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Overview (June 2000) - International Law Office

International Law Office

Company & Commercial - Germany

Overview (June 2000)

June 12 2000

Forms of Business
Corporations
Partnerships
Business Permits
Foreign Trade


This article outlines the legal aspects of doing business in Germany, particularly the most important issues foreign companies should consider when planning to invest and do business in Germany.

Forms of Business

An enterprise wishing to operate in Germany must first decide what form of investment to make. It can enter the market either through a branch or through a subsidiary.

A branch is not a separate legal entity. It derives its rights and obligations from the status of the main office of the parent company. Its local management must be empowered to contractually bind the company. It may sue or be sued only through the foreign company. This does not mean that the main office cannot be sued before a German court since, pursuant to German civil procedure, German courts have jurisdiction over the main office if it has a branch in Germany.

A branch has to be registered at the commercial register of the local district court in which the branch is located. The application for registration must include the company's name, registered location and purpose. There are also additional registration requirements, depending on the corporate structure of the main office. The application must be signed by all managing directors of the company. Furthermore, the branch has to provide evidence of the legal existence of the main company. All documents must be notarized and accompanied by a German translation.

Subsidiaries
A foreign company may choose to enter the German market by establishing a subsidiary in Germany. There is a general distinction in German company law between companies limited by shares (ie, corporations) and partnerships. The following is a discussion of only the most important company forms.

Corporations

Limited liability company
The most common company form in Germany is the GmbH (Gesellschaft mit beschränkter Haftung). Its main advantages are:

  • the relatively small amount of nominal share capital required (25,000 euros);

  • its possible formation by one person; and

  • its limited liability (ie, the creditors of the company may only resort to the assets of the company; the shareholders are only liable to the extent of their contributions to the nominal capital).

The company's legal existence begins when it is entered into the commercial register. Notarized minutes of the shareholders' meeting are necessary for registration. The shareholders' resolution must include the following:

  • the company's name;

  • the address of the company's head office;

  • the company's purpose;

  • the overall share capital; and

  • the contribution in cash or kind of each shareholder.

The application for registration must also be signed by all managing directors and notarized. At least one managing director must be appointed. The application can only be effected if a quarter of each original cash contribution has been paid in. (In case of a contribution in kind, the whole has to be brought in.)

A GmbH has at least two necessary organs: a managing director and the shareholders' meeting.

Stock corporation
The AG (Aktiengesellschaft) is the classical form of a capital corporation. It is the prevailing legal form for large enterprises and groups of companies. Creditors of an AG can only resort to the corporate assets and the shareholders are only liable to the extent of their contribution to the company.

The shareholder's relationship to the company is, in general, determined by his capital contribution (ie, he is a co-owner of the company but is not involved in the company's management.) The shares may be listed on the stock market (unlike GmbH shares) and may be sold without notification to the corporation. The minimum share capital in an AG is 50,000 euros.

An AG is incorporated when one or more founders adopt the company's articles of association (which must be notarized) and the company is registered in the local commercial register. The articles must state:

  • the object of the company;

  • the nominal share capital;

  • the company's name;

  • the place of business; and

  • the type, the nominal value and the number of shares to be distributed;

  • whether the shares are to be issued as bearer or registered shares; and

  • the company's chosen form of announcements.

An AG must have a supervisory board, which supervises the managing directors. It must also have a board of directors, which conducts the company's business. Annual shareholders' meetings must be held, at which all fundamental decisions are made, such as changes to the articles of association.

Partnerships

General commercial partnership
The OHG (Offene Handelsgesellschaft) is the classical form of a trade partnership. All partners are entitled to conduct business and are personally liable for the debts of the partnership personally, jointly and without limit. Each partner is authorized to manage the business but must refrain from actions that other partners veto.

The OHG is established by partnership agreements, which must state a business name. Without being a legal entity, the OHG may acquire rights and incur liabilities under its business name, as if having legal personality. The OHG must be registered in the commercial register, but its legal existence commences with the start of business with third parties.

