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As for legal forms, a distinction is made between single proprietorships/ ordinary partnerships and stock corporations. Five criteria determine which legal form is most appropriate:
| Sole proprietor | Sole proprietors are by far the most frequent option for corporate legal forms in Nordrhein-Westfalen. Sole traders have unlimited liability extending to their entire business and private assets. No minimum level of capital is required by law. |
| Partnership under the German civil code (Gesellschaft bürgerlichen Rechts – GbR) | The GbR is not a company, in the narrowsense of the word, but rather an associationof individuals pursuing a common (economic)objective. Associates bear full liability,which extends to their entire assets. No dutyof disclosure applies. |
| General partnership (Offene Handelsgesellschaft – OHG) | The OHG is a widely recognizedlegal form with each partner subjectto unlimited liability. All partners areauthorized to transact business, providedthis business involves ordinary decisions.They are also authorized to act independently vis-à-vis third parties. No minimumcapital is required. The company must be incorporated in the commercial register and is not subject to disclosure duties. |
| Limited partnership (Kommanditgesellschaft – KG) | In essence, a KG distinguishesitself from an OHG in terms of liability. Thegeneral partners (Komplementäre) in aKG have unlimited liability, whereas thecompany’s limited partners (Kommanditisten)only bear liability to the value oftheir investment. |
| Private limited company with limited partnership (GmbH & Co. KG) | This popular fusion of a private partnership and joint stock company is suitable for entrepreneurs wishing to combine limited liability, with the advantages of a privately orientated corporate structure. The general partner is the private limited company (GmbH), which bears liability solely to the extent of its share capital. The limited partners are individuals; they form a private limited partnership (KG) with calculable liability. |
| Private limited company (GmbH) | This form is the most common in Germany, accounting for around 95 percent of all registered stock corporations. Stockholders are liable to the extent of their investment, and also bear joint liability for the other stockholders. Although chief executives are often employees of the firm, they can also be stockholders. One-man private limited companies are also possible. The minimum capital requirement is 10,000 euros. |
| Joint-stock corporation (AG) | A joint-stock corporation is solelyliable for its assets. Management and capitalare clearly separated. High start-up costsand complicated organizational structures,which include managing and supervisoryboards and shareholders’ annual meeting,typically make many joint-stock corporationsinflexible. Joint-stock startups require 50,000 euros, with additional capital possible through share issues. |
| Limited partnership with share capital (KGaA) | such limited partnerships have transferableshares at their disposal, thus enabling these companiesto be listed on the stock exchange.They are stock corporations, although they arerun, as autonomously and independently aspossible, by its one general shareholder. |
Important for foreign investors
| Branch office | Those seeking maximum responsibility for a business in Germany should establish a branch office. Branches are largely managed by the parent corporation, which retains all rights and obligations. Local management, however, has sufficient operating authority. |
| Subsidiary | Those wishing to establish long-term business operations in Germany and present themselves as a German enterprise, should opt for a subsidiary. This is a legally independent company, free of its parent corporation. Even when such companies have a foreign owner, they are subject to German regulations regarding formation, business registration and commercial registration. A subsidiary can be set up in two ways: either by forming a completely new company or by taking over an existing company at its location. |
| Participating interest | Another alternative for those who seek a way to gain entry into the German market but lacks sole decision-making power, is to acquire a participating interest in an existing German company or a joint venture, meaning a newly-found business together with a German partner. |
| Representative office | Those not wishing to set up a legally-recognized branch office can establish a representative office as a dependent unit of a holding organization run by an externally independent agent, which is not recognized by German trade and commercial law. |
