The Choice the right legal form can have a decisive influence on the company's success. What do founders have to watch out for?

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Choosing the optimal legal form: Short checklist

Each entrepreneur must choose the right legal form - preferably when writing the business plan, because financiers are usually also very interested in this topic. A lot depends on the legal form, for example the following points:

Sole proprietorship, GbR, GmbH, Limited: Specify framework conditions and decision criteria

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Even if the topic is legally complicated: It is therefore absolutely necessary to deal with it in more detail. In fact, however, choosing the right legal form is not as difficult as it seems at first glance, because the framework conditions restrict it selection noticeably one.

Therefore, every business start-up should first define these framework conditions and define their decision-making criteria - eg in the form of a checklist as above, which shows whether you work alone or with others, whether there is equity capital, how much effort is required for bookkeeping and what taxation is required for this Company is advantageous. Next to it is also the Personality important to the entrepreneur.

The role of the entrepreneur is decisive: partnership or corporation?

Basically, when choosing the legal form, you should distinguish between two large groups: partnerships and corporations. The partnerships include the sole proprietorship, the Society civil law, the general partnership, the limited partnership and the partner company. The corporations include the GmbH in all variants, the limited and the stock corporation. The person of the entrepreneur himself also decides on the selection:

What advantages do partnerships offer?

The big advantage of partnerships compared to corporations is: The effort involved in founding a company is high clear lesser, especially what Accounting and Taxes concerns. In fact, you can get started right away, you don't even have to register. For freelancers who are setting up a sole proprietorship, it's even enough to register with the tax office.

Your disadvantage as the founder of a partnership is the personal liability risk of the entrepreneur. In contrast to a corporation, partners in a partnership are regularly liable without limitation, i.e. with the company's assets and with their private assets. However, this can at least be reduced by contractual agreements, and there are also exceptions in the case of the GmbH & Co KG.

When does a corporation make more sense despite the higher costs?

However, sometimes it is despite the increased bureaucracy usefulto form a corporation. Namely, when you get the impression of a big Company wants to awaken if the company is to be run with a fantasy name, if the Turnover exceed a certain magnitude. Above all, however, corporations offer an advantage over partnerships: they limit the liability of the entrepreneur more than is possible with partnerships. And there are also numerous tax advantages, if designed accordingly.

In contrast to the previously mentioned partnerships, corporations are legal entities without any restrictions and may conclude contracts, own assets earn, make a profit, but have to pay corporation tax. However, you have to note: The formation of a corporation costs significantly more time and money Money than the formation of a partnership as well as privileges that may have existed beforehand, such as exemption from the obligation to keep accounts.

12 tips for start-ups and entrepreneurs: You should pay attention to this when choosing the right legal form:

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Which legal form is ideal for your company depends, among other things, on whether you work with others, how much time you spend on bookkeeping invest want and what image your company should have. We will show you the most popular legal forms in Germany and tell you what is important when making your selection.

  1. Establishment as a sole proprietorship: If you work alone and do nothing else, you are automatically a sole proprietor. This legal form is suitable for small entrepreneurs, because nobody dictates how you run your business. However, you alone bear the full liability risk.
  2. The Community: If you want to work together with others sporadically in a loose network or share workspaces, you don't have to set up a joint company right away: set up a community and coordinate precisely who has which rights and obligations and what the cooperation consists of so that you can follow along cannot be held liable for further liabilities. You should also settle the case of separation.
  3. The company under civil law (GbR): As soon as you work more closely with others on a permanent basis and appear together to the outside world, you are automatically a GbR without any agreement. Disadvantages: Each shareholder is liable for all liabilities with all his assets. In addition, all shareholders jointly manage the company and must also agree to unimportant decisions. However, you can limit the rights and obligations of the individual shareholders by articles of association - the more detailed you regulate all possible issues, the better.
  4. The general partnership (OHG): The general partnership (OHG) is, so to speak, the further development of the GbR. A commercial GbR that is entered in the commercial register automatically becomes an OHG. Likewise, the GbR automatically becomes an OHG if its profit or annual turnover exceeds a certain limit.
  5. The limited partnership (KG): What is actually attractive about the general partnership, however, is the possibility of bringing limited partners on board – by simply changing the articles of association and the commercial register entry accordingly. The limited partnership enables you to include pure financiers as limited partners in your company. By the way, this can also be family members.
  6. The limited liability company (GmbH): The limited liability company (GmbH) is the best-known and most common form of corporation. No other legal form has such a reputation because of the limitation of liability. It is correspondingly complicated to set up a GmbH. However, to set up a GmbH, you need a capital contribution of at least 25.000 euros, you also have to keep accounts, you have a duty of disclosure and you need a notary when setting up.
  7. The entrepreneurial company – UG (limited liability): Since 2008 there has been a law to modernize GmbH law and to combat abuse (MoMiG). If you cannot raise the minimum capital of a GmbH, you can set up a limited liability entrepreneurial company without minimum share capital - with just one euro. However, you are then not allowed to distribute your profits in full, but instead have to put a quarter of the annual surplus into a reserve that is used for the capital increase. And: You must either use the legal form suffix “Unternehmergesellschaft (limited liability)” or “UG (limited liability)” and must not abbreviate the word “limited liability”.
  8. The GmbH & Co. KG: The GmbH & Co. KG is a common variant of the limited partnership. As such, it is legally a partnership in which the GmbH assumes the role of personally liable partner. Therefore, the partners are not liable as in other partnerships. However, in doing so, you also assume the duty of disclosure and accounting.
  9. The Limited: The Private Company Limited by Shares, or Limited (Ltd.) for short, has also recently become very popular. The Limited is a stock corporation. However, it does not require a minimum capital and at the same time offers its shareholders liability protection like a German GmbH. However, she Limited does not have the best reputation, especially in Germany, since the liability is not covered by capital investment, while she is quite well known abroad. In addition, a limited founder in England has to fulfill numerous legal obligations. It is therefore advisable to warn against providers who promise a quick and inexpensive limited company foundation on the Internet: Because it is often not that quick and easy after all.
  10. The stockcompany: In order to set up an AG, you need a minimum capital of 50.000 euros and a notarized statute in which you also determine the supervisory board and the executive board. The share capital is divided into shares. Par value shares must be denominated in at least EUR 1. The par value of a share reflects its share in the share capital. However, you can also divide the AG capital into no-par value shares, which are denominated as a fraction of the share capital. Shares do not necessarily have to be traded on the stock exchange.
  11. The silent partnership: Silent participations are possible with all legal forms. As an entrepreneur, you or your company set up a silent partnership or internal partnership with one or more silent partners. The silent contribution will then be overwritten to you or your company and only you will appear to the outside world.
  12. Buy shelf company: If you have enough capital, you can simply buy a ready-made shelf company. These are primarily AGs and GmbHs, but ready-made KGs and OHGs are also offered. Especially with a limited company, you can avoid the complicated formation formalities abroad. In the case of a partnership where the founding process is limited, it usually makes more sense to found a new company. It is important that the company has not yet been active, because then you could later be held liable for "legacy issues".

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