Gesellschaft mit beschränkter Haftung

A Gesellschaft mit beschränkter Haftung (pronounced [gəˈzɛlʃaft mɪt bəˈʃʁɛŋktɐ ˈhaftʊŋ], abbreviated GmbH [geː ʔɛm beː haː], in Austria also GesmbH or Ges.m.b.H.), which is German for "company with limited liability," is a type of legal entity very common in Germany, Austria, Switzerland (where it is equivalent to a S.à r.l.) and Liechtenstein. (In the United States, the equivalent type of entity is the limited liability company, or "L.L.C.") The name of the GmbH form emphasizes the fact that the owners (Gesellschafter, also known as members) of the entity are not personally liable for the company's debts.[1][2] GmbHs are considered legal persons under German and Austrian law. Other variations include mbH (used when the term Gesellschaft is part of the company name itself), and gGmbH (gemeinnützige GmbH) for non-profit companies.

The GmbH has become the most common corporation form in Germany, since the AG (Aktiengesellschaft), the other major company form corresponding to a stock corporation, was much more complicated to form and operate until recently.[3][4]

History

The laws governing this type of legal entity were adopted in Germany in 1892, and in Austria in 1906. The concept of limited liability created by these laws inspired the legal establishment of the limited liability company form in other countries,[5] although the concept of a limited liability company already existed in the United Kingdom.

Requirements of formation

It is widely accepted that 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 in Gründung – 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 (Handelsregister) provides the GmbH with its full legal status.

The founding act and the articles of association have to be notarized. 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), from which €12,500 have to be raised before registering in the commercial register (§ 7 II GmbHG). A supervisory board (Aufsichtsrat) is required if the company has more than 500 employees, otherwise the company is run only by the managing directors (Geschäftsführer) who have 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 association list the business activities for which the directors must obtain prior consent from the members. Under German law, a violation of these duties by a managing director will not affect the validity of a contract with a third party, but the GmbH may hold the managing director in question liable for damages.

As of 2008, a derivate form called Unternehmergesellschaft (haftungsbeschränkt) (English: "entrepreneurial company (limited liability)") or short UG (haftungsbeschränkt) was introduced. It does not require a minimum founding capital, and was introduced to assist company founders in setting up a new company. Also, the UG must accumulate 25% of its yearly earnings as legal reserve. Contrary to what many believe this goes on forever and does not stop once the minimum share capital of €25,000 is reached. However the shareholders may decide to increase capital by transforming the reserve into real share capital but this requires at least a certified financial statement.

Because a legal entity with liability limited to the contributed capital was regarded in the 19th century as something dangerous, German law has many restrictions unknown to common law systems. A number of business transactions have to be notarized, such as transfer of shares, issuing of stock, and amendments to the articles of association. Many of those measures 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 desired measures are legally valid only when entered into the registry. Because there is no central company registry in Germany but rather several hundred connected to regional courts, the administration of the law can be rather different between German states. Since 2007 there has been an internet-based central company register for the whole of Germany, called Unternehmensregister.

National requirements

Differences Germany Austria Switzerland Liechtenstein
Minimum share capital €25,000.00 €10,000.00 CHF20,000.00 CHF30,000.00
Mandatory supervisory board 500 employees 300 employees 300 employees 300 employees

See also

References

  1. ↑ RIS - Bundesrecht konsolidiert - Suche. Ris.bka.gv.at. Retrieved on 2013-07-19.
  2. ↑ GmbHG - nichtamtliches Inhaltsverzeichnis. Bundesrecht.juris.de. Retrieved on 2013-07-19.
  3. ↑ Müller, Klaus J. The GmbH: a guide to the German limited liability company Beck, 2006 ISBN 978-90-411-2444-9
  4. ↑ Rutow, Lange Doing Business in Germany 2008
  5. ↑ Limited Liability Company Reporter. "Historical Background of the Limited Liability Company". Retrieved 2008-08-18.

Further reading

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