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When it comes to setting up a business, one of the most important decisions to be made is choosing the right legal form. The legal form of a company can have a significant impact on the liability of the owners as well as the tax burden. In this article, we will take a closer look at how the choice of legal form affects these two important aspects.
Single entity: The simplest option
A sole proprietorship is the simplest and most straightforward way to start a business. This is a business run by a single person, without a separate legal entity. The owner is personally responsible for all business affairs and debts. This means that the owner's personal assets are at risk in the event of any business problems.
In terms of taxation, the income of the sole proprietorship is offset on the owner's personal income tax return. This can be beneficial in some cases as it is easier to manage finances. However, the tax burden may be higher than for other legal forms.
Limited liability company (GmbH): limited liability, tax advantages
The limited liability company is one of the most popular legal forms for businesses, available in many countries. A limited liability company offers the advantage of limited liability, which means that the owners' personal assets are usually protected from business debts. This is a key advantage as it reduces risk for the owners.
In terms of taxation, the limited company usually offers some tax advantages. It can retain profits in the company and tax them at a lower rate, which provides the opportunity to accumulate capital for future growth.
Stock company (AG): raising capital made easier
The joint stock company is a legal form often chosen for larger companies. Similar to the GmbH, it offers limited liability, but it also allows the issuance of shares, which makes it easier to raise capital. This makes the AG an attractive option for companies that plan to engage in the capital market.
In terms of taxation, the AG can have more complex tax structures, but it also offers opportunities for tax optimisation and distribution of profits to shareholders.
Conclusion
The choice of the right legal form is a crucial decision when setting up a company. It not only affects the liability of the owners, but also the tax burden of the company. It is advisable to seek legal advice at an early stage and to consider the individual needs and goals of the company. Ultimately, the legal form chosen should fit the company's long-term plans and provide the best possible conditions for success and growth.
"Owner-managed" and "sole proprietorship" can have similar meanings depending on the context, but are sometimes understood somewhat differently. Generally, they refer to a business structure in which an individual has control and management of the business. Here are some advantages and disadvantages of this type of corporate structure:
Advantages and disadvantages of "owner-operated" or "sole proprietorship":
Advantages:
Quick decision making: Because a single person runs the business, decisions can often be made more quickly without having to wait for approval from partners or shareholders.
Direct control: The owner has full control over all aspects of the business, from strategy to day-to-day operations.
Ease of incorporation: a sole proprietorship can often be formed in a straightforward manner with few formal requirements.
Flexibility: the owner can quickly adapt to market changes and customer needs without relying on the approval of other resources.
Personal connection: The owner can build a strong personal relationship with customers and shape the company's culture.
Disadvantages:
Limited expertise: a sole proprietor may not cover all the required expertise, which can lead to difficulties in complex business areas.
Limited resources: a sole proprietor may have limited financial and human resources, which can limit opportunities for growth and expansion.
Liability: The owner is personally liable for the debts and obligations of the business, which can pose a financial risk.
Limited growth opportunities: The company may have difficulty financing major capital expenditures or expansion projects.
It is important to note that the term "owner-operated" is sometimes applied to businesses in which the owner actively manages and operates the business, while "sole proprietorship" refers more to the legal structure of the business. Individual goals, resources and risk tolerance should be considered when deciding between such a business structure and other options such as a limited liability company or a UG. Professional legal and financial advice can be helpful in making the best decision for your situation.
The costs of setting up and running a limited liability company (GmbH) can vary depending on the country, legislation and individual conditions. Here are some of the typical cost items that may be incurred in the formation and operation of a limited liability company:
Formation costs:
Notary fees:
The formation of a GmbH requires the notarization of the articles of association by a notary public. The costs for this service can vary depending on the country and the capital of the GmbH. Registration costs:
The GmbH must be registered in the commercial register, which may involve fees.
Stock capital:
A GmbH requires a minimum share capital, which may vary depending on the country. In Germany, for example, the minimum share capital is 25,000 euros.
Advisory fees:
It may be advisable to seek legal and tax advice to ensure that the GmbH is properly formed and managed. These consulting costs vary depending on the service provider. Office expenses:
Rent for business premises, office equipment, ongoing operating costs, etc.
Personnel costs:
Salaries and social security contributions for employees, if applicable.
Taxes and duties:
The limited liability company is subject to various taxes such as corporate income tax, business tax and sales tax, depending on its activities and income.
Bookkeeping and accounting costs:
Costs for bookkeeping, financial statements and possibly the services of a tax advisor. Insurances:
Depending on the type of business, various insurances may be necessary, e.g. liability insurance, business interruption insurance, etc.
Other costs:
Marketing and advertising, royalties, patent costs (if applicable), and other operating expenses. It is important to note that the exact costs will depend on several factors, including the country in which the limited liability company is incorporated, the specific industry in which it operates, the number of employees, and the individual business situation. It is recommended to seek professional advice to obtain accurate information on the costs of establishing and operating a limited liability company in your region.
The cost of starting a business varies greatly depending on the type of business, the industry, the location and the individual decisions you make. Here are some of the basic costs you might incur when starting a business:
Legal and consulting fees:
This includes the cost of attorneys, tax advisors, and business consultants you may need during the incorporation process to meet legal requirements and set up your business correctly.Registration fees: These costs are incurred to register your business with the appropriate authorities and to obtain any necessary licenses and permits.
Stock capital (if required): In some countries, companies such as limited liability companies are required to have a minimum share capital. This may vary by country.
Trademark and domain registration: cost of registering your business name as a trademark and registering a matching domain for your website.
Website and design costs: if you need a website, there are costs for design, development and hosting.
Operating equipment: purchase of office furniture, computers, communications technology, and other necessary equipment.
Marketing and advertising costs: costs to create a logo, business cards, marketing materials, and possibly online advertising campaigns.
Rental or lease deposit: If you need physical business space, there will be rental or lease costs.
Opening inventory: If you sell merchandise or products, you may need to purchase inventory to start your business operation.
Insurances: Cost of various insurances such as liability insurance, business interruption insurance, professional liability insurance, etc.
Initial Marketing.
Initial marketing expenses: money spent on marketing campaigns to make customers aware of your new business.
Other expenses: There may also be other expenses, depending on what area of business you are entering. These could be research and development costs, training and education expenses, and so on.
It is important to do detailed business planning to estimate the specific costs of your startup. Depending on the industry you are in and the business model you are pursuing, startup costs can vary significantly. Remember that it is always advisable to plan a buffer for unexpected costs.The required share capital for the formation of a GmbH (limited liability company) varies from country to country, as the GmbH is a legal form that exists in many countries
In Germany, for example, the minimum share capital required to form a GmbH is 25,000 euros. Of this, at least 12,500 euros must be paid in at the time of formation. In other countries, the required share capital may vary.