This is the easiest form of company to set up in Germany (or an OHG if you are selling physical products). Anything else (such as a GbR) isn’t really a company (“Firma”) and doesn’t have limited liability like a U.K. Ltd company. It’s ridiculously difficult and expensive to set one up, compared to a U.K. Ltd company. On the other hand, you don’t need a GmbH (or GbR) to do business, and Germany makes it very easy to do freelance work without a company. In the U.K. you tend to need a Ltd company, though that’s maybe just so you can pay less tax.
In fact, a person with a GmbH pays more overall tax than an individual and a GmbH demands more (expensive) administration. Yet it’s that difficulty that gives a GmbH an air of respect. Every now and then Germans politicians discuss making it easier but then a bunch of them point out how awful that would be because some of them might fail. Hello? Jobs? Muppets.
Also, clients outside of Germany need to deal with something that’s recognizably a company without having to understand German law enough to know that you don’t need a company in Germany. Note that residents of Germany may set up a U.K. Ltd company instead, thanks to the EU, thus avoiding some of Germany’s beaurocracy, but that still looks suspicious to German clients, and isn’t common enough yet for the procedures to be well understood by German accountants. But I expect this to become accepted in future, leaving the GmbH as a provincial anachronism.
Alternatively, some EU-wide form of company will become more accepted. There’s already an SE company form, but it’s limited to companies with a minimum capital of 105,000 Euros. I’m still convinced that national governments of the EU will fight to the last to preserve their incompatible islands of tax complication. How else can they promise cash to their backers in the form of tax loopholes and allowances. The only EU-wide companies big enough to influence them are big enough to pay their accountants to deal with it.
Anyway, the process went like this.
- Week 0: I tell the accountant that I want to form the GmbH. I’m going on holiday for three weeks, and I want everything ready by the time I get back. This includes
- Creating a draft “Satzung” (agreement, contract) for the GmbH and sending it to me.
- Arranging an appointment with the notary. He’s a guy who sits between you and the government, because some things are meant to be difficult. His purpose is to send you a bill for his time.
- Week 4: Get back from holiday. Nothing has been done. Start again. My accountant is consistently unreliable, but now I’m dealing with someone new there, so there’s hope again. He gets the Satzung and the appointment with the Notar.
- Week 5: Arrange an appointment with my bank to open the company bank account with the necessary 25,000 Euros starting capital, because the accountant says I need this before meeting the notary. But the person at the bank says that they can’t do this until I get the piece of paper from the notary. A telephone call establishes that the bank can have it its way and the notary won’t mind. Apparently Hypovereinsbank do things differently.
- Meet the notary. His role is justified by the legal requirement for him to read your contracts aloud, such as the Satzung. He doesn’t ring a bell while doing this, but he really does sit there and read it to you, and you listen. Apparently this can take 3 hours for complex real estate deals. This costs me 418.18 Euros for half an hour of being read to. Good work if you can get it. In Romania they have other names for this, and the EU tries to stop it. But in Germany they send you a detailed bill for it.
Update: I also received a bill from the Landesjustizkasse Bamberg for the registration and publication of the fact that it was registered, for 322.39 Euros. So that’s 740.57 Euros just for the beaurocracy, ignoring the cost of an accountant to navigate that beaurocracy for you.
- Send the notary’s documents to the bank. They have a nice seal and piece of string in the light blue and white Bavarian colours.
- Week 6: The bank has the documents it needs to open the “GmbH i.G” account. i.G. means in GrÃ¼ndung, or “being founded”. Then I am allowed to put the required 25,000 Euros into the account. That can hurt when you have zero need for capital, such as when starting a software company. Opinions differ, but I don’t think it’s something that you get to see again as an individual, because paying it back to yourself is punishable by 3 years of prison. You can’t take it as profit, because profit is what you have above the starting amount. You can use it to pay yourself a salary, but of course you’ll be paying tax on that again (you paid tax on it when you earned it in the first place as an individual), plus you pay the social security contribution on it twice (you and your company pay it), so I guess that’s about 10,000 Euros that you lose, if you never close your company, just because the starting capital requirement is so high. I believe the minimum starting capital for a U.K. Ltd company is 1 pound. A notable difference.
- Week 7: Send the bank’s printout of the account balance to the notary.
- Week 8: Receive the printout from the business registry (Handelsregistrar) showing that the business is really registered, with a number. Send this document to the bank so they can remove “i.G.” from the account name.