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Doing Business in Germany
 
 
 

DOING BUSINESS IN GERMANY

Forms of Business Organisation

The two most common forms of incorporation are the joint stock corporation (Aktiengesellschaft or AG), which is regulated by the Joint Stock Corporation Act, and the limited liability company (Gesellschaft mit beschränkter Haftung or GmbH), which is governed by the Limited Liability Company Act.

Some companies are incorporated as a commercial partnership limited by shares (Kommanditgesellschaft auf Aktien or KGaA). The most common forms of unincorporated firms are the limited commercial partnership (Kommanditgesellschaft or KG), in which the liability of at least one partner is unlimited (general partner) and limited for the other partner(s) (limited partner(s)) and the general commercial partnership (Offene Handelsgesellschaft or OHG), in which the liability of the partners is unlimited. Sometimes limited liability companies are founded for the purpose of being the sole general partner in a KG (GmbH & Co KG). These combine the advantages of a GmbH with those of a KG.

The requirements of an AG are:

Capital

Minimum capital is EUR 50,000. At least 25% of capital cash contributions must be paid in when the company is formed, and all capital must be subscribed. Other capital contributions may be in the form of factories, machinery, patents, know-how, etc. Capital contributions in kind must be 100% paid in and are subject to rigid valuations by court appointed auditors. An amount equal to 5% of annual profits after taxes must go into a legal reserve account until the reserve has reached 10% of equity capital. If shares are issued
exceeding nominal value, the amount of the premium also must be transferred to the legal reserve.

Founders & Shareholders

One person can establish an AG. There are no restrictions on nationality or residence.

Board of Directors

The supervisory board must have at least three members or a multiple thereof up to a maximum of 21. Individuals may not be members of more than 10 boards. Representatives of parent companies may hold up to five additional board seats in affiliates, for a total of 15. There are no limits on nationality or residence of directors. The shareholders’ meeting elects the shareholders’ representatives on the board for a maximum period (until the end of the shareholders' meeting deciding on the discharge for the fourth year following the
election, so roughly five years), and the employees or their delegates elect staff representatives for the same period. Re-election is possible.


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