[ESTABLISHING A BUSINESS ENTITY IN GERMANY]
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quarter of its annual profit until it has accumulated the minimum shareholder capital of an ordinary GmbH (which is EUR 25,000). The accumulated capital can then be converted into share capital and the Mini-GmbH altered into a standard GmbH. For uncomplicated standardized formation of a Mini-GmbH model articles are provided. These articles must still be notarized, but for a reduced fee. Thus, establishment costs for a Mini-GmbH are reduced to a total of around EUR 300 plus the fees for legal counsel. Except for the above-mentioned specific provisions, the Mini-GmbH - by terms of law - is generally subject to the same duties and rights as the standard GmbH. b) Stock Corporation (AG) aa. Characteristics A stock corporation ( Aktiengesellschaft, AG ) is the “larger” version of a capital corporation which can also be publicly listed. The AG generally enjoys a high market reputation among business partners. However, the founding formalities and costs of an AG and the ongoing annual costs for audit, tax filings and reportings are considerably higher than for the GmbH. Also, the AG is subject to extensive organizational obligations in day-to-day business. The AG is liable to corporate income tax, solidarity surcharge and trade tax. bb. Formation Requirements In principle, an AG can be established by any individual. Generally speaking, there are only two founding obligations to be observed. First, an AG must have a minimum share capital of EUR 50,000 (which must be fully subscribed to by the founding shareholders), and articles of association need to be certified by a notary. Given the more complex statutory obligations, comprehensive legal consultation is strongly
advised for drawing up the articles of association and the entire legal set-up of an AG. cc. Appointing the Management The founding shareholders appoint the first auditor ( Abschlussprüfer ) and supervisory board (Aufsichtsrat), which in turn appoints the first management board ( Vorstand ). The appointment of the first auditor and supervisory board must be notarized. The founding shareholders must also prepare a formation report with the relevant details of the establishment of the AG. This report has to be scrutinized by the boards. The AG is managed by its management board. Neither supervisory board nor shareholders can exercise direct influence on the management board. dd. Registration The AG comes into existence upon registration in the commercial register ( Handelsregister ). The application must be signed by the founding shareholders, the members of the supervisory board and the management board before a notary. In addition, an AG must be registered with the local trade office (Gewerbe- oder Ordnungsamt). c) Partnership Limited by Shares (KGaA) ee. Characteristics The partnership limited by shares (Kommanditgesellschaft auf Aktien, KGaA) combines the structures of a stock corporation ( AG ) and a limited partnership ( Kommanditgesellschaft ). It connects the entrepreneurial commitment and personal standing of the individually liable shareholders (general partners) with the function of the AG as a public company and source of capital. The KGaA can be described as a stock corporation having individually liable shareholders (general partners) instead of a management board.
ILN Corporate Group – Establishing a Business Entity Series
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