The “GmbH” – The “big” Limited in German Law

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Well known and popular – but just or simply – the company for every purpose: Gesellschaft mit beschränkter Haftung

They exist in all sizes, industries, and with a variety of content: hotels, industrial companies, retailers, banks, even tax consultants or lawyers, everything is organized in a GmbH. So if you don’t want to think for a long time, don’t expect any special requirements for organization, especially if you want to exercise control over your company alone but still want to limit liability, the GmbH is not a wrong choice. Unlike the GmbH & Co. KG, it consists of capital only.

Moreover, it is also versatile and capable of development. After a cash-based founding with only 12,500 Euros, its capital can be increased steadily. Even a supervisory board is legally provided to implement an institutional advisory support for the company.
The nominal minimum share capital is 25,000 euros. It can be gradually “filled” after the cash-based founding with 50% of this value. Also, a founding with non-cash contributions is possible up to the amount of the minimum share capital. In this case, only an exact proof of value by an auditor needs to be presented. However, non-material assets such as patents or licenses are not yet assessable. As the capital is free for any investment after founding – except refunding to the founders of any kind, of course – inflation has reduced the value of that basic capital to a real minimum basis for serious corporations. Despite stricter regulations to avoid bankruptcy the GmbH is still related to a higher risk of insolvency compared to companies based on personal liability like GbR.

A higher rate of basic capital can avoid safety demands from banks and business partners.

Further characteristics of the GmbH and the basic construct of its constitutional agreements

Through the articles of association, which should be planned and developed precisely with legal advice, the goals of the GmbH and its termination/cancellation can be regulated. This applies to the GmbH, despite the better legal requirements as with the GbR. A much better legal framework with a law oft its own – the GmbHG – provides mire stability and safety, same as fewer cases of disputes that can paralyze the company and finally end unsolved at court – like in most cases with a unregulated GbR

The standard articles of association from a notary or tax advisor’s drawer rarely fit same as drafts from the web. The GmbH offers further advantages over a typical legal form of a family company. For example, the shareholders are recorded with their shares in the commercial register when the company is founded. Any change requires a contract with notarial certification. Frequent changes in the shareholder structure are rather foreign to the GmbH.

It thus symbolizes more stability compared to the stock corporation, which strives for rapid growth and capital towards the stock market. Accordingly, inheritance clauses can also be included in the articles of association, which secure the rights of descendants and heirs, as well as the existence of the GmbH from these potential newcomers. Good regulations avoid chaotic disputes in inheritance communities, as they are almost pre-programmed for GbRs.

Business Operations

By law, the GmbH has the status of a commercial enterprise, even if it is engaged in artistic activities or insurance brokerage. Only by a fundamental waiver of any purposes to generate income for the owners and charitable aims instead, the GmbH can get a special status by tax authorities, shown by an additional “g” for non-profit and charitable: The  gGmbH.

The GmbH is represented by one or more managing directors, whose authorization to act and sign contracts (individually or jointly) can be regulated and made publicly visible in the commercial register. Managing directors are usually liable to third parties through the GmbH only. They act on behalf of the company and can be held liable for damages caused by any misconduct by the company in terms of recourse. Only in special cases such as fraud or other unlawful actions can there be direct personal liability of the managing directors and shareholders.

This makes the GmbH even suitable for rapidly growing minor “young entrepreneurs” under the control of the guardianship court – a real multi-talent.

Due to its status as a standard company, it does not attract any special attention. Its frequency also makes it more common in insolvencies, which is unfair.

People still wrongly associate the GmbH with a small-sized company, while associating the stock corporation with large and capital-rich companies such as industrial corporations or banks. Therefore, it is more difficult to obtain supplier credit and the capital strength of the company is often questioned when operating as a GmbH.


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