What is Company Formation in Germany?

German is a highly developed social market economy which is a largest national economy in Europe and fourth largest in World. The country with resources and advanced technology to explore the resources in a meaningful manner for the growth of the nation and its residents do remarkable progress in Industrialization even after devastating of war. People across the country willing to set up business in Germany for global remark and presence of brand and trade. The country has mixed economy characterized by highly qualified labor power, well-developed infrastructure, low level of corruption and high level of innovation.

Before start own business, person needs to register planned activity with Trade Office or Tax Office, depending on intention of work as self-employed basis or as a freelancer.

Business Structure

There are altogether three types of Business Structure which is given as below with brief and procedure for Company Registration in Germany:-

Sole Proprietorship Partnership (Includes Limited Liability Partnership) Private Limited Company

Further discussing, Sole proprietorship is most simple and least regulated business entity in country and it has unlimited liability for all debts of entity. Profits are subject to Individual Income tax rates.

For partnership, there is two form of Partnership one is Limited Liability (KG) and other one is general (i.e. unlimited, OHG) partnership firm. Partnership required at least two or more people to form partnership. This form of business is commonly used for small and family-owned business. Company can be partner in Partnership Firm. As of trend, foreign investors are more invested on KG Partnership compare to OHG Partnership.

Most of case, foreigner wants to set up Branch of their business in Germany. It has procedure and complete set of rules and regulation for regulating the setup of Business Branch. The setting up a branch in Germany is relatively easy process to establish a German Branch Office, require registration with local trade office and the commercial register. It is important to note that the parent company will retain full responsibility for the branch on all legal and tax matters.

Now the matters comes to form a company in Germany. Company registration in Germany is two ways which are as follows:-

Private Limited Liability Company (GMBH)

Before proceeding anything else, it must be checked either the required Article of Association (AOA) and other documents (like specimen of signatures, passport copies, special forms from company registration office, registered office, opening bank account, hiring a local accountant for the company) required is prepared and duly notarized must be performed in front of public notary in Germany.

It can be incorporated in Germany by at least one investor with a minimum share capital of 25000 EUR. The shares of the German GMBH cannot be transferred to the public nor registered at the stock market. The management of GMBH is assured by the general meeting of the shareholders. The daily decision to be taken by company's director which is appointed by the general meeting of the shareholders.

The minimum share capital for a mini GMBH (UG) company is 1EUR. A benefit of incorporation of UG Company is that when it gains 25000 EUR it will automatically become a GMBH Company at no additional cost. This is great for companies that don't require a high startup investment.

Joint Stock Company (AG)

Before proceeding anything else, it must be checked either the required Article of Association (AOA) and other documents (like specimen of signatures, passport copies, special forms from company registration office, registered office, opening bank account, hiring a local accountant for the company) required is prepared and duly notarized must be performed in front of public notary in Germany.

It can be incorporated with share capital of minimum 50000 EUR which can be increased and the registration of share to the stock market. The liability of its members is limited and contribution to capital. The management is assured by the management board which is checked periodically by a supervisory board which is formed by at least three members. The accounts of this business type are assured by a statutory auditor.

Step by Step Procedure for Company Registration in Germany

First: Apply for Verification of Name Uniqueness at Local Chamber of Industry and Commerce.

Second: Notarize the Company's AOA and opening of Bank Account.

Third: Application for registration, notarized AOA, document showing management board structure, certificate showing that share capital was deposit has to be send to the German Commercial Register in order to start registration process. This documents can be submitted electronically in an electronic form. The registration of company is made on a central electronic platform by the Commercial Register.

Fourth: Next is to apply for trading license from the local office of Business Standards (send query and need to answer by company) and at the chamber of industry and commerce and the labor office. Labor office issue an eight digit operating number which must be reported at social security.

Fifth: Company then need to apply to tax office regarding newly formed business entity, required for registration of corporate taxes and VAT.

Sixth: After all this, officially the company can start the business in Germany.

Conclusion

The growth of Germany is always attracting foreigner to have investment over there due to the resources and advanced technology utilization for development of economy is remarkable. Whenever people across the globe thought of business/trade in any country of globe, the legal requirement and compliance has to be followed strictly as it is more directly govern and rules effectively. Therefore it is urgent to know the business form and structure. Hence on a conclusive remark, it can be said there is number of form of business by which the business man can enter into country for trade and commerce in Germany as per applicable laws and regulation with required compliance and regulatory framework.