GmbH: Definition, Requirements, and Comparison to LLCs

What Is GmbH?

GmbH is an abbreviation of the German phrase “Gesellschaft mit beschränkter Haftung,” which means “company with limited liability.” It’s a suffix used after a private limited company’s name in Germany (vs. AG, for aktiengesellschaft, which is used to indicate a public limited company). GmbH is the equivalent of LLC (limited liability company), used in the United States, or Ltd. (limited), used in the United Kingdom, and is the most common form of incorporation in Germany.

Understanding GmbH

A limited company is one where shareholder liability is limited to the amount of their original investment, and the shareholders are not responsible for the company’s debts, thus protecting their personal assets if the company becomes insolvent. The difference between a private limited company and a public limited company is that the shares in a private limited company are not offered to the general public and are not traded on a public stock exchange.

The most common corporate legal entity in Germany and Austria is the limited liability company, or GmbH. Under German law, the minimum capital requirement for starting a private limited company is 25,000 euros (€25,000), half of which must be available before registering the firm in the Unternehmensregister or Company Register, the central platform for saving legally relevant company data. This way, the country ensures that only solvent entrepreneurs are able to start new companies.

During the period between the creation and the registration of the company, business activities may commence, making participating individuals personally liable. However, the company only becomes effective once it has been registered, which usually takes up to three weeks, at which point shareholders are protected from any personal liability.

Requirements for GmbH

When a newly formed GmbH applies to Germany’s Company Register for registration of the firm’s incorporation, it must also appoint its first director and include a list of its shareholders. A supervisory board is required if the company has more than 500 employees; otherwise, the company is run only by the managing directors who have the unrestricted proxy for the company.

There is no central corporate registry in Germany; instead, a company is registered in a local court where the company’s registered office is located or where the GmbH has its legal seat.

In 2008, a “mini-Gmbh” called Unternehmergesellschaft (UG) was introduced to assist and encourage entrepreneurs with only a limited amount of capital. The minimum capital requirement for Unternehmergesellschaft is 1 euro (€1). Each year, a UG is required to put aside at least 25% of its yearly net profit, until its reserve capital reaches the statutory minimum of €25,000, at which point it may change its legal form to GmbH.

Other Versions of GmbH

Besides the lower-capital mini-GmbH, Germany also allows for a GmbH & Co. KG (kommanditgesellschaft, or limited partner) designation and a gGmbH.

• GmbH & Co. KG: A combination of GmbH and KG
• gGmbH: A non-profit GmbH