German legal forms

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.

1. The subsidiary

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. 

2. The branch office (independent branch)

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.

3. Permanent business establishment (dependent branch)

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:

• Manufacturing companies without sales,
• Warehouse, receiving and dispatching centers,
• Mere agencies or
• Sales outlets without their own procurement

4. Representative office

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.