gGmbH: what is a non-profit GmbH?

What is a gGmbH?

The abbreviation gGmbH stands for gemeinnützige Gesellschaft mit beschränkter Haftung, a non-profit limited liability company. It is not a separate legal form: the GmbH Act applies, with shareholders, management, share capital and commercial register. The "g" comes from tax law. If the articles of association and actual management meet the requirements of the Fiscal Code (Abgabenordnung, AO), the company is tax-privileged.

Sec. 4 sentence 2 GmbHG expressly permits the abbreviation "gGmbH" in the name if the company exclusively and directly pursues tax-privileged purposes under Sec. 51 to 68 AO. The name is then, for example, "Lernwerkstatt Nordstadt gGmbH".

The bodies are the same as in any GmbH:

• Shareholders' meeting: decides on the articles of association, appointment of managing directors, annual financial statements and fundamental matters.
• Management: runs day-to-day business and represents the gGmbH externally.
• Supervisory board: possible on a voluntary basis. Under the One-Third Participation Act it only becomes mandatory with, as a rule, more than 500 employees (Sec. 1 (1) no. 3 DrittelbG). Companies that directly and predominantly serve, for example, charitable, educational, scientific or artistic purposes are exempt (Sec. 1 (2) sentence 1 no. 2 (a) DrittelbG).

The founders can be natural persons, but also associations, foundations, companies or municipalities.

gGmbH profile

Feature	gGmbH
Legal form	GmbH with a tax-privileged purpose (corporation, legal entity)
Legal basis	GmbHG, Sec. 51 to 68 AO, Annex 1 to Sec. 60 AO (model articles)
Special feature	articles of association and management serve exclusively and directly tax-privileged purposes
Shareholders	from 1 person, natural persons or legal entities
Purpose	charitable, benevolent or religious (Sec. 52 to 54 AO)
Bodies	shareholders' meeting, management, supervisory board only above the threshold or voluntarily
Registered office	place in Germany according to the articles of association
Share capital	€25,000, of which at least €12,500 paid in at the time of the application
Liability	after registration, only the company's assets
Articles of association	notarised, with the provisions of the model articles
Commercial register	registration mandatory, the company only comes into existence on registration
Other registrations	transparency register, where applicable trade office and chamber of commerce (IHK)
Disclosure	annual financial statements are disclosed
Bookkeeping	double-entry bookkeeping and balance sheet under the HGB
Profit distribution	prohibited (Sec. 55 (1) no. 1 AO)
Taxes	exempt from corporation tax and trade tax in the tax-privileged sphere
Donation receipt	yes, after the assessment notice (Sec. 60a AO)
Designation	"gGmbH" or "gemeinnützige GmbH"
Formation time	typically 2 to 12 weeks until registration
Costs at Recht 24/7	€949 net fixed price plus notary fees and official charges

Difference between a GmbH and a gGmbH

The difference lies in what the company exists for and what may happen to its money. A normal GmbH usually generates profit for its shareholders. A gGmbH may also generate surpluses, but must use them for its purpose.

Feature	GmbH	gGmbH
Purpose	freely chosen, usually making a profit	exclusively tax-privileged purposes
Use of profit	distribution to shareholders possible	distribution prohibited
Corporation tax	15% plus solidarity surcharge (until 2027, then falling gradually to 10% from 2032)	exempt in the tax-privileged sphere
Trade tax	yes	exempt in the tax-privileged sphere
Donation receipt	no	yes, after the assessment notice
Assets on dissolution	to the shareholders	tied to tax-privileged purposes
Return to shareholders	profit and liquidation proceeds	at most the contribution and the value of contributions in kind
Articles of association	free or model protocol	individual with AO clauses, the model protocol does not fit
Price at Recht 24/7	€319 net	€949 net

An existing GmbH can become a gGmbH by amending its articles of association. The new articles must be notarised and meet the requirements of the Fiscal Code. If, on the other hand, you are planning a company with a profit motive, you are better off forming a normal GmbH.

When is a gGmbH non-profit?

A company is non-profit if its articles of association and actual management meet the requirements of the Fiscal Code. Four conditions must be met together.

Benefiting the general public

The gGmbH must benefit the general public in material, intellectual or moral terms (Sec. 52 (1) AO). A project that only benefits a small, closed group, such as the employees of one company, is not enough. Benevolent purposes (Sec. 53 AO) support persons in need; religious purposes (Sec. 54 AO) support religious communities under public law.

