• Finding the Right Company Form When Establishing a Business
  • October 3, 2014 | Author: Michael Rainer
  • Law Firm: GRP Rainer LLP - Hamburg Office
  • If someone wishes to establish a business, the right company form must be found. Different rights and obligations emerge depending on the chosen company form.

    GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London - www.grprainer.com/en conclude: The establishment of a business starts with a business idea, but then it is the legal aspects such as the correct company form that need to be borne in mind. Each company form entails different rights and obligations that many company founders are not aware of, yet choosing the wrong company form can compromise commercial success.

    German law essentially distinguishes between partnerships and corporations. The spectrum ranges from the partnership constituted under the Civil Code (Gesellschaft bürgerlichen Rechts (GbR)), probably the most basic form of partnership, to the stock corporation, probably the most well-known form of corporation. There are many other company forms in between, such as the private limited company (Gesellschaft mit beschränkter Haftung (GmbH)), the general partnership (offene Handelsgesellschaft (OHG)), the limited partnership (Kommanditgesellschaft (KG)), the entrepreneurial company (Unternehmergesellschaft (UG)), the limited partnership with a GmbH as general partner (GmbH & Co. KG Ltd.) or the partnership limited by shares (Kommanditgesellschaft auf Aktien (KGaA)). An essential and key difference concerns, for example, the issue of private liability. In the case of a GbR, the partners are liable with their private assets; for corporations, the business is liable with its capital. However, in exceptional cases a managing director can also be held liable with his private assets.

    There are also other aspects that must be taken into account: What powers will the managing director receive? When is a supervisory board mandatory? How will the business be assessed for tax purposes? While statutory requirements need to be satisfied in relation to some aspects, other factors can be determined contractually. However, the devil is often in the details. This is particular true if international company forms come into play in addition to the German ones. This is increasingly the case following various rulings of the Court of Justice of the European Union on the freedom of establishment for companies within the European Union. The advice of lawyers who are familiar with international company law and ideally also cooperate with international law firms then becomes essential.

    However, even when choosing a German company form, lawyers and tax advisors experienced in the field of company law should be consulted. They can assist company founders in finding the appropriate company form and are familiar with their respective advantages and disadvantages. Moreover, they will ensure that the contracts are structured in such a way that no nasty surprises subsequently emerge.