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Do you want to become self-employed as an entrepreneur, but are you afraid of losing everything in your personal life if you fail? Then a GmbH is the right legal form for your project: liability is limited to the company's assets and your private property is not affected. However, you must have a lot of start-up capital to set up a GmbH. It is easier to register a UG, which you can open with virtually no equity. However, part of the profits must remain in the UG until it can be converted into a GmbH. In both a GmbH and a UG, corporation tax is levied on company profits. The only exception is for non-profit organizations.

Tax advisors help with the establishment of a GmbH

Every year, several hundred thousand companies are founded in Germany; many of them by sole proprietors who have set up their own business. While such a sole proprietorship is an attractive choice for freelancers or small business owners, many entrepreneurs have to set up a corporation or partnership . The most popular option by far is the GmbH.

As soon as you want to set up a company together with other parties, you have to decide on a company such as a GmbH, a UG or even a GbR and KG. These legal forms determine how the ownership and management rights of the individual entrepreneurs relate to each other, how profits are taxed and distributed, and how the partners can be held liable for losses.

Advantage of the GmbH: limited liability

The question of who assumes liability for company debts is of enormous importance. It is a key reason why the GmbH is also a very interesting legal form for individual entrepreneurs. GmbH means: limited liability company; this means that the company owners are not liable with their private assets, as would be the case with sole proprietors or GbR. Instead, liability is limited to the company assets.

Equity capital required to establish a GmbH

The advantage of limited liability does not come without a price: in order to set up a GmbH, the shareholders must raise equity and invest in the company. The amount of the required deposit is at least 25,000 euros, which is also the amount that would be lost in the event of insolvency. The amount of start-up capital to be raised is independent of the number of shareholders: even when setting up a one-person GmbH, this amount must be paid. However, the amount can also be invested in the company in the form of assets. In the case of a cash deposit, at least half, i.e. 12,500 euros, must be paid into a company account, with the founders being liable for the remainder up to the full amount of 25,000 euros with their private assets.

How does the process of founding a GmbH work?

It is not enough to find allies for a company, agree on a legal form and gather the necessary start-up capital. The establishment of a GmbH consists of several steps, each of which must be legally secured individually. The core of the registration is a partnership agreement in which the name, registered office and purpose of the company are recorded and all shareholders and their shares in the company are listed. A managing director can also be named at this stage.

Because every GmbH formally exists for the corporate purpose of doing business, it is mandatory to register in the commercial register. This first step must be carried out by a notary and is only possible once the start-up capital has been raised. This is followed by an examination procedure in which the purpose of the company is verified and assessed. To avoid delays in registering in the commercial register, you should therefore seek support from a tax advisor in advance. This tax advisor should already have experience with company formation so that they can give you specific tips for a faster and smoother GmbH formation. Finally, you also need to register a business with the trade office, similar to setting up a company as a sole proprietor.

What taxes are payable in a GmbH?

Corporate tax is currently charged on all profits that your company generates, at a rate of 15%. There is an exception for non-profit companies, which are then organized as a gGmbH (non-profit GmbH) and are exempt from corporate tax. In addition, trade tax and sales tax are also payable, as is usual for commercial companies. In addition, there may also be wage tax for employees.

If you want to have profits from the company paid out, there are two ways to do this: dividends are used to distribute profits to all shareholders in proportion to the company shares they hold. You must pay capital gains tax on this individually. Alternatively, you can also employ yourself as an employee in the company, particularly as a managing director. The amount of your salary determines how much company profits flow back to you. But even as a managing director, you must pay income tax on your wages.

It is not always immediately clear whether it is financially worthwhile to set up a GmbH in order to benefit from limited liability and then receive a handsome salary as managing director. It is best to speak to a tax advisor about different scenarios and legal forms for your company in order to have to deduct as little tax as possible from your profits.