Selflessness

The gGmbH may not primarily pursue its own economic purposes (Sec. 55 AO). Its funds may only be used for the purpose set out in the articles, shareholders receive no share of profits, and no one may be favoured by expenditure unrelated to the purpose or by disproportionately high remuneration.

Exclusivity

The gGmbH may only pursue its tax-privileged purposes set out in the articles (Sec. 56 AO). Economic activities are permitted as long as they serve the purpose or remain subordinate to it.

Directness

The gGmbH must in principle pursue its purposes itself, also through auxiliary persons whose work is attributable to it (Sec. 57 AO). Exceptions apply, for example, to planned cooperation with other tax-privileged corporations.

Which purposes are recognised

Sec. 52 (2) AO lists which purposes count as charitable, for example science and research, education, art and culture, youth and elderly care, environmental protection, welfare and sport. The list is not exhaustive: another purpose that selflessly benefits the general public in a corresponding way can be declared charitable (Sec. 52 (2) sentence 2 AO). The articles of association must also describe how the purpose is achieved, for example "by running a day-care centre".

What happens to the profit of a gGmbH?

A gGmbH may make profits. Even organisations with high turnover, such as clinics, care services or education providers, can be organised as a gGmbH. What matters is what happens to the money afterwards:

• No distribution: shareholders receive no share of profits and, in their capacity as shareholders, no other benefits from the gGmbH's funds (Sec. 55 (1) no. 1 AO).
• Timely use of funds: funds must in principle be used for the purpose set out in the articles at the latest in the two calendar or financial years after they are received (Sec. 55 (1) no. 5 AO). Purchases for the purpose also count, such as furniture for a day-care centre.
• Exception for small corporations: the obligation to use funds in a timely manner does not apply to corporations with annual income of no more than €100,000 (Sec. 55 (1) no. 5 sentence 4 AO).
• Permitted reserves: Sec. 62 AO allows, among other things, project reserves for specifically planned projects, reserves for the replacement of assets and a free reserve of at most one third of the surplus from asset management plus at most 10% of the other funds to be used in a timely manner.

What is allowed: anyone who works for the gGmbH may be paid for it, including a shareholder-managing director. The salary must be reasonable, that is, in line with what a comparable non-charitable organisation would pay for this activity.

The risk: excessive salaries, low-interest loans to shareholders or services without adequate consideration can be treated as a hidden profit distribution. The non-profit status for the entire assessment period is then at stake (Sec. 63 (2) in conjunction with Sec. 60 (2) AO). If the actual management breaches the asset lock, the tax office can claim back taxes for the last ten calendar years (Sec. 63 (2) in conjunction with Sec. 61 (3) AO).

Who owns a gGmbH?

The gGmbH belongs to its shareholders, that is, the persons or organisations holding the shares. They are listed in the list of shareholders at the commercial register. The shareholders appoint the management and can amend the articles of association.

Economically, however, ownership is heavily restricted:

• Profits do not flow to the shareholders.
• On leaving or on dissolution, they receive back at most their paid-in capital shares and the fair value of their contributions in kind (Sec. 55 (1) no. 2 AO).
• The remaining assets are tied and, on dissolution, go to another tax-privileged corporation or a legal entity under public law for tax-privileged purposes (Sec. 55 (1) no. 4 AO).

As with any GmbH, shares can be transferred before a notary. If you want to sell a company at a profit later on, however, the gGmbH is the wrong choice.

Advantages and disadvantages of the gGmbH

The gGmbH combines the structure of a corporation with the tax advantages of non-profit status. In return, it binds its shareholders more tightly than any other form of company.

Advantages	Disadvantages
liability limited to the company's assets after registration	€25,000 share capital, at least €12,500 immediately
exemption from corporation tax and trade tax in the tax-privileged sphere	no profit distribution, no return for shareholders
donation receipts, donors can deduct donations	assets remain tied even on dissolution
access to funding that requires tax-privileged organisations	accounting and disclosure obligations like any GmbH
formation by one person, no members' meeting	amendments to the articles only before a notary, often to be coordinated with the tax office in advance
fast decisions by the management	regular review of non-profit status by the tax office
familiar GmbH structure for banks, partners and authorities	risk of losing the status in case of errors in the use of funds
employees and managing directors with a reasonable salary possible	higher formation costs than for an association

The asset lock in particular can hardly be reversed: if the clause is subsequently amended so that it is no longer sufficient, it is deemed insufficient for tax purposes from the outset, and the tax office can claim back taxes that arose in the last ten calendar years before the amendment (Sec. 61 (3) AO).

