Glossary of company formation and German company law
In short
Are you forming a company and stumbling over terms such as model protocol, blocking year or list of shareholders? For each term, you will find the definition first, followed by a short explanation with the figures and deadlines people ask about most often. Where there is a detailed page, the link takes you there. The explanations are no substitute for advice in your individual case.
Reviewed by Dr. Georg Schröder, LL.M.80terms on company formation and corporate law
80 terms
A
Articles of association (Gesellschaftsvertrag)Formation and notaryThe articles of association (or partnership agreement) are the contractual basis of a company and set out, for example, its name, registered office, purpose, capital and the rights of the shareholders; for a GmbH they are also called the Satzung. For a GmbH and UG they must be notarised; for a GbR no particular form is required.Read definitionAsset management GmbH (vermögensverwaltende GmbH)Legal formsAn asset management GmbH manages its own assets, such as real estate, securities or shareholdings, instead of running an operating business. It is often used as a holding company or to invest accumulated profits.Read definition
B
Beneficial owner (wirtschaftlich Berechtigter)Registers and obligationsA beneficial owner is any natural person who ultimately owns or controls a company, in particular with more than 25% of the capital shares or voting rights. If no one can be identified, the legal representative is deemed to be the beneficial owner.Read definitionBlocking year (Sperrjahr)Winding upThe blocking year begins with the call to creditors in the Federal Gazette and lasts twelve months; only then may the remaining assets of a dissolved GmbH or UG be distributed to the shareholders. It protects creditors who still come forward.Read definition
C
Capital contribution (Stammeinlage)CapitalThe capital contribution is the contribution a shareholder makes on their share in a GmbH or UG. Its amount is based on the nominal amount of the share.Read definitionCapital increase (Kapitalerhöhung)CapitalIn a capital increase, the share capital of a GmbH or UG is increased, either through new contributions or from the company's reserves. A notarised resolution with a three-quarters majority and entry in the commercial register are required.Read definitionChange of company name (Umfirmierung)Registers and obligationsA change of company name (Umfirmierung) is a change to the "Firma", i.e. the name of a business entered in the commercial register. For a GmbH and UG, this requires a notarised amendment to the articles of association and registration.Read definitionCommercial power of attorney (Handlungsvollmacht)Governance and representationThe commercial power of attorney authorises the transactions and legal acts that a commercial business, or certain transactions within it, usually involve. It is narrower than Prokura and is not entered in the commercial register.Read definitionCommercial register (Handelsregister)Registers and obligationsThe commercial register is a public, electronically kept register of merchants and commercial companies, maintained by the register courts. Division A (HRA) lists, for example, sole traders, OHGs and KGs; division B (HRB) lists, for example, GmbHs, UGs and AGs.Read definitionCommercial register extract (Handelsregisterauszug)Registers and obligationsThe commercial register extract shows a company's registered details, such as company name, registered office, capital, managing directors and authorised signatories. Anyone may retrieve it online for information purposes.Read definitionCompany name (Firma)Formation and notaryIn the legal sense, the "Firma" is the name under which a merchant conducts business and signs. It must be distinctive, must not be misleading and must contain the legal form suffix.Read definitionContribution in kind (Sacheinlage)CapitalA contribution in kind is a contribution to the share capital in the form of assets, rights or a business instead of money. It is permitted for a GmbH with a formation report on the contribution in kind, and excluded for a UG.Read definitionCorporate purpose (Unternehmensgegenstand)Formation and notaryThe corporate purpose describes in the articles of association what the company does. It is part of the mandatory content of the articles of association of a GmbH or UG and is entered in the commercial register.Read definitionCorporation (Kapitalgesellschaft)Legal formsIn a corporation, the capital contributed is what matters, not the person of the shareholders; examples are the GmbH, UG and AG. It is a legal entity and in principle is only liable with the company's assets.Read definitionCorporation tax (Körperschaftsteuer)TaxesCorporation tax is the tax on the profits of corporations such as the GmbH and UG. Until 2027 it is 15% plus solidarity surcharge, after which it falls gradually to 10% from 2032.Read definition
D
Disclosure obligation (Offenlegungspflicht)Registers and obligationsThe GmbH, UG and GmbH & Co. KG must submit their annual financial statements electronically to the company register, where they can be inspected by the public. They must be there no later than one year after the balance sheet date.Read definitionDuty to file for insolvency (Insolvenzantragspflicht)Winding upIf a GmbH or UG is insolvent or over-indebted, the management must file for insolvency without culpable delay, at the latest three weeks after insolvency occurs and six weeks after over-indebtedness occurs. Anyone who fails to do so commits a criminal offence.Read definition
E
