forms to find the right one for their company. Here is an overview of the most common forms:

Pros and Cons of Legal Forms

Table below details the advantages and disadvantages of different legal forms for companies.

Which Legal Form is suitable for my company?

The choice of the appropriate legal form for your business start-up depends largely on the individual aspects of your project. The following questions will help you choose the right company form:

1.       Are you starting alone or with a team?

2.      Who will lead the company?Owner, CEO, Board of Directors?

3.       How complex should the accounting and associated obligations be?

4.       To what extent should the shareholders be liable?

5.       Can you provide equity for the startup, or do you need external funding?

6.       Should registration in the commercial register be pursued?

7.       Are you planning multiple locations, including abroad? 

8.       Do you intend to take your company public?

9.       Should admitting new shareholders be easily achievable?

10.   How extensive should the decision-making rights of shareholders or investors be?

If you value complete independence and maximum entrepreneurial freedom, establishing a sole proprietorship is the right choice. For team formations, partnerships such as a Civil Law Partnership (GbR) or a Limited Partnership (KG) are suitable options. If you have sufficient equity and want to limit your liability to the company's assets, forming a corporation like a Limited Liability Company (GmbH) may be advisable. Opting for a public limited company (AG) is recommended if you plan to go public.

FAQ

Which Legal Form does a small business have?

Due to the size of the business, a small business in Germany is usually set up as an individual enterprise (UG).

What types of company are there?

There are different types of companies that can be divided into different categories in Germany. The best known are sole proprietorships, partnerships and corporations. Partnerships include, for example, the Gesellschaft bürgerlichen Rechts (GbR), the Offene Handelsgesellschaft (OHG) and the Kommanditgesellschaft (KG). Corporations include, for example, the limited liability company (GmbH), the public limited company (AG) and the entrepreneurial company (limited liability) (UG).

Which Legal Form is suitable for various industries?

The choice of legal structure depends on several individual factors. Here's a rough overview of which legal form is suitable for which industry:

·       Hotels: GmbH

·       Retail: Individual Enterprise oder GmbH

·       Food Retail: GmbH oder UG

·       Gastronomy: GmbH oder UG

·       Crafts: Individual Enterpriseoder GmbH

·       Online Commerce: Individual Enterprise, GmbH oder UG

·       Automotive Services: Individual Enterprise oder GmbH