Choosing the right corporate form when establishing a company can contribute a great deal to the economic success of the business.
We at the commercial law firm GRP Rainer Rechtsanwälte advise numerous businesses on company formation and takeovers as well as in the event of a change of partners or shareholders. In our experience, the partners or shareholders frequently neglect one critical point amidst all the euphoria: choosing the right corporate form for the business. The importance of the company’s form is often underestimated, yet our experience tells us that this can represent a key foundation of the business’ success.
The various types of company entail different rights and obligations. Aspects relating to the required registered capital, and the taxation and liability of the partners or shareholders can play a crucial role here. That is why it is critical to carefully weigh up the advantages and disadvantages of the respective corporate forms and then choose the type of company best suited to the business’ aims and opportunities.
A comprehensive understanding of both national and international company law is essential to being able to reach a decision. Thanks to the freedom of establishment for businesses it is also possible to opt for foreign corporate forms. This is equally an important factor if the intention is to set up companies or branches abroad or, conversely, foreign investor wish to operate in Germany.
Among the most popular corporate forms is the so-called “Gesellschaft mit beschränkter Haftung”, or GmbH for short, a type of German limited liability company. Experience has shown that this is because of the extensive creative freedom that a GmbH offers on the one hand and the limited risk of liability for shareholders on the other. Their liability risk is limited to their investment, with the registered capital having to amount to at least 25,000 euros.
Notwithstanding this, it is often overlooked when it comes to the issue of liability that shareholders may be liable to pay compensation that goes beyond the value of their investment if they deliberately cause improper damage to the company. Even the managing director of a GmbH can be held liable if he breaches his obligations.
All in all, a range of economic, legal and tax issues need to be considered when establishing a company, which is why it makes sense to obtain comprehensive legal advice from a single source. Lawyers who are versed in the field of company law can address these matters and find the optimal solution together with the client.