Limited partnership
The KG (Kommanditgesellschaft) is similarly regulated but differs from the OHG in so far as - in addition to the full liability of general partners - it also has limited partners whose liability is limited to their fixed contribution to the partnership. These limited partners do not manage the business but have voting power with respect to transactions beyond ordinary business matters. As parties to the partnership contract and thus co-owners of the partnership assets, the limited partners must participate in all decisions that change the partnership contract. (The GmbH & Co is a limited partnership in which the general partner is a GmbH, thus forming a partnership with no unlimited personal liability.)

As with the OHG, the registration of the KG in the commercial register is not a prerequisite for its legal existence, but prior to registration the limited partners are fully liable.

Partnership under civil law
The GbR (Gesellschaft bürgerlichen Rechts or BGB-Gesellschaft) is the basic form of partnership. Persons or legal entities may form a GbR simply by agreeing to pursue a common objective. No registration or other formal requirements must be observed in order to establish this type of partnership. The GbR is not a legal entity; only the partners of the GbR - and not the GbR itself - acquire or sell property, incur liabilities, sue or are sued.

Business Permits

While freedom of enterprise is a valid principle under Section 1 of the Trade Code (Gewerbeordnung) in Germany, any business, factory, trade or industrial establishment (German or foreign) must notify the respective local and tax authorities responsible for the business prior to commencing activities. This rule also applies if the business is to be relocated or abandoned, or if the subject matter of the business is changed or extended to products and services that are not related to previously specified activities. The form and content of the notification are governed by special regulations.

Itinerant trading (ie, where persons outside a business establishment offer goods for sale, make purchases or accept orders for goods or business services) is also subject to notification rules. The exercise of this activity requires a permit in the form of an itinerant trade card (Reisegewerbekarte). This licence is only needed if the salesperson intends to solicit door-to-door or on public premises. If solicitation is restricted to business persons, no itinerant trade card is needed. More stringent provisions exist concerning itinerant trades by foreigners who are not EU nationals.

New businesses must be registered in the commercial register. The commercial register is a public register maintained at each local court. The register contains certain data about merchants and other commercial enterprises such as:

  • data concerning representation and liability;

  • the nominal capital;

  • the managers and their respective powers of representation;

  • the commercial purpose of the enterprise, its name and head office; and

  • the enterprise's annual financial statements.

The register is open to public inspection and any person legitimately interested may obtain excerpts relating to specific entries. All filings must be certified and must be signed by:

  • the owner if the business is a sole partnership;

  • the general partners if it is a KG or an OHG; or
  • the managing directors if it is a GmbH or an AG.

All signatures must be authenticated.

Foreign Trade

The Foreign Trade and Payments Law governs all economic relations with Germany. The most important implementing order relating to this law is the Foreign Trade Regulation. This contains most of the foreign trade rules that implement the law as well as provisions that incorporate EU regulations. Another implementing order is the Foreign Trade and Payments Ordinance. This includes a list of restricted exports. Generally, no permits are required to export goods from Germany. However, some exceptions apply for strategic military goods, certain raw materials and some agricultural products.

The import of goods into Germany is almost completely liberalized, especially in the area of industrial products. Therefore, generally importers do not require an importation licence or an importation declaration. A permit for the importation of goods is normally required only for goods that are specified in a list of restricted imports (and some of these are country specific). Goods subject to a licence are mainly those where import volume restrictions apply, for example textiles or steel products.

A certificate or declaration of origin must be presented if required by the import list or an import licence. No certificate of origin is needed for:

  • goods up to a value of DM 2,000;

  • products originating in the European Union; or

  • goods imported from an EU member state.


For further information on this topic please contact Roman Bärwaldt at Clifford Chance Pünder by telephone (+49 30 254 65 800) or by fax (+49 30 254 66 900) or by e-mail (roman.baerwaldt@cliffordchance.com).
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