Advisor

Which company form is the right one for my company?

30 July 2025

Scharf Attorneys at Law

When setting up a business in Germany, the first question is which legal form to choose. Sole proprietorships, partnerships (GbR, OHG, KG) and corporations (GmbH, UG, AG) each have different advantages and disadvantages. The decisive factors are liability risk, required start-up capital and bureaucratic effort. Notarization of the articles of association is required by law, especially for corporations (e.g. GmbH, UG or AG). Notaries provide founders with comprehensive advice - for example on liability or registration in the commercial register.

Sole proprietorship (incl. e.K.)

The easiest way to become self-employed. Applies to freelancers and small businesses. As a registered trader (e.K.), you can be entered in the commercial register (notary certifies the registration). A partnership agreement is not necessary.

AdvantagesVery low start-up costs (no notary required, only registration if necessary). Full entrepreneurial freedom, no minimum capital.

DisadvantagesUnlimited liability: private assets are liable for company debts. No limitation of liability reduces the risk.

Company under civil law (GbR)

A GbR is created by an informal contract between at least two people. It is particularly popular with small teams and freelancers. The formation can be purely verbal - notarization is not required. (The contract only needs to be notarized if real estate is contributed).

AdvantagesVery simple, fast and cost-effective foundation. No minimum deposit, flexible internal regulation.

DisadvantagesUnlimited liability of all shareholders with private assets. There is no limitation of liability.

General partnership (OHG)

The OHG is a GbR for a commercially managed business. It requires at least two partners who act jointly. There are no formal formation requirements (no minimum capital, no formal contract). However, a written partnership agreement is customary. The OHG must be entered in the commercial register. A notary carries out the registration and certifies the signatures of the partners.

AdvantagesSimple structure, no strict capital requirements, flexible management. Losses can be offset against other income for tax purposes.

DisadvantagesFull liability: All partners have unlimited personal liability. The OHG is only suitable if the founders accept high risks.

Limited partnership (KG)

The KG is a special form of OHG with limited liability: at least one partner (general partner) has unlimited liability, other partners (limited partners) are only liable to the extent of their contribution. No minimum capital is required by law. The company is established by articles of association (recommended in writing). Entry in the commercial register is also required here. The notary takes the registration and certifies the signatures.

AdvantagesLimited liability for limited partners (they only risk their contribution). Suitable for raising capital without overall responsibility.

DisadvantagesOne partner must still be fully liable (general partner). The structure is somewhat more complex than with the OHG.

Special form GmbH & Co.KG:
In this case, the personally liable general partner is a GmbH. This means that all natural partners are practically only involved with contributions. The liability of the participants is limited to the GmbH capital, while the flexible KG rules continue to apply. This structure combines limited liability with the tax advantages of a partnership.

GmbH (limited liability company)

A GmbH is a corporation and legal entity. A written partnership agreement, which must be notarized, is required for formation. In addition, share capital of at least €25,000 is required, of which €12,500.00 must be paid in. The GmbH only comes into existence after entry in the commercial register. As a rule, the following steps take place: Articles of association, notarization, capital contribution and application to the register.

Advantages: Limited liability: shareholders are only liable up to the amount of their contribution. The GmbH is an independent legal entity (own name, own assets). This creates trust with partners and banks. In addition, the management (managing director) can be appointed externally.

Disadvantages: High start-up costs and expenses. Notary and registration fees (at least several hundred euros) as well as complex bookkeeping and publicity obligations (balance sheet, transparency) are mandatory. The GmbH is subject to strict legal regulations and creditworthiness may appear somewhat lower than for sole proprietorships.

Entrepreneurial company (limited liability) - UG

The UG (haftungsbeschränkt) is not a separate legal form, but a variant of the GmbH with very low start-up capital. It can be founded with just €1 in share capital. Otherwise, almost all the rules of the GmbH apply to the UG. However, at least 25 % of the profit must be retained annually until the capital of € 25,000 is reached. The UG is therefore often referred to as a "mini-GmbH". As with a GmbH, formation requires a notarial deed and entry in the commercial register.

AdvantagesVery low capital investment; ideal if only a small amount of start-up capital is available. Limited liability as with a GmbH.

DisadvantagesOften less prestige due to low capital. Obligation to form reserves inhibits profit distribution. In the long term, the savings obligation can lead to increased administrative costs.

Public limited company (AG) and other forms

The AG is a corporation with even higher requirements (at least € 50,000 share capital, management board and supervisory board). It is less common for founders and is more typical for large companies.

Other forms such as the non-profit limited liability company (gGmbH), the cooperative or the European company (SE) are special cases. In general, the larger the company, the more frequently founders choose a corporation (and therefore often the GmbH). Corporations are usually less practical for small-scale start-ups.

Summary

The best legal form always depends on your situation. The most important factors are the question of liability and the start-up costs: if you want to limit your personal liability, you are better off choosing a GmbH/UG, but accept the higher bureaucratic and financial costs. If you want to get started quickly and cost-effectively and bear little risk, you can set up as a sole trader or a GbR/OHG. Notaries provide support for all forms: They provide neutral advice, notarize the necessary contracts and take care of registration in the commercial register. In this way, the notary can provide legally secure support for your company formation. Ultimately, legal forms can also be converted later if your company grows or requirements change.