Companies with limited liability in German speaking countries
Company with limited liability (German: Gesellschaft mit beschränkter Haftung, [ɡəˈzɛlʃaft mɪt bəˌʃʁɛŋktɐ ˈhaftʊŋ]), abbreviated GmbH [ɡeːʔɛmbeːˈhaː] and additionally GesmbH/Ges.m.b.H. in Austria, is a type of legal entity very common in Germany, Austria, Switzerland and Liechtenstein. In Switzerland it's equivalent to a société à responsabilité limitée. It is an entity broadly equivalent with the private limited company in the United Kingdom and many Commonwealth countries, and the limited liability company (LLC) in the United States. The name of the GmbH form emphasizes the fact that the owners (Gesellschafter, also known as members) of the entity are not personally liable or credible for the company's debts. GmbHs are considered legal persons under German, Swiss and Austrian law. Other variations include mbH (used when the term Gesellschaft is part of the company name itself), and gGmbH (gemeinnützige GmbH) for non-profit companies.
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The GmbH has become the most common corporation form in Germany, since the AG (Aktiengesellschaft), the other major company form corresponding to a stock corporation, was much more complicated to form and operate until recently.
The laws governing this type of legal entity were adopted in Germany in 1892, and in Austria in 1906. The concept of limited liability created by these laws inspired the legal establishment of the limited liability company form in other countries, although the concept of a limited liability company already existed in the United Kingdom.
Requirements of formation
It is widely accepted that a GmbH is formed in three stages: the founding association, which is regarded as a private partnership with full liability of the founding partners/members; the founded company (often styled as "GmbH i.G.", with "i.G." standing for in Gründung – literally "in the founding stages", with the meaning of "registration pending"); and finally the fully registered GmbH. Only the registration of the company in the Commercial Register (Handelsregister) provides the GmbH with its full legal status.
The founding act and the articles of association have to be notarized. The GmbH law outlines the minimum content of the articles of association, but it is quite common to have a wide range of additional rules in the articles.
Under German law, the GmbH must have a minimum founding capital of €25,000 (§ 5 I GmbHG), from which €12,500 have to be raised before registering in the commercial register (§ 7 II GmbHG). A supervisory board (Aufsichtsrat) is required if the company has more than 500 employees, otherwise, the company is run only by the managing directors (Geschäftsführer) who have the unrestricted proxy for the company. The members acting collectively may restrict the powers of the managing directors by giving them binding orders. In most cases, the articles of the association list the business activities for which the directors must obtain prior consent from the members. Under German law, a violation of these duties by a managing director will not affect the validity of a contract with a third party, but the GmbH may hold the managing director in question liable for damages.
As of 2008, a derivate form called Unternehmergesellschaft (haftungsbeschränkt) (English: "entrepreneurial company (limited liability)") or short UG (haftungsbeschränkt) was introduced. It does not require a minimum founding capital and was introduced to assist company founders in setting up a new company. Also, the UG must every year enlarge its capital by at least 25% of its yearly net profit (with some adjustments), until the general minimum of €25,000 is reached (at which point the company may change its name for the more prestigious GmbH). In this case, the word haftungsbeschränkt must not be abbreviated.
Since a legal entity with liability limited to the contributed capital was regarded in the 19th century as something dangerous, German law has many restrictions unknown to common law systems. A number of business transactions have to be notarized, such as transfer of shares, issuing of stock, and amendments to the articles of association. Many of those measures have to be filed with the company registry where they are checked by special judges or other judicial officers. This can be a tiresome and time-consuming process, as in most cases the desired measures are legally valid only when entered into the registry. The founding process is expensive. Normally the foundation of a new GmbH cost about 1000€ - 3000€.
Because there is no central company registry in Germany but rather several hundred connected to regional courts, the administration of the law can be rather different between German states. Since 2007, there has been an internet-based central company register for the whole of Germany, called the Unternehmensregister.
|Minimum share capital||€25,000.00||€35,000.00||CHF20,000.00||CHF10,000.00|
|Mandatory supervisory board||500 employees||300 employees||300 employees||300 employees|
- Aktiengesellschaft (AG)
- Besloten vennootschap (bv) (Netherlands)
- Besloten vennootschap met beperkte aansprakelijkheid (bvba) (Belgium)
- Business organizations
- Kommanditgesellschaft auf Aktien (KGaA)
- Limited liability company
- Società a responsabilità limitata (Srl) (Italy)
- Société à responsabilité limité (Sarl) (Francophone Europe)
- RIS - Bundesrecht konsolidiert - Suche. Ris.bka.gv.at. Retrieved on 2013-07-19.
- GmbHG - nichtamtliches Inhaltsverzeichnis. Bundesrecht.juris.de. Retrieved on 2013-07-19.
- Müller, Klaus J. The GmbH: a guide to the German limited liability company Beck, 2006 ISBN 978-90-411-2444-9
- Rutow, Lange Doing Business in Germany 2008
- Limited Liability Company Reporter. "Historical Background of the Limited Liability Company". Archived from the original on 2001-06-04. Retrieved 2008-08-18.
- "GmbH gründen - alles zur Haftung, Geschäftsführer und Auflösung". Hannover. Retrieved 2018-09-29.
- "Unternehmensregister". www.unternehmensregister.de. Retrieved 2019-08-29.
- Fohlin, Caroline (November 2005). "Chapter 4: The History of Corporate Ownership and Control in Germany". In Morck, Randall K. (ed.). A History of Corporate Governance around the World: Family Business Groups to Professional Managers (PDF). University of Chicago Press. pp. 223–282. ISBN 0-226-53680-7.
- Franks, Julian; Colin Mayer (2001). "Ownership and Control of German Corporations". The Review of Financial Studies. Oxford University Press. 14 (4): 943–977. doi:10.1093/rfs/14.4.943. JSTOR 2696732.
- Tiede/Ryczewski, "Introduction to the Serbian Law on Limited Liability Companies" in WiRO 2012 (German Law Journal), vol. 5, pp. 140–144
- Anpartsselskab (Denmark)