The legal form is the basis of your company. It is based on how you do business and how you have to run your company. Basically, it indicates how your company is built – with some leeway.
What exactly is the legal form?
According to phonejust, the term “legal form” is not clearly defined in any German law; there is no so-called legal definition. Rather, the meaning of the word has established itself through its use. By choosing the legal form, for example, you determine the relationship between the shareholders . This includes which position which partner has in the company and how the hierarchy is structured. This point also includes individual rights to issue instructions and scope for decision-making . In addition, there is the liability of the shareholders . With certain legal forms, such as the registered merchant, you are also liable for the debts of your company with your private assets. In the case of an AG, on the other hand, liability is limited to the part of your assets that you have invested in the company. If you miscalculate here, you can more easily limit the damage.
So you can see that the legal form gives you many options, but also shows barriers. In the following, we will therefore introduce you to the most popular models and their advantages and disadvantages.
Legal forms of companies – important questions before founding
At this point, let’s start with a few questions that you should ask yourself before starting your business. We have put together the most important points for you.
How many people do you start your company with?
This question is decisive when choosing the legal form. If you are alone – for example, if you want to be self-employed as a journalist – you start as a sole proprietorship . Later you can easily hire employees or continue your career on your own. If you start with two or more people, other variants are useful. As an OHG (open trading company) or GbR (civil law partnership), for example, you participate equally in the success of your company and have identical rights.
Who should run the company?
You don’t ask yourself this question in a sole proprietorship – here you are the ruler of your daily bread and nobody can “mess with your trade”. However, if you want to realize your business idea together, you should inform yourself about the hierarchies of the individual legal forms. A good example is the AG with its numerous organs that can make decisions difficult for you.
How much equity is available?
A certain amount of capital is necessary to build a company. No minimum deposit is required for an OHG, GbR or sole proprietorship. They are therefore well suited for a low-risk start with little or no start-up capital. In the case of a GmbH, on the other hand, the equity must be at least 25,000 euros.
The question of liability
Before founding the company, ask yourself what is the maximum financial loss you can cope with. No pessimistic thinking is called for here – in case of doubt, however, with some legal forms you are liable with all of your assets. As a registered businessman or sole proprietor, a wrong business decision can lead to a fiasco faster than, for example, with a GmbH . Here you are only liable with the amount that you have brought into the company. For this, however, the minimum deposit is also higher here.
Germany is a country of bureaucracy – understandable if you want to get started with your business as soon as possible. The most straightforward option is the sole proprietorship, as you only need a tax number . You apply for this at the tax office and you can send invoices immediately. An AG or GmbH has significantly more hurdles to overcome.
Overview: What are the legal forms?
There are easier tasks than keeping track of the numerous legal forms. To make this challenge a little easier for you, we will briefly introduce you to the most important ones. So you have the features, as well as the advantages and disadvantages, at a glance.
Widespread legal form: the sole proprietorship
If you are going into business on your own and are not starting a corporation, sole proprietorship is probably your best choice. You can get started easily by filling out the so-called questionnaire for tax registration. You send it to the responsible tax office and receive a tax number in the mail. You can start right away and only have to submit an annual tax return for your self-employed income (profit income). Sales and other taxes require separate declarations, but this is where routine comes into play.
The most important advantages at a glance:
- You are your own boss and collect all of your profits for yourself. Aside from taxes and the usual business expenses, you alone decide what happens to your sales.
- no share capital necessary
- minimal start-up costs
- No accounting obligation and corresponding time and bureaucracy savings. It is sufficient to submit an income surplus account (Section 4, Paragraph 3 of the Income Tax Act).
Unfortunately, the sole proprietorship also has some disadvantages, but most of them can get over them:
- Full liability with business and private assets. A correspondingly careful calculation and the formation of reserves are recommended in any case. Even if you don’t have to keep books, careful compilation is a good decision.
- You are a lone fighter and you are responsible for all your decisions – good and bad – alone. You have no shareholders or partners at your side.
The legal form sole proprietorship is a good choice for the self-employed in the starting blocks. The non-existent start-up capital, minimal start-up costs and the possibility of starting work immediately are real pluses. However, weigh both sides – the disadvantages can quickly become fatal for you, for example with a sloppy calculation. The registered merchant is a form or the classic representative of the sole proprietorship.
The one-person GmbH
The one-person GmbH is essentially an extension of the sole proprietorship. As an entrepreneur, you can become your own employee and benefit from this tax regulation. It is also advantageous that you are only liable with your stake capital. However, since this must amount to at least 25,000 euros, the legal form is rather unusual and rarely found.
The entrepreneurial society (UG)
An entrepreneurial company has the advantage that the start-up capital only has to be one euro. Liability is limited to this contribution in the event of any claims against the company; you are not liable with your private assets. The establishment is carried out using a sample protocol and is therefore relatively easy.
The one-person company
Like the one-person GmbH, the one-person AG is similar to its big sister. In contrast to the GmbH, the formalities for the establishment are more extensive. For example, you need at least three supervisory boards, and your start-up capital is very high at 50,000 euros. You have to be accountable to the board of directors for critical questions and you lose some of your freedom of choice.