Corporations

Within the legal forms, a distinction can be made between sole traders, partnerships and corporations. A corporation is a legal entity in which there is a separation between shareholders and managing directors. The shareholders are the main investors and participate in the company with their capital. However, they may or may not be personally involved or even take over the management of the company.

The best-known corporations include the limited liability company (GmbH) and the public limited company (AG). In the case of the GmbH, the shareholders are called partners, while in the case of the AG, they are so-called shareholders who use their capital to acquire shares, i.e. shares in the company. There is a clear separation of powers within corporations. In the case of a GmbH, for example, the management is appointed by the shareholders' meeting; this can happen on a small scale if, for example, four founders (i.e. shareholders) appoint themselves or one of them as managing director. However, it is also possible that many shareholders are involved in a GmbH or AG and appoint one or more external managing directors. In the case of a GmbH, the shareholders' meeting is responsible for appointing the managing director; in the case of an AG, the general meeting (consisting of the shareholders) elects the supervisory board, which in turn appoints the management board. The Management Board then has the task of managing the company and representing it externally.

Another difference between corporations and partnerships is the need for articles of association or, in the case of the AG, articles of association. While a verbal agreement is sufficient for partnerships, the formation of a corporation requires a written contract. In addition, corporations must also be entered in the commercial register and therefore have all the rights and obligations arising from the German Commercial Code. Last but not least, the share capital should not be neglected. All corporations require a certain amount of share capital when they are founded, which varies depending on the type of company. Starting with €1 for a UG (Mini-GmbH), €25,000 for the formation of a GmbH and €50,000 for the formation of an AG, up to €120,000 for the legal form of a Societas Europaea.

This share capital is contributed jointly by all shareholders and can be made in the form of cash or contributions in kind.

In the event of a liability to third parties, the company is then liable with its respective company assets, but the shareholders themselves are only liable with their share capital contribution. The liability of corporations is therefore always limited to the company's assets; the shareholders' private assets are excluded. However, there are also a few exceptions here, e.g. managing directors can also be held personally liable if they breach their duties towards the company.

Possible forms of corporations are

• Limited liability company (GmbH)
• Entrepreneurial company (UG)
• Societas Europaea (SE)
• Public limited company (AG)