Selection of the Correct Legal Form
A company needs a suitable legal form. A distinction must be drawn between the various commercial companies like, private limited liability corporation (GmbH), public limited company (AG), open trading company (oHG) and private limited partnership (KG) and the partnership organized under the law of civil code (GbR) and the retail business. Which legal form is to be selected, is a decision of great significance: Tax and social insurance legal consequences must be considered as well as liability limitations and the annual cost burden.
The private limited liability company (GmbH), which is primarily chosen for business start-ups, is still the most popular legal form among commercial companies. It has the advantage that it can be founded by just one person and that the personal liability of the proprietor is principally excluded. If the private limited liability company (GmbH) becomes insolvent, the private assets are therefore generally protected from the creditors of the private limited liability company (GmbH). The price for this limited liability is also not particularly high with (at least) 25,000 EUR of starting capital. The founding of a private limited liability company (GmbH) as well as the selling of shares of a private limited liability company (GmbH) require notarial certification.
The public limited company (AG) is the only legal form that does not exclude a later listing on the stock exchange. However, the public limited company (AG) is a cost-intensive legal form: Aside from the high start-up costs, there are costs for the audit of the annual fiscal statements and the allocation of the supervisory board that other company forms don’t necessarily possess. The complicated structure of the public limited company (AG) therefore requires regular contact with the notary or lawyer.
The private limited partnership (KG) only allows a partial limitation in liability: A full partner must take over full personal liability, while the rest are only liable with their investment. This legal form, which can have tax advantages, may be advantageous if, for example, a family business is to involve the children without liability risk to them.
In contrast, the open trading company (oHG) offers no limitation of liability. Here, all participators carry the full personal liability. Therefore, the open trading company (oGH) has a high degree of credit worthiness with banks and business partners. It has the same tax advantages as the private limited partnership (KG).
If it’s not about the management of a business, then a partnership organized under the law of civil code (GbR) can be formed. The partnership organized under the law of civil code (GbR) is not a trading company and therefore, it can’t be listed in the commercial trade register. The formation of a partnership organized under the law of civil code (GbR) therefore makes sense in the private sector if family assets are to be governed, or if the interests of a non-marital union are to be regulated.
A retail company is, unlike the legal forms mentioned above, not a corporation, but it can be entered into the commercial trade register just like commercial companies. Its owner is fully liable for the liabilities of the company with his private assets.