eGbRLegal formsThe eGbR is a GbR that is entered in the partnership register at the local court and carries the suffix "eGbR". Registration has been possible since 1 January 2024 and is voluntary, but it is a prerequisite for acquiring real estate or GmbH shares.Read definitionExemption from Sec. 181 BGBGovernance and representationThe exemption from Sec. 181 BGB allows a managing director to conclude contracts on behalf of the company with themselves or with a third party they also represent. Without this permission, such self-dealing transactions are generally not allowed.Read definitionExternal managing director (Fremdgeschäftsführer)Governance and representationAn external managing director runs a GmbH or UG without holding a share in it. They are appointed by the shareholders and are subject to their instructions.Read definition
F
G
GbR (civil law partnership)Legal formsA GbR comes into existence as soon as at least two persons contractually undertake to pursue a common purpose, without a notary, register or minimum capital. All partners are personally liable for its debts, without limit and jointly and severally.Read definitionGeneral partner (Komplementär)Governance and representationThe general partner is the partner in a KG who is personally liable without limit, and manages its business. A GmbH or UG can also be the general partner, as in the GmbH & Co. KG.Read definitiongGmbH (non-profit GmbH)Legal formsThe gGmbH is a GmbH whose articles of association and actual management pursue exclusively and directly charitable, benevolent or religious purposes. In its tax-privileged sphere, it is exempt from corporation tax and trade tax, but may not distribute profits.Read definitionGmbH (limited liability company)Legal formsThe GmbH is a corporation and legal entity formed by one or more persons with at least €25,000 share capital. As soon as it is entered in the commercial register, in principle only the company's assets are liable for its debts.Read definitionGmbH & Co. KGLegal formsThe GmbH & Co. KG is a limited partnership whose personally liable partner (general partner) is a GmbH. As a result, no natural person is ultimately liable without limit with their private assets, as long as the limited partners have paid their contributions.Read definitionGmbH in formation (Vor-GmbH)Formation and notaryBetween notarisation and entry in the commercial register, the GmbH exists as a pre-company (Vor-GmbH) and trades with the suffix "i. G." (in formation). Anyone who acts in its name during this phase is personally and jointly liable.Read definitionGmbH in liquidation (i. L.)Winding upAfter dissolution, the GmbH carries a suffix indicating liquidation, usually "i. L.", and may only conduct business that serves the winding up. It is only deleted after the blocking year and the distribution of the remaining assets.Read definitiongUG (non-profit UG)Legal formsThe gUG is a UG (haftungsbeschränkt) that exclusively and directly pursues charitable, benevolent or religious purposes. It manages with less than €25,000 share capital and, once recognised, is exempt from corporation tax and trade tax in its tax-privileged sphere.Read definition
H
Hidden profit distribution (verdeckte Gewinnausschüttung, vGA)TaxesA hidden profit distribution occurs when a corporation grants a shareholder a benefit outside a regular distribution, such as an unreasonably high salary or an interest-free loan. For tax purposes, it may not reduce the company's profit.Read definitionHolding company (Holding)Legal formsA holding is not a legal form, but a structure in which a parent company, usually a GmbH or UG, holds shares in one or more subsidiaries. With a shareholding of 10% or more, 95% of the subsidiary's profit distributions remain exempt from corporation tax at the holding level.Read definition
K
L
Legal entity (juristische Person)Legal formsA legal entity is an organisation with its own legal personality that has rights and obligations itself, concludes contracts, and can sue and be sued. Examples are the GmbH, UG, AG, registered association and foundation with legal capacity.Read definitionLegal form (Rechtsform)Legal formsThe legal form is the legal framework of a business and determines liability, capital, formation effort, say in decisions and taxes. Common legal forms in Germany include the sole proprietorship, GbR, OHG, KG, GmbH, UG and AG.Read definitionLegal form suffix (Rechtsformzusatz)Registers and obligationsThe legal form suffix is the part of the name that shows the legal form, for example "GmbH", "UG (haftungsbeschränkt)", "e.K.", "OHG", "KG" or "eGbR". It is mandatory and belongs on business letters, invoices and in the legal notice.Read definitionLiberal professions (Freiberufler)Legal formsMembers of the liberal professions independently practise a liberal profession, for example as a doctor, lawyer, engineer or journalist, or in a scientific, artistic or teaching capacity. They do not register a trade and do not pay trade tax, as long as they do not work through a GmbH or UG.Read definitionLimited liability (Haftungsbeschränkung)CapitalLimited liability means that only the company's assets are liable for the business's debts, not the shareholders' private assets. For a GmbH and UG, it only applies in full from entry in the commercial register.Read definitionLimited partner (Kommanditist)Governance and representationThe limited partner is the partner with limited liability in a KG; they are only liable to creditors up to their liability amount entered in the commercial register. Once they have paid their contribution, their liability is excluded.Read definitionLiquidationWinding upLiquidation is the orderly winding up of a dissolved company: completing ongoing business, realising assets, paying creditors and distributing the rest to the shareholders. For a GmbH and UG, it follows the dissolution resolution and ends with deletion from the commercial register.Read definitionLiquidatorWinding upThe liquidator winds up the dissolved company and represents it during this phase. This is usually the previous managing directors, but the shareholders can also appoint other persons.Read definitionList of shareholders (Gesellschafterliste)Registers and obligationsThe list of shareholders names all shareholders of a GmbH or UG with name, date of birth and place of residence, as well as the nominal amount, number and percentage of their shares. It is held at the commercial register and can be inspected by anyone.Read definition
