[ESTABLISHING A BUSINESS ENTITY IN GERMANY]
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ESTABLISHING A BUSINESS ENTITY IN GERMANY Anyone can establish a business in Germany - irrespective of citizenship, nationality or place of residence. There is no specific investment legislation for foreign entrepreneurs. Any entrepreneur can make his choice from an exclusive group of different types of legal entities to establish a new company in Germany. I. Types of Legal Entities Entrepreneurs can establish a business by either opting for a corporation or a partnership or conducting business via a Germany-based branch office. The choice of legal form is generally based on the intended role and function of the shareholders, their liability and terms of taxation. The legal structure of all company forms is stipulated by law which provides for predictability and legal certainty. 1. Corporations When choosing the legal form of the company, a corporation is usually the preferred choice for established companies. There are four major forms of corporations under German law:
Liability of a corporation is limited to the corporation's business assets, including its share capital. A minimum share capital is required. a. Establishment of a Corporation A corporation can be established by any number of different partners. The share capital can be contributed in cash or in kind (e.g. real estate, office furniture or patents). The deed of incorporation which essentially includes the articles of association must be recorded by a notary. Additional establishment steps are necessary for certain forms of corporations. The establishment procedure ends with registration in the commercial register held with the local court (Handelsregister). The corporation's limitation of liability only becomes effective upon entry into the commercial register. The application for the registration of the corporation in the commercial register has to be signed by the managing director(s) personally before a notary, who certifies and files it with the responsible commercial register in electronic form. Prior to the corporation starting business, the trade office (Gewerbe-/Ordnungsamt) must be notified of the respective business activity of the new corporation. b. Taxation of Corporations and its Foreign Shareholders A corporation resident for tax purposes in Germany is subject to corporate income tax and solidarity surcharge (in total 15.825 %) as well as to trade tax. Trade tax is calculated based on a multiplier, which is assessed by the local authorities. The tax rate currently amounts to 16.1 % of the profit in Frankfurt and to 17.15 % in Munich. However, the actual trade tax burden might be increased by certain restrictions with regard to the deduction of
Limited Liability Company ( GmbH )
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Limited
Liability
Entrepreneurial
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Company ("Mini GmbH")
Stock Corporation ( AG )
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- Partnership Limited by Shares ( KGaA )
A corporation is a legal entity with its own statutory rights and obligations, i.e. the holder of such rights and obligations is not the individual shareholder, but the legal entity itself. Consequently, the corporation itself concludes contracts, holds assets and is liable for taxation.
ILN Corporate Group – Establishing a Business Entity Series
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