Germany is Europe’s largest economy and a global hub for manufacturing, innovation, and technology. As a result, it has become increasingly attractive to international entrepreneurs and professionals seeking to establish a business presence within the EU. Whether you’re launching a startup, opening a branch of a foreign company, or joining a German partnership, understanding the legal and administrative process of company formation in Germany is essential.
This guide offers a comprehensive overview of the German business formation process, focusing on the legal, regulatory, and practical aspects relevant to foreign nationals and expats. It includes the types of legal entities available, the role of notaries and the commercial register, capital requirements, and immigration implications. The goal is to equip international founders with the legal clarity and step-by-step guidance needed to set up a compliant and successful business in Germany.
Content
- 1. Legal Framework for Company Formations in Germany
- 2. Who Can Form a Company in Germany?
- 3. Choosing the Right Legal Form
- 4. Step-by-Step Company Formation Process
- 5. Corporate Governance After Formation
- 6. Taxation for New Companies
- 7. Employment and Social Security Registration
- 8. Industry-Specific Licensing
- 9. Costs of Company Formation
- 10. Immigration Implications for Foreign Founders
- Conclusion
1. Legal Framework for Company Formations in Germany
Company formations in Germany are governed by several key statutes:
- Commercial Code (Handelsgesetzbuch – HGB)
- Limited Liability Company Act (GmbHG)
- Stock Corporation Act (AktG)
- Partnership Act (PartGG)
- Transformation Act (UmwG)
- Foreign Trade and Payments Act (AWG) – for foreign investments
All businesses must comply with registration requirements, tax regulations, and in many cases, professional licensing obligations. Legal formation must be carried out through notarised procedures and completed via the German commercial register (Handelsregister).
2. Who Can Form a Company in Germany?
Germany allows foreign nationals, including non-EU citizens, to form and operate companies with no restrictions on ownership. You can:
- Be the sole shareholder or part of a partnership
- Serve as a managing director (Geschäftsführer), subject to visa and residence rights
- Register a business either as a resident or remotely (via power of attorney)
However, visa status and residence permits are relevant for company founders who wish to live and work in Germany as managing directors or entrepreneurs (see Section 10).
3. Choosing the Right Legal Form
The most common business entities in Germany include:
| Legal Form | Best For | Key Features |
|---|---|---|
| GmbH (Limited Liability Company) | SMEs, tech/startups, family businesses | €25,000 share capital, strong liability protection |
| UG (haftungsbeschränkt) | Small startups, low capital | “Mini-GmbH” with €1 minimum capital, must build reserves |
| AG (Stock Corporation) | Large businesses, IPO potential | €50,000 capital, supervisory board required |
| OHG/Partnerships | Professional services, family firms | Personal liability for partners, no share capital |
| Branch (Zweigniederlassung) | Foreign companies entering German market | Legally dependent office, must be registered |
Each form has implications for taxation, liability, reporting, and corporate governance. Most international entrepreneurs choose the GmbH or UG for their balance of flexibility and liability protection.
4. Step-by-Step Company Formation Process
Step 1: Draft Articles of Association (Gesellschaftsvertrag)
These define the company’s name, seat, object of business, share capital, and shareholder structure. A German legal expert should prepare or review the draft.
Step 2: Notarise the Formation
The incorporation deed must be signed before a German notary, who:
- Authenticates the formation
- Ensures statutory compliance
- Coordinates registration and tax steps
For non-residents, power of attorney and remote notarisation may be possible with consular assistance.
Step 3: Open a Business Bank Account and Deposit Capital
Shareholders must deposit the minimum share capital into a German business account:
- €25,000 for GmbH (at least €12,500 before registration)
- €1+ for UG (must retain part of profits)
A confirmation from the bank is required for registration.
Step 4: Register with the Commercial Register (Handelsregister)
Once capital is deposited and notarisation complete, the notary files the registration with the local court (Amtsgericht). This entry makes the company a legal person.
Step 5: Obtain Tax Numbers and Trade Licenses
After registration, your company must:
- Register with the tax office (Finanzamt) for a tax ID and VAT number
- Submit the business registration (Gewerbeanmeldung) to the trade office
- Apply for specific licenses (if applicable to your field)
From this point, your company is fully operational.
5. Corporate Governance After Formation
A German GmbH is governed by:
- Managing Directors (Geschäftsführer) – who act on behalf of the company
- Shareholders – who make key strategic decisions
- Articles of Association – which regulate voting, profit distribution, and shareholder exits
Annual obligations include:
- Maintaining accounting records (double-entry bookkeeping for GmbH/UG)
- Filing annual financial statements with the German Federal Gazette (Bundesanzeiger)
- Holding shareholder meetings and passing resolutions
Failure to comply with corporate governance obligations can result in fines, legal liability, or dissolution.
6. Taxation for New Companies
Once formed, your company is subject to:
- Corporate income tax (15%)
- Solidarity surcharge (5.5% of corporate tax)
- Trade tax (approx. 14–17%, depending on municipality)
- VAT (19% standard, 7% reduced)
UGs and GmbHs must file monthly or quarterly tax declarations and annual returns. Tax advisors (Steuerberater) are highly recommended.
7. Employment and Social Security Registration
If your company employs staff or pays salaries (including to managing directors), you must:
- Register with social security institutions
- Withhold and remit income tax (Lohnsteuer)
- Provide employment contracts in accordance with German labor law
- Respect employee protection laws, including notice periods and minimum wage regulations
Non-compliance can result in significant penalties.
8. Industry-Specific Licensing
Certain businesses require additional permits or industry-specific compliance:
- Hospitality and restaurants → food hygiene, alcohol licensing
- Financial services → BaFin approval
- Crafts and trades → registration in the Handwerksrolle
- Healthcare → professional recognition or chamber registration
Professional legal advice is essential in regulated industries.
9. Costs of Company Formation
Typical costs for forming a GmbH or UG in Germany:
| Item | Estimated Cost |
|---|---|
| Notary and court fees | €600 – €1,200 |
| Legal drafting (optional) | €800 – €2,000 |
| Company bank account setup | Often free or €50–€100 |
| Trade license (Gewerbeanmeldung) | €20 – €50 |
| Tax advisor (optional) | €100–€200/month (ongoing) |
10. Immigration Implications for Foreign Founders
Foreign entrepreneurs from outside the EU require a residence permit for self-employment (§ 21 AufenthG). Requirements include:
- A viable business plan
- Demonstrated economic benefit for Germany
- Proof of funding and qualifications
- Registration with local immigration authorities
Founders who will act as managing directors must apply for this permit before or shortly after formation. EU Blue Card holders and residents of visa-exempt countries may have simplified pathways.
Conclusion
Germany offers a secure, structured, and opportunity-rich environment for foreign professionals and entrepreneurs establishing businesses. While the legal process of company formation in Germany is formalistic and document-intensive, it provides a solid foundation for long-term stability and scalability.
Whether you’re forming a tech startup, launching a consultancy, or opening a branch of a foreign business, legal clarity and regulatory compliance are key to success. By following this step-by-step guide—and working with qualified notaries, tax advisors, and legal counsel—you’ll ensure your German company starts strong and stays compliant.