M
Managing director (Geschäftsführer)Governance and representationThe managing director runs the GmbH or UG and represents it in and out of court. They must be a natural person with full legal capacity and are appointed by the shareholders.Read definitionManaging director's service agreement (Geschäftsführervertrag)Governance and representationThe managing director's service agreement governs the managing director's employment, for example remuneration, duties, holidays, liability and termination. It is separate from the appointment, which is what makes them a body of the company.Read definitionMini-GmbHLegal formsMini-GmbH is a colloquial name for the UG (haftungsbeschränkt). There is no separate legal form of this name.Read definitionModel protocol (Musterprotokoll)Formation and notaryThe model protocol is a statutory form for the simplified formation of a GmbH or UG with no more than three shareholders and one managing director. It combines the articles of association, appointment of the managing director and list of shareholders and reduces notary costs.Read definitionMoPeGLegal formsThe MoPeG, the Act on the Modernisation of Partnership Law, has applied to all partnerships since 1 January 2024, including existing ones. It expressly recognised the GbR as having legal capacity and introduced the partnership register for the eGbR.Read definition
N
O
OHG (general partnership)Legal formsThe OHG is a commercial partnership whose purpose is to operate a commercial business under a joint company name, and all of whose partners are personally liable without limit. It needs no minimum capital and is entered in division A of the commercial register.Read definitionOpening balance sheet (Eröffnungsbilanz)TaxesThe opening balance sheet sets out the assets and liabilities of the business at the start of its commercial activity. In principle, every merchant must prepare one, and so must every GmbH and UG.Read definition
P
Parent company (Muttergesellschaft)Legal formsA parent company holds shares in another company, the subsidiary, and can control it in this way. Both remain legally independent and are each liable for their own debts.Read definitionPartnership (Personengesellschaft)Legal formsIn a partnership, at least two partners join together, and the partnership depends on their personal involvement; examples are the GbR, OHG, KG and PartG. There is no minimum capital, but at least one partner is liable without limit.Read definitionPartnership company (Partnerschaftsgesellschaft, PartG)Legal formsThe partnership company (PartG) is a company in which members of the liberal professions join together to practise their professions, entered in the Partnerschaftsregister. For professional errors, only the partner who handled the engagement is liable alongside the company.Read definitionPartnership register (Gesellschaftsregister)Registers and obligationsThe partnership register is the public register for registered civil law partnerships (eGbR) and is kept at the local court. It has existed since 1 January 2024.Read definitionPiercing the corporate veil (Durchgriffshaftung)CapitalPiercing the corporate veil means that shareholders of a GmbH or UG exceptionally have to answer personally for the company's debts, even though in principle only the company's assets are liable. It is the rare exception to limited liability.Read definitionppa.Governance and representation"ppa." stands for "per procura" and shows in a signature that an authorised signatory with Prokura is signing for the business. Anyone who only has a commercial power of attorney may not use this addition and usually signs with "i. V.".Read definitionProfit distribution (Gewinnausschüttung)TaxesIn a profit distribution, a corporation pays out all or part of its profit to the shareholders, on the basis of a resolution on the use of profits. Private individuals pay 25% flat-rate withholding tax on it, plus solidarity surcharge and, where applicable, church tax.Read definitionProkuraGovernance and representationProkura is a commercial-law power of attorney for all types of transactions and legal acts that operating a commercial business involves; its holder is called a Prokurist. It is granted expressly and entered in the commercial register.Read definition
R
Registered association (Verein, e.V.)Legal formsA registered association is an association of persons with a non-commercial purpose that acquires legal capacity by entry in the register of associations at the local court. It should only be registered if it has at least seven members.Read definitionRegistered merchant (eingetragener Kaufmann, e.K.)Legal formsA registered merchant is a sole proprietor whose business name is entered in division A of the commercial register and who uses a suffix such as "e.K.", "e.Kfm." or "e.Kfr.". Like every sole proprietor, they are liable without limit with their private assets.Read definitionRegistered office (Sitz der Gesellschaft)Formation and notaryThe registered office is the place in Germany that the articles of association specify as the company's seat. It determines the register court at which the GmbH or UG is registered.Read definition