Tax consultants help with the accounting of a GmbH

The mandatory entry in the commercial register for a GmbH means that you are not allowed to submit simple income surplus calculations as part of your tax return, but must prepare detailed financial statements. The Commercial Code requires annual financial statements with a balance sheet and profit and loss statement, which is usually more time-consuming. In order to avoid making any formal errors and to keep your personal workload to a minimum, it is a good idea to commission a tax advisor or auditor to prepare the annual financial statements for your GmbH.

If you have decided to set up a gGmbH, the accounting requirements are even higher: a clear distinction must be made between non-profit services, on which no corporation tax has to be paid and for which an exemption or reduction in sales tax is possible, and commercial services, which must be taxed like in a normal GmbH. As a gGmbH, you can also issue donation receipts, which reduces the tax burden on those making donations.

GmbH or UG? How tax advisors can help you choose the legal form

If you already have a business plan for your company but are still undecided about which company structure makes the most sense, you can discuss this with your tax advisor. As soon as you are not the sole founder but several people are involved in the company, you have to decide on a company structure. In addition to the GmbH, a UG is also an option.

The UG: a mini-GmbH with little start-up capital

An entrepreneurial company, or UG for short, is similar to a GmbH in most respects. The most important difference, however, is the start-up capital required to establish the company. While you have to raise 25,000 euros to register a GmbH, a symbolic start-up capital of 1 euro is formally sufficient to establish a UG. However, it is expressly recommended that you invest a larger sum in order to be able to pay the first bills without liquidity problems.

The formalities for founding a UG remain the same: an entry in the commercial register and registration with the trade office are required. Please note that although a smaller amount of start-up capital must be invested in the company, additional costs are incurred in connection with the registration, which cannot be reduced at will. For example, you must cover the costs of the notary for the entry in the commercial register and the fees for the business registration yourself. Although the notary costs are also based on the start-up capital, a flat rate of 150 euros is due for the business registration. And if you get support from a tax advisor who guides you through the registration of your UG, fees will also be charged here.

While setting up a UG is still less expensive overall and is easier with less start-up capital, you do not have free rein over your profits. You are legally obliged to keep at least a quarter of your profits as reserves in the company and not to distribute them to shareholders. In this way, you build up more capital in your company year after year until you have finally saved a sum of 25,000 euros. From this point on, your UG is automatically converted into a GmbH and you are allowed to distribute further profits in full.

What is the difference between a GmbH and UG and a GbR?

In addition to GmbH and UG, there are also other types of company in which you can organize your business: for example, the civil law partnership (GbR). Setting up a GbR is possible without major hurdles, as no start-up capital is required. As with all partnerships, however, as a partner in a GbR you are liable with your entire private assets. The taxation of profits differs significantly from that of a GmbH and a UG: there is no tax assessment at the company level, so no corporate tax is due. Instead, all company owners must declare their profits and losses in their personal tax returns and usually pay income tax within this framework.

It is difficult to give a general answer to the question of which company form is best for your project. The best thing to do is to discuss the situation with a tax advisor or business consultant and work through various examples. It is helpful if you have already drawn up a business plan in advance so that you have a rough idea of ​​expenses and sales in the first few years of operation. You should also look for a tax advisor who specializes in company law and, ideally, has already supported several company start-ups. This will help you to avoid typical beginner mistakes and to guide your company through the first few years of business in a healthy manner.

Sources

1. https://www.gesetze-im-internet.de/bgb/BJNR001950896.html#BJNR001950896BJNG006502377
2. https://www.fuer-gruender.de/wissen/existenzgruendung-planen/recht-und-steuer/rechtsform/ein-personalen-gmbh/
3. https://www.fuer-gruender.de/wissen/unternehmen-gruenden/unternehmens Formen/ug-gruenden/
4. https://persaldo-steuerberatung.de/wp-content/uploads/2014/03/unternehmens Formen_vergleich.pdf
5. https://www.steuerberaten.de/tag/gesellschafter/
6. https://www.fuer-gruender.de/wissen/unternehmen-gruenden/unternehmens Formen/