Pros and Cons of Creating a GmbH (Germany)
We often think about opening our own business empire. Before finalizing your decision take a peek through the advantages and disadvantages of creating a GmbH. I hope, it will help you in making a better decision.
- Liability is given to the company’s assets.
- The GmbH is for trade, service and production, but also for freelance, artistic or scientific interests.
- Best administration: Corporate income tax is applied, which is usually more expensive, including income tax for partnerships.
- Great freedom of design for the partnership agreement.
- The fulfillment is also possible for one person. One then speaks of the one-person GmbH, in which one partner is also administered.
- Partners can be employees for their own company.
- The personnel costs must be the taxable profit of the GmbH.
- It is easy to change shareholders.
- Its simple to sell the company by selling the shares.
- Partners can also be legal persons, including corporations.
- The minimum capital for founding a GmbH is 25,000 euros, at least half of which must be paid in.
- However, the liability of the shareholders relates to the entire minimum capital, i.e. at least 25,000 euros.
- There must be a strict separation between the assets of the shareholders and the GmbH. Otherwise there is a risk of sanctions for hidden profit distribution.
- The establishment of the GmbH must be notarized and entered in the commercial register.
- The formation formalities are much more extensive than for the formation of a GbR.
- The assignment of shareholder shares must also be notarized and entered in the commercial register.
- The GmbH law makes strict regulations among other things with regard to bookkeeping, accounting, and the publication thereof.
- If these obligations are violated, the managing director is threatened with criminal consequences and civil liability from his private assets.
- Banks often demand absolute guarantees from the shareholders, which in many cases cancels the exemption from liability.
- The GmbH is subject to trade tax.
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