What Is a GmbH? GmbH vs LLC and Ltd Explained

• What it is: a company with its own legal personality; only the company's assets are liable for its debts (GmbHG § 13).
• Who can form one: one or more persons, for any lawful purpose (§ 1), by notarised articles of association (§ 2).
• Capital: at least €25,000 share capital (§ 5); below that, it must be called a UG (haftungsbeschränkt) (§ 5a).
• Who runs it: one or more managing directors (Geschäftsführer), appointed and supervised by the shareholders (§§ 6, 46).
• Board: no board of directors. A supervisory board is optional unless the GmbH normally has more than 500 employees (§ 52; DrittelbG § 1).
• Tax: corporation tax on its profits and trade tax (KStG §§ 1, 23; GewStG § 2).

GmbH is short for Gesellschaft mit beschränkter Haftung, literally "company with limited liability". The name must contain those words or a generally understood abbreviation (§ 4), so you'll see "GmbH" after every company of this type. A GmbH with charitable tax status can use "gGmbH" (§ 4).

Legally, a GmbH is a legal person: it has its own rights and obligations, can own property, and can sue and be sued (§ 13(1)). Only the company's assets are liable to its creditors (§ 13(2)). It counts as a trading company under the Commercial Code whatever its business (§ 13(3)).

It's a corporation (Kapitalgesellschaft) in German law: the Corporation Tax Act lists the GmbH alongside the AG as a corporation that pays corporation tax (KStG § 1(1) no. 1).

A GmbH does have shares, called Geschäftsanteile. Each has a nominal value in whole euros, a shareholder can hold several, and the nominal values must add up to the share capital (§ 5(2)–(3)). Each euro of a share carries one vote (§ 47(2)).

The rules for GmbH shares differ from shares in a listed company:

• Transfers need a notary: shares can be sold and inherited (§ 15(1)), but a transfer requires a notarised contract (§ 15(3)). The articles can add conditions, such as the company's consent (§ 15(5)).
• The shareholder list decides: the managing directors file a list with the commercial register showing each shareholder's name, date of birth, place of residence and shares (§ 40(1)). Towards the company, only someone on that list counts as a shareholder (§ 16(1)).
• Public company or private? A GmbH isn't a listed company. German law defines a listed company as one whose Aktien (stock corporation shares) are admitted to a regulated market (AktG § 3(2)). A GmbH that wants to list can change its legal form into another type of corporation (UmwG § 191).

A GmbH has two required organs: the managing directors and the shareholders.

• Managing directors (Geschäftsführer) represent the company and run it day to day. They must be individuals; a company can't be one (§ 6(2)). See GmbH managing director: duties and liability.
• Shareholders decide by majority vote (§ 47(1)) on the annual accounts and profits, appointing and removing managing directors, and supervising the management (§ 46). Their rights follow the articles of association, with §§ 46–51 as the default (§ 45).
• Meetings: shareholders' resolutions are passed at meetings, which can be held by phone or video if all shareholders agree in text form. No meeting is needed if all shareholders agree to the resolution, or to voting, in text form (§ 48(1)–(2)). A sole shareholder must write up and sign each resolution straight away (§ 48(3)).
• No board of directors: the GmbH Act has no board of directors. The articles can set up a supervisory board (Aufsichtsrat) (§ 52(1)). It becomes compulsory, with one third of its members elected by the employees, when the GmbH normally has more than 500 employees (DrittelbG § 1(1) no. 3), and full co-determination applies above 2,000 (MitbestG § 1).
• Changing the articles needs a shareholders' resolution with three quarters of the votes cast (§ 53).

All three give their owners limited liability, but they come from different laws and work differently. The US column uses Delaware's statute as the example; each state has its own LLC law.

Official fees come to about €1,050.95 for a standard GmbH, €606.60 with the simplified procedure and €464.95 for a UG. See GmbH setup costs for the line-by-line calculation and GmbH running costs for the yearly costs.

• Articles of association: signed by all shareholders before a notary (§ 2(1)). They must state the name, registered office, business purpose, share capital and each shareholder's shares (§ 3). Notarisation can also be done by video call (§ 2(3)).
• Simplified procedure: with at most three shareholders and one managing director, you can use the statutory model protocol, which also serves as the shareholder list (§ 2(1a)).
• Pay in the capital: at least a quarter of each cash share, and at least €12,500 in total, before applying for registration (§ 7(2)). A UG must pay in its capital in full and can't take contributions in kind (§ 5a(2)).
• Register: apply to the commercial register at the court for the registered office (§ 7(1)). The GmbH doesn't exist as such until it's registered, and anyone who acts in its name before then is personally liable (§ 11).
• Trade office and tax office: notify the trade office when the business starts (GewO § 14) and send the tax registration details to the tax office within a month (AO § 138).

Closing a solvent GmbH is a liquidation under §§ 60–74 of the GmbH Act, and it takes at least a year:

• Resolution: the shareholders resolve to dissolve the company, by three quarters of the votes cast unless the articles say otherwise (§ 60(1) no. 2).
• Register and announce: the dissolution is registered with the commercial register (§ 65(1)), and the liquidators announce it in the company gazette, calling on creditors to come forward (§ 65(2)).
• Liquidators: the managing directors become the liquidators unless the articles or shareholders appoint others (§ 66(1)). They finish current business, pay the company's debts, collect what it's owed and turn its assets into money (§ 70).
• One-year blocking period (Sperrjahr): nothing can be paid out to the shareholders until the debts are paid or secured and a year has passed since the creditors' notice (§ 73(1)). Liquidators who pay out early are personally liable to repay it (§ 73(3)).
• Distribution and deletion: the remaining assets go to the shareholders in proportion to their shares (§ 72). The liquidators then file the end of the liquidation, the GmbH is deleted from the register, and its books must be kept for ten years (§ 74).

A GmbH & Co. KG isn't a GmbH. It's a limited partnership (Kommanditgesellschaft, KG): some partners' liability is limited to a fixed amount, while at least one partner is liable without limit (HGB § 161(1)). In a GmbH & Co. KG, that unlimited partner is a GmbH. Where no individual is personally liable, the firm name has to show the limitation of liability (HGB § 19(2)).

If you need a GmbH only to employ a few people in Germany, an Employer of Record is the alternative: the provider's own company employs them, so you don't need a GmbH, a managing director or €25,000 of share capital. In Germany, EOR is usually treated as employee leasing, with an 18-month limit for each placement.

For the costs side by side, see foreign subsidiary vs EOR, and for the leasing rules, AÜG and EOR in Germany.