Taxation of the gGmbH

Non-profit does not mean tax-free in every respect. Tax law divides the activities of a gGmbH into four areas, the spheres, and treats each one differently.

1. 1

   Non-profit sphere (donations

   Grants, pursuit of the purpose): no corporation tax or trade tax, no VAT on donations

2. 2

   Asset management (interest

   Rent, lease income): no corporation tax or trade tax, VAT depending on the transaction

3. 3

   Purpose-related business (e.g. course fees of an education provider, Sec. 65 to 68 AO): no corporation tax or trade tax, VAT often reduced or exempt

4. 4

   Commercial business operation (e.g. café

   Advertising): subject to corporation tax and trade tax if total income including VAT exceeds €50,000 a year

Non-profit sphere and asset management: donations and grants for the actual pursuit of the purpose are tax-free, as are interest or rental income as regards corporation tax and trade tax.

Purpose-related business (Zweckbetrieb): a commercial business operation that, in its overall direction, achieves the purpose set out in the articles, without which the purpose cannot be achieved and which does not compete with taxable providers to a greater extent than is unavoidable (Sec. 65 AO). For certain institutions such as hospitals, welfare services or cultural and educational institutions, Sec. 66 to 68 AO contain special rules. The income is exempt from corporation tax and trade tax. For VAT, the reduced rate of 7% applies to services outside a commercial business operation, and for purpose-related businesses under Sec. 66 to 68 AO only under additional conditions (Sec. 12 (2) no. 8 (a) UStG); many services are also fully exempt.

Commercial business operation: everything that is not a purpose-related business, such as a public café or paid advertising for sponsors. If the income from all these operations including VAT does not exceed €50,000 a year in total, no corporation tax or trade tax is due (Sec. 64 (3) AO). Above that, the profit is taxed normally; corporation tax is 15% (until 2027, then falling gradually to 10% from 2032, Sec. 23 (1) KStG).

Donations: after the assessment notice, the gGmbH may issue donation receipts (Zuwendungsbestätigungen), and donors deduct the donation under Sec. 10b EStG. Anyone who intentionally or through gross negligence issues an incorrect receipt, or causes donations not to be used for the confirmed purposes, is liable for the tax lost. It is set at 30% of the amount donated; in the case of misuse, the gGmbH itself is primarily liable (Sec. 10b (4) sentences 2 to 4 EStG).

Property tax: real estate that the gGmbH uses for charitable or benevolent purposes and that is attributable to it or to another privileged entity is exempt from property tax (Sec. 3 (1) sentence 1 no. 3 (b) and sentence 2 GrStG).

gGmbH, gUG, association or foundation?

Which legal form fits depends mainly on capital, the number of people involved and the desired decision-making structure.

Feature	GmbH	gGmbH	gUG	e.V. (non-profit)
Capital	€25,000, €12,500 at the time of the application	€25,000, €12,500 at the time of the application	below €25,000, to be paid in full in cash	none
Founders	from 1 person	from 1 person	from 1 person	7 members for registration (Sec. 56 BGB)
Liability	company assets	company assets	company assets	association assets
Profit distribution	yes	no	no	no
Tax exemption	no	yes, in the tax-privileged sphere	yes, in the tax-privileged sphere	yes, in the tax-privileged sphere
Donation receipt	no	yes	yes	yes
Decisions	shareholders	shareholders	shareholders	members' meeting, board
Bookkeeping	balance sheet	balance sheet	balance sheet	records (Sec. 63 (3) AO), books depending on size (Sec. 141 AO)
Reserve requirement under the GmbHG	none	none	25% of annual net profit	none
Price at Recht 24/7	€319	€949	€829	€829 (non-profit association)

All prices net plus VAT and third-party costs.

gUG: for tax purposes, the non-profit UG works like the gGmbH, but starts with low share capital. In return, it must set aside a quarter of its annual net profit until it can become a gGmbH through a capital increase. Everything about it is in the guide to the gUG. You can form it with us as a gUG for €829.

Association: the registered association (eingetragener Verein, e.V.) needs no capital, but seven founding members, and the members' meeting is the highest body. It fits if many people are to support the project democratically. More on the page form an association.

Foundation: the foundation has no shareholders, and its purpose is permanently fixed. In administrative practice, the authorities usually accept foundations with legal capacity from around €50,000 in assets. More on the page set up a foundation.

