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Doing Business in Germany

A German GmbH can be set up by one or more individuals or entities, usually without restrictions. It is an excellent vehicle to gain access to a thriving market, giving the US investor a local presence in Germany and the European Union. Urban Thier & Federer represents clients from all over the United States with regards to the initial formation of a German entity, followed by ongoing advice with regards to legal issues in Germany and the European Union, such as contracts, Intellectual Property matters, and any other business law detailed advice the client may request.

1. Entity
The GmbH is a German limited liability company. It is comparable to the United States “C-Corporation.” It is not a partnership or a hybrid entity, such as the United States “LLC.”

The GmbH is a very structured entity form which is at the same time flexible to adjust to the needs of a US investor. Its Articles of Incorporation (“Satzung”) allow a wide range of regulations to enable an investor to exercise control over management and prevent undesired share transfers. The GmbH is usually a vehicle for smaller to mid-sized businesses; large companies use the “Aktiengesellschaft,“ the “AG,” which is a corporation suited for more extensive and for public companies.

A minimum amount of EUR 25,000 is required as an equity contribution to the GmbH. The amount of equity paid and the names of the different shareholders are entered into the public register. A supervisory board is not required by law in Germany; however, such a commission can be established if the shareholders decide to do so or by regulation in the articles of the GmbH. The formation of the GmbH and all and any sale and transfer of shares has to be performed in front of a German Notar. The German Notar is a specially qualified lawyer, appointed by the court, to act as a quasi-judicial entity to ensure the accuracy of a significant transaction, such as the formation of a GmbH or the transfer and sale of shares in a German GmbH. His role and education requirements are very different from a US notary public.

The liabilities of the shareholders of the GmbH towards third parties are limited to the amount of the signed share capital of the company. Once a shareholder has paid his or her equity contribution in full, there is no more individual liability on the part of the shareholder. It Is permitted to make in-kind contributions instead of cash contributions.

The location of the registered office of the GmbH has to be within Germany. It is possible to open one or more office locations for the GmbH outside of Germany, the example at the site of a foreign shareholder of the GmbH.

After the GmbH was set up in front of the German Notar, the formation proceedings are not completed unless the required equity amount has been paid in and the Notar has submitted the registration with the German public register. In the interim, the entity can already act and contract but has to add the affix “i.G.” to its name, indicating that it is a GmbH in the process of formation. If the structure is not eventually completed, the managers and the shareholders may be held liable for obligations entered into by the GmbH i.G.

2. Shareholders
The shareholders of a GmbH have substantial powers. The majority of shareholders can, through a resolution made at a shareholder meeting, direct the managers to follow its instructions. Votes are usually counted by the percentage of shares owned (“Geschaeftsanteil”).

The shareholders have the right to approve the annual financial statements. They determine how the company profits are used and appoint and dismiss the managers. In essence, they are entitled to direct the business through the executing managers.

3. Management
The GmbH can have one or more managers, called “Geschaeftsfuehrer.” The manager has to be a person; legal entities are not permitted as manager. Such a manager can live in Germany or abroad; he/she does not necessarily have to be a German resident or citizen. However, there is a substantial number of obligations of a manager of a GmbH, in particular, related to incidences where the GmbH is low on liquidity. Due to the complexity of these legal obligations, it is very much recommended to any US investor who wishes to operate through a GmbH in Germany to appoint an experienced GmbH Geschaeftsfuehrer as manager. The US investor should also work with and through specialized local legal advisors such as Urban Thier & Federer, P.A.

By Carl Christian Thier, LL.M.

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