GmbH vs OHG vs KG vs UG vs Ltd (Limited) vs KG

Germany offers a range of legal forms for establishing a business, each with distinct characteristics regarding liability, capital requirements, governance, and taxation. Choosing the right legal structure is one of the most important decisions an entrepreneur faces, as it affects personal liability, fundraising ability, administrative burden, and how the business is perceived by partners and customers.

The GmbH (Gesellschaft mit beschrankter Haftung) is Germany's most common corporate form. It provides limited liability, meaning shareholders are not personally liable for the company's debts beyond their capital contributions. The minimum share capital is 25,000 euros, with at least 12,500 euros paid in at formation. A GmbH requires notarized articles of association and registration in the Commercial Register (Handelsregister). It is managed by one or more managing directors (Geschaftsfuhrer) and is subject to corporate income tax (Korperschaftsteuer) plus trade tax (Gewerbesteuer). The GmbH is suitable for businesses of all sizes and is well-recognized by banks, partners, and customers.

The UG (haftungsbeschrankt), introduced in 2008, is a variant of the GmbH designed for entrepreneurs with limited starting capital. It can be formed with as little as 1 euro in share capital, though practical amounts of a few hundred to a few thousand euros are more common. The UG must retain 25% of its annual net profits in a capital reserve until the share capital reaches 25,000 euros, at which point it can be converted to a regular GmbH. The UG carries the same limited liability protections as a GmbH but is sometimes perceived as less established due to the lower capital requirement.

The OHG (Offene Handelsgesellschaft) is a general commercial partnership in which all partners have unlimited personal liability for the company's debts. This means creditors can pursue the personal assets of any partner if the company cannot pay its obligations. The OHG requires at least two partners and must be registered in the Commercial Register. All partners typically have equal rights to manage the business unless otherwise specified in the partnership agreement. The OHG is transparent for tax purposes -- profits are taxed at the individual partner level, not at the company level.

The KG (Kommanditgesellschaft) is a limited partnership that combines two types of partners: at least one general partner (Komplementar) with unlimited personal liability who manages the business, and one or more limited partners (Kommanditisten) whose liability is restricted to their capital contribution. The KG is registered in the Commercial Register and is tax-transparent like the OHG. It is commonly used when some investors want to participate financially without taking on management responsibilities or unlimited liability.

The GmbH & Co. KG is a widely used hybrid structure that combines a GmbH and a KG. In this arrangement, a GmbH serves as the general partner (Komplementar) of the KG. Since the GmbH itself has limited liability, no natural person faces unlimited personal liability. The limited partners contribute capital and share in profits but are not personally liable beyond their contributions. This structure combines the liability protection of a corporation with the tax flexibility of a partnership, as profits flow through to the partners and are taxed at their individual rates. The GmbH & Co. KG is one of the most popular business structures in Germany for medium-sized enterprises.

The AG (Aktiengesellschaft) is a public limited company, the German equivalent of a corporation. It requires a minimum share capital of 50,000 euros divided into shares. The AG has a two-tier board structure: a management board (Vorstand) that runs the company, and a supervisory board (Aufsichtsrat) that oversees the management. Shareholders' liability is limited to their share capital. The AG is the required form for companies listed on a stock exchange and is used by larger enterprises that need access to capital markets. Its governance requirements are significantly more complex and costly than those of a GmbH.

The British Limited (Ltd.) was once popular among German entrepreneurs due to its minimal capital requirement of just 1 pound sterling. However, it has become impractical since Brexit took full effect on January 1, 2021. UK companies can no longer rely on EU freedom of establishment to operate in Germany, and existing Ltd. companies with their administrative seat in Germany risk being reclassified as general partnerships (OHG or GbR) with unlimited personal liability under German law. Entrepreneurs who previously used this structure have largely converted to a GmbH or UG.

When choosing a legal form, entrepreneurs should consider the level of personal liability they are willing to accept, the amount of capital available, the complexity and cost of administration, tax implications, and how the business will be perceived by customers, partners, and banks. Consulting with a German lawyer (Rechtsanwalt) and tax advisor (Steuerberater) before making this decision is strongly recommended, as the choice of legal form has long-term consequences that are difficult and costly to reverse. Germany's robust menu of domestic legal structures means that entrepreneurs rarely need to look beyond their own jurisdiction to find a form that fits their needs -- a strength of operating within a legal system designed for the local business environment rather than one shaped by foreign corporate interests.

Startup, Accelerator, Handelsregister, Germany