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As in the Netherlands, there are various forms of companies in Germany. These company forms can be divided into companies with share capital and partnerships. Capital companies include the Public limited company (PLC) and the Limited liability company (LLC). The Sole proprietorship, Partnership under civil law (PuCL), the General partnership (GP) and the Limited partnership (LP) are German partnerships. To better understand the differences, these company forms are briefly discussed below.
Choosing the right business form depends on several factors, such as the size of the business, liability, tax implications and business goals. It is advisable to seek legal and tax advice before deciding on which business form is best for your situation.
Each form of company has unique features and advantages, making it essential to be well-informed before making a choice.
The sole proprietorship, limited liability company (GmbH), public limited company (AG), limited partnership (KG), General partnership (OHG), Partnership company (PartG), Entrepreneurial company (limited liability) (LL) the Co-operative (Co).
The Sole proprietorship is a common and accessible form of business in Germany. As a sole proprietorship, it offers entrepreneurs the flexibility to run their business completely independently. In an Sole proprietorship, you, as the owner, are solely responsible for all business activities. A key advantage is that you have direct control over all aspects of the business and decision-making.
The Sole proprietorship also offers tax advantages, as profits are taxed as personal income. This can be advantageous for start-ups, especially in the early stages when profits are still modest. However, be aware that you are personally liable for all the company's debts, which can be a disadvantage if the company goes bankrupt.
Advantages of a sole proprietorship:
The limited liability company (LLC) is a popular business form for small to medium-sized enterprises. The main advantage of a LLC is the limited liability it offers to its founders and shareholders. This means that you are not personally liable for the company's debts, and your personal assets remain separate from those of the LLC.
Establishing a LLC requires a minimum starting capital, but this can be relatively low compared to other business forms. The establishment involves notarial costs and formal procedures, but it offers a professional image that can attract customers and investors.
Advantage LLC:
The Public limited company (PLC) is the most complex and formal form of company in Germany. As a public limited company, the PLC offers shares that are freely tradable on the stock exchange. This opens the doors for external investors and capital increases, making it an attractive option for larger companies.
The PLC has an executive board and a supervisory board, ensuring a separation between management and supervision. This promotes transparency and accountability within the company. However, setting up an PLC is a challenging process and requires significant start-up capital.
Advantage PLC:
The Limited partnership (LP) is a special form of partnership, involving two types of partners: managing partners and silent partners. The managing partners have active involvement in company management and are personally liable for the company's debts, while the silent partners are only liable for their contribution to the company.
The LP thus combines the advantages of personal liability of the general partners with the possibility of attracting external investors as silent partners. This makes it a suitable option for companies that need capital without wanting to bear full liability.
Advantage of LP:
The Offene Trading Company (OTC) is a general partnership (GP) in which all partners are fully and personally liable for the debts of the company. This makes the OTC a suitable choice for small companies or family businesses, where trust between the partners is high.
An important aspect of the GP is that no minimum capital is required for incorporation, making it accessible to start-ups. Moreover, the partners can work together in a flexible structure and benefit from joint decision-making.
Advantage OHG:
The Partnership Company (PartC) is a unique form of company suitable for liberal professions, such as lawyers, doctors or architects. In a PartG, the partners are jointly and personally liable for the company's debts.
What distinguishes the PartC is the possibility for professionals to pool their expertise and resources without the limitations of liability of a GmbH or AG. This promotes close cooperation between partners and the ability to build trust and specialisation within the company.
Advantage PartC:
The Entrepreneurial company (limited liability company) (LLC) is often referred to as the mini-GmbH because of its similarity to the GmbH. This form of company is attractive to start-ups as it requires a lower minimum contribution than the GmbH.
Although the LLC offers the advantages of limited liability, part of the profits must be reserved to increase the start-up capital to the level of a regular GmbH. Only then can the LLC be converted into a GmbH.
Advantage LLC:
The Co-operative (Co) is a cooperative, where members jointly own the company and share profits. This form of enterprise focuses on cooperation and community spirit, and its aim is to serve the interests of its members.
The Co can range from small local cooperatives to large organisations in different sectors. Members have a say in decision-making and profit distribution, making it a democratic and inclusive business structure.
Advantage Co:
Choosing the right form of company in Germany is a crucial step for any business. Each business form has its own characteristics and advantages, and it is important to be well informed before making a decision. The right choice will lay the foundation for the success of your business. Make sure you seek legal advice and make an informed decision that best suits your business and your vision for the future.
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