Legal Forms

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Parent Category: Business Legalities
Created on Monday, 24 November 2008 04:42
Last Updated on Friday, 28 December 2012 18:30

Legal Form: GbR = Gesellschaft bürgerlichen Rechts = BGB-Gesellschaft

What is the difference between a collaboration / cooperation and a GbR?

That is pretty easy to explain. A GbR is sort of like marrying a business partner – for good and for bad. Cooperation means that two or more businesspersons are working together – legally independent from another. Therefore, collaboration is more like just living together – without a marriage certificate. If you do not make any profit there is only one boss to blame – yourself.
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After working loosely together with some colleagues for some time, we decided to formalize our collaboration. What is required to start a GbR?

Basically just start working together with a joint letterhead and “Bingo” you have a GbR. This form has a great flexibility to have either a lean and mean or a very complex legal structure. The structure depends on how much you want to differ the stipulations in your company’s contract from the statutory rules. But keep on reading!
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That’s cool. We don’t need company’s statutes or court registration. It is really cheap! What are the implications of not having company’s rules? Are we then in a legal vacuum without company’s rules?

Yes, this legal form is very cheap to found. No, you are not in a legal vacuum when you do not have a company’s contract – as we lawyers word “company’s rules”. Your collaboration is governed by company law in the Civil Code (§§705 et.seq. BGB). That is how this legal structure got its name. These rules automatically govern the company – if you do not explicitly agree upon something else. For the sake of clarity, it is strongly recommended to write down the company’s statutes..
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Aha. So if we don’t set up our own rules, our company will be governed by company law. What aree the basic rules of company law? The basic rules are:
  • representation is exclusively jointly, §709 I BGB,
  • decisions are made by majority of heads, §709 II BGB,
  • profit and loss are divided by heads, §722 I BGB.
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Now that we are a company, do we correctly presume that our personal assets do not stand for the company’s debts?

Nope. You are absolutely wrong. Everybody’s assets will answer for company’s debts. There is no separation between personal and company liability. Your personal debts are however not liabilities of the company. German law talks here of “Gesamtschuldnerschaft” or “gesamtschuldnerische Haftung” (§421 BGB) – joint liability. This simply means your debtor has the right to choose from whom of you or your partners he wants to (forcefully) collect and you have no legal right to influence his decision.
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That’s cruel that I have to pay alone, while our company’s creditor picked me to pay and my companions get away free. Since it’s a company debt, I don’t see why I should pay this all alone.

 

Relax. You do not have to pay it all by yourself – at least not in the end. Law also constitutes an internal settlement (§426 BGB). In other words, you can demand refunding from your partner(s). Now, do not believe you will get it all back. You will not have your share of the company’s liability refunded. An example: You are four partners having no special agreement on company’s debts. This means that all four have to pay 25%. A creditor collected exclusively from you € 10,000 a debt. You are personally liable only for € 2,500; this means you have the right to be repaid with € 7,500. And if a partner falls out then his share will be distributed among the others.
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Checklist for Internal Structure Among Partners

This checklist is to help you make some vital decisions on the internal structure of your partnership. Any partnership will only function if everybody clearly knows his or her exact function, responsibilities, and rights. There are two general ways of making a corporate decision: either unanimously or by majority. Deciding by majorities brings up the question:

 

1.) By which majority shall be decision be made? By heads? Shares?

2.) How is the decision making suppose to take place in general and in special matter?

3.) Who will represent the company towards the public?

  • only one person, if so who?
  • more than one person, if so who?
  • jointly?
  • separately?
  • only all together?

4.) Where is the business to be located?

5.) What kind of infrastructure is needed?

  • personnel,
  • technical device,
  • Who has connections to a supplier?

6.) When shall business commence?

  • after signing the rules?
  • before or after setting everything up?
  • after grand opening?

7.) Who is responsible for what in the company?

8.) What is the fee/price structure to be?

9.) How is correspondence going to take place? (snail mail, eMail, phone calls, which letterhead, kind of paper, etc. etc.)

10.) Are general working place descriptions for any personnel to be drafted? And who will do that and be responsible for it?

