(; ) is a type of

legal entity In law, a legal person is any person or legal entity that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so on. The reason for the term "''le ...

in German-speaking countries. It is equivalent to a (Sàrl) in the French-speaking region of Switzerland and to a (Sagl) in the Italian-speaking region of Switzerland. It is an entity broadly equivalent to the

private limited company A private limited company is any type of business entity in Privately held company, "private" ownership used in many jurisdictions, in contrast to a Public company, publicly listed company, with some differences from country to country. Example ...

(PLC) in the

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Northwestern Europe, off the coast of European mainland, the continental mainland. It comprises England, Scotlan ...

and many

Commonwealth countries The Commonwealth of Nations, often referred to as the British Commonwealth or simply the Commonwealth, is an international association of 56 member states, the vast majority of which are former territories of the British Empire from which i ...

, and the

limited liability company A limited liability company (LLC) is the United States-specific form of a private limited company. It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of ...

(LLC) in the United States. The name of the GmbH form emphasizes that the owners (, also known as members) of the entity are not personally liable for the company's debts. GmbHs are considered

legal person In law, a legal person is any person or legal entity that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so on. The reason for the term "''le ...

s under German, Swiss, and Austrian law. Other variations include mbH (used when the term is part of the company name itself), and gGmbH () for

non-profit A nonprofit organization (NPO), also known as a nonbusiness entity, nonprofit institution, not-for-profit organization, or simply a nonprofit, is a non-governmental (private) legal entity organized and operated for a collective, public, or so ...

companies. The GmbH has become the most common corporation form in Germany because the AG (), the other major company form corresponding to a stock corporation, was much more complicated to form and operate until recently.

Requirements of formation

A GmbH is formed in three stages: the founding association, which is regarded as a private partnership with full liability of the founding partners/members; the founded company (often styled as "GmbH i.G.", with "i.G." standing for – literally "in the founding stages", with the meaning of "registration pending"); and finally the fully registered GmbH. Only the registration of the company in the Commercial Register () provides the GmbH with its full legal status. The founding act and the articles of association have to be

notarized A notary is a person authorised to perform acts in legal affairs, in particular witnessing signatures on documents. The form that the notarial profession takes varies with local legal systems. A notary, while a legal professional, is distin ...

, as do a number of business transactions, such as transfer of shares, issuing of stock, and amendments to the articles of association. Many of those documents have to be filed with the company registry, where they are checked by special judges or other judicial officers. This can be a tiresome and time-consuming process, as in most cases the transactions are legally valid only when filed with the registry. The founding process is expensive. Normally the foundation of a new GmbH costs about €1000 to €3000. The GmbH law outlines the minimum content of the articles of association, but it is quite common to have a wide range of additional rules in the articles. Under German law, the GmbH must have a minimum founding capital of €25,000 (§ 5 I GmbHG), of which €12,500 has to be raised before registering in the commercial register (§ 7 II GmbHG). 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. The members acting collectively may restrict the powers of the managing directors by giving them binding orders. In most cases, the articles of the association list the business activities for which the directors obtain prior consent from the members. Under German law, a violation of these duties by a managing director will not invalidate a contract with a third party, but the GmbH may hold the managing director in question liable for damages. Germany, Austria, Switzerland, and Liechtenstein have different national requirements as follows:

History

The concept of a company with limited liability existed in the

before it did in German-speaking countries. During the 19th century, a legal entity with liability limited to the contributed capital was regarded as something dangerous. Hence, German law has many restrictions unknown to

common law Common law (also known as judicial precedent, judge-made law, or case law) is the body of law primarily developed through judicial decisions rather than statutes. Although common law may incorporate certain statutes, it is largely based on prece ...

systems. The laws governing the GmbH were introduced in the

German Empire The German Empire (),; ; World Book, Inc. ''The World Book dictionary, Volume 1''. World Book, Inc., 2003. p. 572. States that Deutsches Reich translates as "German Realm" and was a former official name of Germany. also referred to as Imperia ...

in 1892, and in the

Austrian Empire The Austrian Empire, officially known as the Empire of Austria, was a Multinational state, multinational European Great Powers, great power from 1804 to 1867, created by proclamation out of the Habsburg monarchy, realms of the Habsburgs. Duri ...

in 1906, respectively. Because there is no central company registry in the current

Federal Republic of Germany Germany, officially the Federal Republic of Germany, is a country in Central Europe. It lies between the Baltic Sea and the North Sea to the north and the Alps to the south. Its sixteen constituent states have a total population of over 84 ...

but rather several hundred connected to regional courts, administration of the law can vary somewhat between German states. Since 2007, there has been an internet-based central company register for Germany, called the . In 2008, a derived form called (), or in short , was introduced. It requires a minimum founding capital of €1 and was introduced to assist company founders in setting up a new company. The UG must enlarge its capital by at least 25% of its annual net profit (with some adjustments), until the general minimum of €25,000 is reached (at which point the company may change its name to the more prestigious ''GmbH'').

A (gGmbH) is a special form of a limited liability company with a charitable purpose. Traditional foundations and gGmbHs in Germany do not have minimum annual giving requirements. They are required to spend any profits by the end of the fiscal year in which they were accrued, but are allowed to build capital reserves totaling 10 percent of annual donations or 33 percent of dividends received.

Requirements of formation

History

See also

Notes

References

Further reading