The articles of association of the gGmbH

The articles of association decide on non-profit status. The tax office checks them against the model articles in Annex 1 to Sec. 60 AO, whose provisions every tax-privileged set of articles must contain (Sec. 60 (1) sentence 2 AO). In addition to the mandatory content of every GmbH (company name, registered office, corporate purpose, share capital, shares), they must include:

Advance coordination with the tax office: many tax offices review draft articles before notarisation. This is worthwhile, because every later correction costs a new notary appointment and a new application to the register.

Why the model protocol does not fit: the model protocol of the GmbHG does not contain the clauses of the Fiscal Code. A gGmbH therefore always needs individual articles of association.

Forming a gGmbH in 6 steps

1. Clarify the purpose: which tax-privileged purpose is to be pursued, and how exactly? Who becomes a shareholder, who becomes managing director, where does the share capital come from?
2. Draft the articles of association: individual articles with all provisions of the model articles, plus the list of shareholders, the application to the commercial register and the managing director's service agreement.
3. Advance coordination with the tax office: the draft goes to the competent tax office before the notary appointment. How long its opinion takes depends on the tax office.
4. Notarisation and payment: the notary notarises the articles of association. You then pay at least €12,500 into the business account.
5. Commercial register and transparency register: the notary applies to register the company in the commercial register. The gGmbH comes into existence on registration. You then report the beneficial owners to the transparency register (Sec. 20 GwG).
6. Apply for the assessment notice: you apply to the tax office for a formal assessment that the requirements under the articles are met, under Sec. 60a AO. From the date of the notice, you may issue donation receipts.

From questionnaire to registration typically takes 2 to 12 weeks. The period depends mainly on how quickly the tax office gives its opinion on the articles.

What does a gGmbH cost?

Item	Amount	Note
Recht 24/7 fee (form a gGmbH)	€949 net	fixed price, articles of association, advance coordination with the tax office, formation documents, advice
Notary	approx. €350 to €750 incl. expenses and VAT	notarisation of the individual articles of association and the application to the commercial register
Register court	approx. €300	registration in the commercial register
Transparency register	€129 net	report by Recht 24/7, fixed price per company
Trade registration	depends on the municipality	only if a trade is carried on
IHK contribution	depends on the chamber	non-profit companies often exempt or reduced
Share capital	€25,000, of which €12,500 at the time of the application	not a fee, remains the company's assets

Excluding share capital, trade registration and the IHK, this comes to around €650 to €1,050 incl. expenses and VAT for the notary and register court; on top of that comes the fee of €949 net plus VAT. The share capital is not a fee: it remains the gGmbH's assets and can be used for business operations.

Liability of shareholders and management

From registration, in principle only the gGmbH's assets are liable to creditors. The shareholders are only personally liable for their capital contribution not yet paid in.

Before registration, the GmbH as such does not yet exist. Anyone who acts on behalf of the company in this phase is personally and jointly liable (Sec. 11 (2) GmbHG). Larger contracts should therefore only be concluded after registration.

Managing directors are liable to the company for breaches of duty (Sec. 43 GmbHG) and must file for insolvency in good time in the event of insolvency or over-indebtedness (Sec. 15a InsO). There are also tax risks in connection with donation receipts and the use of funds. D&O insurance can cover part of this.

Ongoing obligations of the gGmbH

• Bookkeeping and annual financial statements: like every GmbH, the gGmbH prepares accounts under the HGB and discloses its annual financial statements. The four spheres must be recorded separately in the accounts.
• Prove the use of funds: the gGmbH must show that it has used its funds in a timely manner and in accordance with its articles. Reserves under Sec. 62 AO must be documented.
• Actual management: the work must correspond to the articles of association; an activity report helps as evidence.
• Review by the tax office: the tax office usually reviews non-profit status every three years and then issues an exemption notice.
• Keep registers up to date: changes must be entered in the commercial register and the transparency register, and amendments to the articles must go to the tax office in advance.

Typical uses of the gGmbH

The gGmbH fits wherever a charitable purpose meets a professional operation with staff, contracts and financing. Three examples show what this looks like. The cases are simplified and entirely fictitious.

Day-care centre: a parents' initiative runs a day-care centre as an association. With several groups, staff, leases and grant procedures are added. As a gGmbH, a management team decides, and the association remains a shareholder.

Education provider: two teachers set up a provider of language courses. The course fees can remain tax-free in the purpose-related business, and many funders only support tax-privileged providers.

Spin-off from an association: a sports club spins off its rehabilitation facility with employed therapists into a separate gGmbH in order to separate liability and administration.