S
Share capital (Stammkapital)CapitalThe share capital is the capital of a GmbH or UG specified in the articles of association; for a GmbH it is at least €25,000, for a UG less, mathematically from €1. For a GmbH, at least €12,500 must be paid in for the application; for a UG, the full amount.Read definitionShare in a GmbH (Geschäftsanteil)CapitalThe share (Geschäftsanteil) is a shareholder's stake in a GmbH or UG; its nominal amount is stated in whole euros. It can be sold and inherited, but its assignment requires a notarised contract.Read definitionShareholder loan (Gesellschafterdarlehen)CapitalA shareholder loan is a loan that a shareholder gives to their own GmbH or UG. In insolvency, the claim for repayment is only satisfied after the claims of the other insolvency creditors.Read definitionShareholder or partner (Gesellschafter)Governance and representationShareholders or partners are the members of a company; in a GmbH and UG, they are the holders of the shares. Their rights, obligations and liability depend on the legal form and the articles of association or partnership agreement.Read definitionShareholder resolution (Gesellschafterbeschluss)Governance and representationWith a shareholder resolution, the shareholders of a GmbH or UG make their decisions, in principle by a majority of the votes cast. An amendment to the articles of association requires three quarters of the votes cast and notarisation.Read definitionShareholder-managing director (Gesellschafter-Geschäftsführer)Governance and representationA shareholder-managing director holds a share in the GmbH or UG and also manages its business. For founders, this is the norm.Read definitionShareholders' meeting (Gesellschafterversammlung)Governance and representationThe shareholders' meeting is the body in which the shareholders of a GmbH or UG pass their resolutions. Among other things, it adopts the annual financial statements, decides on the use of profits and appoints the managing directors.Read definitionShelf company (Vorratsgesellschaft)Formation and notaryA shelf company is a GmbH or UG that has already been formed and registered, has never traded and is bought in order to start immediately with a limited liability company. Its shares are bought by notarised contract.Read definitionShell company purchase (Mantelkauf)Formation and notaryIn a shell company purchase, someone acquires the shares of a GmbH or UG that has ceased trading in order to use it for a new business. Unlike with a shelf company, there may be legacy liabilities from its previous activity.Read definitionSide business (Nebengewerbe)Legal formsA side business is a trade that someone runs alongside a main occupation, such as employment or studies. Like any trade, it is registered with the trade office.Read definitionSingle-member GmbH (Einpersonen-GmbH)Legal formsA single-member GmbH has only one shareholder, who is usually also its managing director. The same rules apply to it as to any GmbH, including the €25,000 share capital.Read definitionSmall business (Kleingewerbe)Legal formsA small business (Kleingewerbe) is a trade that, by its nature or scope, does not require a commercially organised operation and therefore does not have to be entered in the commercial register. It is not the same as the small business VAT exemption.Read definitionSmall business VAT exemption (Kleinunternehmerregelung)TaxesUnder the small business VAT exemption, a business's turnover is exempt from VAT if its total turnover did not exceed €25,000 in the previous year and does not exceed €100,000 in the current year. It applies regardless of the legal form.Read definitionSole proprietorship (Einzelunternehmen)Legal formsA sole proprietorship is run by a single natural person, without minimum capital, without a partnership agreement and without a notary. The owner is liable for all debts with their entire private assets.Read definitionStock corporation (Aktiengesellschaft, AG)Legal formsThe stock corporation (AG) is a corporation with its own legal personality whose share capital is divided into shares and amounts to at least €50,000. Only the company's assets are liable to creditors for its debts.Read definition
T
Trade registration (Gewerbeanmeldung)Registers and obligationsAnyone who starts operating a trade independently must notify the competent authority, usually the municipality's trade office, at the same time. This applies to sole proprietors as well as to the GbR, OHG, KG, GmbH and UG, but not to the liberal professions.Read definitionTransparency register (Transparenzregister)Registers and obligationsThe transparency register is an electronic register to which legal entities under private law and registered partnerships must report their beneficial owners. This affects, for example, the GmbH, UG, OHG, KG and eGbR.Read definition
U
UG (haftungsbeschränkt)Legal formsThe UG (haftungsbeschränkt) is not a separate legal form, but a GmbH with less than €25,000 share capital, mathematically from €1, which must be paid in full in cash before the application. In return, it must put a quarter of its annual net profit into a reserve every year.Read definitionUG & Co. KGLegal formsThe UG & Co. KG is a limited partnership whose personally liable partner is a UG (haftungsbeschränkt). It works like the GmbH & Co. KG, but needs less start-up capital for the general partner.Read definitionUG reserve requirement (Rücklagenpflicht der UG)CapitalEvery year, the UG must put a quarter of its annual net profit, reduced by any loss carried forward from the previous year, into a statutory reserve. The obligation only ends once the share capital has been increased to at least €25,000.Read definition
