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Parent Category: Legal Forms

Created on Thursday, 07 November 2013 10:11

Last Updated on Sunday, 10 November 2013 08:26

Capital Sustenance

I heard that from friends that they funded their GmbH with only 12.5 k€. They all insisted that it was legal and cheaper than what other lawyers told them. Can this be?

Yes, this can be. However, they only know a half truth. Both are correct: The minimum capital is 25 k€. You can start your company with 12.5 k€. When you fund the company only with half of the statutory capital you are still running a risk of personal liability until the company has received full funds. That is the difference!
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That’s cool. I don’t have to fully fund the company and get away with half. Neat! Um, can this be?

Nice idea. Legally you will not get away with half. Practically, nobody checks if the company has been funded with the second € 12,500 – with one exception: the bankruptcy manager. When a company goes bust, the first thing the bankruptcy manager does is to check if the founders paid the capital stock in full. If not, he will collect – without any time limitation.
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I fully funded the company. May I not use that capital stock? You know it is so much money; it’s a crying shame to have so much money just lying around for nothing.

Sure you can use the money! When founding the company, law expects that you fund the company with starting capital. During day-to-day business, the main thing is that you do not lead the company towards bankruptcy and do not return money to the shareholders. Keep reading. There is more to know!
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What do you mean shareholders are not to be reimbursed for the capital? It’s their money anyhow.

Sorry, but you got it all wrong! The founding shareholders gave up their personal money for the benefit of the GmbH. The GmbH itself is a new and different legal entity having its own rights and duties. As you founded a GmbH, it was like marrying your spouse. The spouse has – next to its own identity – also and especially its own wallet!
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Okay. How much may I spend?

Generally, you have to make sure that the stock capital is always available – either in cash or in kind. The shareholders may not receive dividends or a salary if this endangers the stock (§30 I 1 GmbHG).
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Well my shareholders insisted that they get a loan from the company and accept their personal guarantee. That sounds reasonable, will I, as the managing director, have an issue with this concept?

Not really. The law (§30 I 2 GmbHG) now explicitly permits that the shareholders receive funds back if they are secured by an adequate collateral. Such adequate collateral can be the personal guarantee of the shareholder in need, some valuable or similar. Make sure you get an adequate security or you might be held personally liable.
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My shareholder came up with the idea that I might waive his repayment of the granted loan. I don’t know. I don’t like the idea so much. What do you think?

That is a good idea to listen to your stomach. This is absolutely prohibited (§30 I 3 GmbHG). The money belongs to the company and you may not just push it down a shareholder’s throat.
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Increase in Capital

My corporation is standing a bit meager among our competitors; I guess I would like the GmbH to look more prosperous. How do I increase the capital stock? Just put more money into the account?

Not really. There are two ways to raise the share capital:

1. per capital contribution
   or
2. from company funds.

The first alternative brings new, fresh money into the company, while the second only transfers reserves.
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Neat! And how do I actually raise the statutory funds? Aren’t there any formalities attached to it or do I just write a “one-liner” to court instructing it?

Nope. You may not effectively personally communicate with the court. You must visit a notary because the Act on GmbHs demands that public form be observed when you change the “law” of your company: articles of association. But that is the second formality. In other words, this answer puts the cart before the horse. You already mentioned the first formality: a shareholders resolution. However, the law also provides a possibility that the CEO may raise the capital (§55a GmbHG, “sog. genehmigtes Kapital”, so-called approved capital). The last formal step will be that the shareholders formally take over the new capital. Once these formalities have been taken care of to the consent of the notary, he will apply to the commercial registry to let the changes come into effect. The changes come into effect when they have been published in the Federal Gazette. To wrap it all up: first comes the board resolution, then the visit at the notary or both simultaneously and after this has been entered into the Commercial Registry the company officially has the higher capital.
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Parent Category: Legal Forms

Created on Sunday, 16 November 2014 18:26

Last Updated on Sunday, 16 November 2014 18:26

Image of UG in Daily Business Life

The UG was introduced to German law on November 1, 2008. Germans typically do not embrace new concepts instantly. They first need to draft a compelete business plan and have another expert critize this (first) plan and both plans need to be discussed until they finally come up with the "final (= ready for implementation)" plan. The concept of the mini-GmbH stems from the strong competition coming from the UK Ltd only needing one Pound Sterling to exempt private liability. However, very many Germans wanted to have limited liability but could not afford to put down the "serious amount" 25 k€. Though absolutely legal, a Limited in Germany gave lawyers and judges tremendous headaches determining [PPD_PAYTOREADMORE]which law would be when applicable and for what. The Ltd is a UK company constructed under UK law and its branch works in a foreign jurisdiction. The worries are about debtor protection and prestige of GmbH. The GmbH symbolizes economic potency, tradition, and seriousness. Presumably, you can imagine what a contribution of one Euro in comparison resembles. Eventually, business participants decide.

Persons not in business are not very familiar with this company form. Not until you say "mini-GmbH", they will have an idea. Acceptance otherwise depends on your line of business and the risk involved. If your business is corporate, and will be making a six digit profit per anumn, go straight for a GmbH when deciding if or not a UG. Otherwise you will only lose your face! Conservative Germans will frown on you: "They are so broke that they cannot come up with a serious contribution (of 25 k)." or "Wanting to make six digit profits but only putting down € 1; this cannot be serious business." If your business strongly depends on suppliers it might be best to have a GmbH. If you are freelancer and want to appear bigger, then the UG is perfect and your business can grow up to become corporate.

So on the bottom line, what do you have with a UG? You have a legal construction suitable for smallest to smaller medium businesses. Do make sure to refer to your company on your letterhead correctly! It is important to add the legal suffix "(limited liability)".

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Parent Category: Legal Forms

Created on Thursday, 06 September 2012 18:25

Last Updated on Sunday, 24 November 2013 11:48

Limited Liability Corporation: Gesellschaft mit beschränkter Haftung

The Gesellschaft mit beschränkter Haftung (GmbH) is the most popular legal form among the corporations, as it combines high flexibility with relatively few obligations. If you are in a hurry and want and / or need to get started quickly then its best to start with a standard construction (especially cash founding) and later fine tune all details. When you later fine tune, you can start earning money to cover the further costs.

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Parent Category: Legal Forms

Created on Sunday, 24 November 2013 13:46

Last Updated on Sunday, 24 November 2013 13:48

Rights and Duties of Shareholders

Liability of Shareholders

What rights do I have as a shareholder ?

The most prominent right of a shareholder is his right of participation in the profit after taxes or – when the company is being dissolved – what remains after winding up. You have the right to participate in any and all shareholder assemblies. Your voting rights depend on the votes you are entitled to in accordance to the articles. In other words, read the articles of association.
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Do I have any duties?

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