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What is the right legal form for my startup?

The right legal form is in any case an undertaking that depends on a lot of bureaucracy, facts and figures. If you do not know the basics in this area, you can quickly become overwhelmed. However, since the topic of the right legal form for startups is indispensable, here you will find a clear structuring and explanation of all legal forms that make sense for startups.

The right legal form for startups

  • Which legal form makes sense for startups?
  • What are the differences between the legal forms?
  • An overview of the legal forms
    1. GmbH
    2. UG
    3. GbR
    4. GmbH & Co KG
    5. SE

Which legal forms make sense for startups?

When it comes to the question of which legal forms specifically make the most sense for startups, multiple factors must be taken into account. Basically, the legal forms GmbH (limited liability company), UG (entrepreneurial company), GbR (partnership under civil law), GmbH & Co KG (capital and limited partnership) and SE (Societas Europaea/ European public limited company) are suitable. Ultimately, however, the legal form must be selected individually for each startup itself. Various criteria must be taken into account, such as liability, start-up capital, the tax factor and also the business experience of the founders. The form of the company can also be adapted and changed afterwards, but this can be associated with high costs and great circumstances. Accordingly, it is wise to think about which legal form is the best choice for the company in the long term right from the start.

What are the differences between the legal forms?

The many abbreviations and designations can be overwhelming at first if you are not thoroughly familiar with the subject of legal forms. What is the difference? What factors do you need to pay attention to? Well, let’s first look at the differences between the various types of companies: Basically, the specified company forms can first be divided into both partnerships and corporations. The most relevant differences here lie in liability and (equity) capital.

Partnerships are an association of individuals. In this case, the individuals do not have an independent legal form, may not dispose of any assets and must be liable with their private capital.

Corporations, on the other hand, are liable with their joint assets in the event of a loss and can build up their own capital. However, it must be kept in mind that the limited liability is thus closely related to the share capital, which is the condition for the corporation.

An overview of legal forms

With the preceding characteristics of partnerships and corporations in mind, let us now consider the individual characteristics of each legal form.

Limited liability company (GmbH)

The GmbH has various factors that are attractive for founders. These include above all the independent legal form, the possible cooperation with investors, and the limited liability. However, the costs/conditions are relatively high, which often prevents founders who do not yet have their own start-up capital from choosing a GmbH. The minimum capital requirement for a limited liability company is currently 25,000 euros, not including notary fees or the costs of a tax advisor. However, the formation of a GmbH in itself, when it comes to bureaucratic factors, is not much more complicated than other formations: Several legal or natural persons, a certified articles of association and an application to the commercial register are required.

UG (entrepreneurial company)

The UG is a “slimmed-down” form of the GmbH. It can be regarded as a kind of “mini GmbH”. Up to three shareholders are required for the formation. One difference is, for example, that the required minimum capital is only 1 Euro, in contrast to the GmbH. The Unternehmergesellschaft is also fully limited by liability after its official formation. However, it must be noted that a UG also has its disadvantages for young founders, as 25 percent reserves from the annual surplus are required.

GbR (partnership under civil law)

The GbR is, as a rule, one of the most common legal forms for startups and young companies, which has different reasons. On the one hand, only two people are required, with a joint business idea to be realized. In addition, it can be established informally, although this is not necessarily recommended, as it is fundamentally advisable to draw up a joint, written partnership agreement. In addition, however, the civil law partnership also has some disadvantages. These accumulate above all in the personal liability of the partners and make additionally the work with investors more difficult, since these can be called likewise to the personal adhesion.

GmbH & Co KG (capital and limited partnership)

The factors of the GmbH & Co KG can also be interesting for founders. However, it should be said that this legal form is extremely complex and rather recommended for founders with accumulated business experience. It combines both a capital company and a partnership. In order to be able to understand these factors, it is useful to take a look at the actual meaning of the term. The capital and limited partnership is founded on the basis of two partners. These are made up of a natural person (the general partner) and a legal person (the limited partner). A minimum capital is not required for the formation of the GmbH & CO KG. Liability is also somewhat different from that of the previous legal forms, since it is “divided”, so to speak. The legal entity is liable to a limited extent, only with its own contribution, while the natural person agrees to unlimited liability. A win-win situation, so to speak.

SE (Societas Europaea/ European Company)

The legal form SE is a European stock corporation, also known as Societas Europaea. The advantages of the SE are particularly concentrated in the area of the “normal” stock corporation. Not only is its liability limited, but it is also flexible as regards the location of the company. For example, it can be opened in any country of the European Union, which is a great advantage if expansion is being considered from the outset. It should also be noted that the company must operate internationally. In addition, the minimum capital requirement for founding an SE is an impressive 120,000 euros. When considering the factors, it should therefore also be mentioned here that this is a legal form that is primarily recommended for founders and entrepreneurs with experience in the start-up sector.

Freelancers also have to deal with the issue of registering their activity. Would you like to learn more about this topic? Then find out here how you can register a freelance activity.



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