 

 

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Parent Category: Business Legalities
Created on Monday, 24 November 2008 04:34
Last Updated on Saturday, 29 June 2013 17:23

Legal Forms of Businesses

Please doThe following introduced legal structures are only the most important types for the potential readers of this book. Working alone you can only choose between two different legal forms: sole proprietorship and one-person GmbH. You have the whole varieties of corporations and personal partnerships to work with partners. The following section will give a basic description of what each legal structure needs and implicates.

What forms of organizations are there in Germany to run a business in? At home we have, e.g. limiteds and joint-stock corporations.

In Germany, we also differentiate between personal companies and corporations with totally own legal personality. Personal companies are

The most common corporations are the

Further to be mentioned is the

Each of these companies will be introduced separately.
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What kind of company is the right one for me?

That is not an easy question at all. It is impossible to give a one-time answer valid forever! As your business grows, so will your expectations to your company’s appearance/structure. To help you make up your mind answer the following questions. They will not make professional advice superfluous but help structure your ideas and so reduce costs when obtaining legal consultation.
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Do you want to operate alone or with one or more partners?

If you start a company alone then you are automatically a sole-proprietor. This goes for company and tax law. But you can also found a one-man GmbH
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How much formality can you cope with during founding?

Depending on the legal form, the bureaucratic expenses will be different. No matter what legal form, you always will have to register at the competent offices. The least red tape to overcome will be as a sole-entrepreneur and the most as a GmbH.
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How exclusive is your liability to be?

The advantage of corporations is that shareholders are usually not liable with their private fortune, so that only the company’s assets will generally have to hold for the company’s debts. Solo businesspersons and partnerships always have to pay their debts with all their assets.
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How high is your tax burden to be?

Depending on the profit size, each legal form offers different possibilities to save taxes. Forget it, if you believe that there is the one and only tax saving scheme. Consult your attorney or tax adviser on what will be the most profitable for you. Consider also that picking a corporation as legal form, taxes like wage tax for the Geschäftsführer or managing director will also come up.
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Does the legal form match the peculiarities of your business?

The chosen form should always match your line of business. It differs in each line of business if the proprietor is to be held liable with his private property or not. A financial consultant might choose a GmbH while a group of translators might pick up a partnership company. LLC or Ltd are becoming common in Germany.
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Which expenses can you and do you want to operate for your accounting?

Next to tax law, commercial law also decides on the requirements for bookkeeping. This decision heads to extreme differences. It is much easier to comply with the duty to keep records than bookkeeping for balance sheets.
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How much may your legal formation cost?

Costs for an attorney (to draft necessary contracts, rules, to discuss tax matters), a notary public (to certificate corporations’ statutes and announce publicly), registration fees can easily sum up to € 5,000 or more on top of necessary minimal capital of € 25,000. But this is all a matter of negotiation with your consultants.
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Are you willing to disclose your company’s financial data?

Corporations have the statutory duty to disclose their balance sheets to the public at the competent registry court. Some people are reluctant to comply because they will be giving information to their competitors.
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How much funding capital do you have?

The correct legal form is especially important if you need venture capitalists. Only corporations qualify for financial input from venture capitalists. Else, the funds would be in the private pocket of an individual. Having share in a corporation might secure the correct participation in co-determination and in supervision.
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Overview of Business Structures and their (Dis)Advantages

Please download file by clicking this sentence.

 

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Parent Category: Business Legalities
Created on Thursday, 06 September 2012 18:11
Last Updated on Friday, 22 February 2013 15:55

Representative Office = Dependent Branch = Representation

Many people mix up branch with subsidiary and do not mean a different legal entity. Well, a representation is not a legal but only a domestic agent. LG2G will describe below what such dependent branch is in Germany.

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Parent Category: Business Legalities
Created on Monday, 24 November 2008 05:06
Last Updated on Sunday, 17 February 2013 18:49

Company Form: UG or Mini-GmbH or Unternehmergesellschaft haftungsbeschränkt

This presentation is covering the new "1€-GmbH", which is valid since November 2008.

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