There certainly are many different legal forms to chose from in Germany. But which company form is right for which business model?
The economic, fiscal and especially the legal implications associated with a German company form should be examined before a decision is taken for either one of them. The commercial and corporate law also dictates the legal form available to entrepreneurs. It is not possible to invent a new legal form and introduce it into the market. The legally prescribed basic structures can however be partially modified and adapted to individual needs.
In general, their might not be the optimal legal form. Each legal form has its advantages and disadvantages. To chose the right German company forms the following answers should be asked:
The appropriate legal form is further determined by other criteria: for example, questions concerning company creation and administrative expenses, taxation, the regulation of management, liability, the most efficient legal succession including dispute resolution in the event of the departure of a shareholder. An initial criterion for the future legal form often results from the foreseeable scale of the project.
There are four legally recognized organizational forms for the expansion of a foreign based company: the establishment of a domestic subsidiary, branch office, permanent business establishment or representative office.
When a subsidiary is a legally independent company in which a majority of the shares are held by the parent company. A domestic subsidiary therefore has its own legal personality independent of the parent company abroad. Domestic subsidiaries of foreign companies are regarded as companies under German law.
The German statutory provisions apply to their creation. The legal forms of the General partnership (OHG), limited partnership (KG), Limited liability company (GmbH) or Joint-stock company (AG) are generally used.
The German branch office is a part of the overall company which is physically and organizationally independent, but not legally independent. It does not have its own legal personality and is therefore fundamentally subject to the law of the head office abroad. The decisive factor is the existence of a domestic organizational unit which can operate as an independent company without the main branch office abroad.
A permanent business establishment is a subsidiary or branch office of the company as a whole which is established as a business premises, but is dependent on the head office abroad. It therefore represents a dependent branch which is not allowed to carry out activities different from the main branch.
The permanent business establishment is engaged in auxiliary transactions, preparation or execution of the main operations of the foreign company. Examples are:
The German representative office is the legally dependent representation of a foreign company in the country and is managed by an external and appropriately appointed business person (for example, a sales representative). No commercial activity of the foreign company is carried out.
The representative office is not seen as a commercial enterprise under the German Trade Regulations (GewO). The activity of a representative office is merely for market research, customer/supplier contact management and in a smaller scale, for after-sale service. Activities which might have a commercial background are not permitted. This includes the creation or the passing on of an offer under its own letterhead.
A legal form which initially appears to be optimal can prove to be disadvantageous over the course of time because of changes. It is therefore advisable to check at regular intervals whether the "legal dress" of the company still fits or whether it should not be changed. It is important to seek advice regarding the details of the legal steps to be initiated as well as the tax implications.
If you intend to engage in any commercial activity in Germany as well as the wider European market, it is highly recommended to incorporate a new and dedicated legal entity in Germany. Consultinghouse's Market Entry Solutions for Germany will support you in finding the right company type to meet your individual business strategy.
Please note: For legal & tax advisory we are cooperating with Counselhouse.