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Deciding whether it makes sense to form a limited liability company (LLC) depends on several factors, including business goals, financial situation, liability considerations and long-term plans. Here are some situations in which forming a limited liability company might be considered:
Limited Liability: A limited liability company offers the advantage of limited liability for the shareholders. This means that the personal liability of the shareholders is limited to the capital contributed to the limited liability company. In industries or business sectors with increased liability risk, the GmbH can be a sensible choice to protect personal assets.
Seriousness and trust: A GmbH can often project a more professional and trustworthy image than, for example, a sole proprietorship or a GbR. This can be perceived positively by customers, business partners, and investors.
Finance and investment: the GmbH structure can make it easier to attract investment and obtain capital from investors. Banks and investors often have more confidence in limited liability companies.
Growth and expansion: If you have plans to expand the company in the future or invest in new business areas, the limited liability company can be a suitable structure. The limited liability company allows you to add additional shareholders or sell shares.
Long-term business structure: if you want to build a business that will last for generations, the GmbH can provide a stable and durable legal form.
Tax advantages: In some cases, the taxation of GmbHs can be advantageous compared to other legal forms. However, the exact tax implications vary by country and individual situation.
Professionalism: Incorporating a limited liability company can make the company appear more professional, which in turn can increase the confidence of customers and partners.
It is important to note, however, that the establishment and operation of a limited liability company may involve higher administrative requirements and costs than other forms of business. Therefore, the decision to establish a GmbH should be carefully considered, based on the individual goals and circumstances of the business. It is recommended to seek legal and tax advice in order to make the best decision for your specific situation.
The choice between a GbR (civil law partnership) and a UG (limited liability company) depends on various factors, including the size of the company, liability considerations, flexibility, tax implications and long-term plans. Here are some of the pros and cons of both legal forms:
Advantages and disadvantages of a GbR:
Advantages:
Easy formation: Forming a GbR is relatively straightforward and does not require any formal notary contracts.
Flexibility: GbRs offer more flexibility in the drafting of contracts and the internal relationships between the shareholders.
Lower costs: The start-up costs and running costs are usually lower than for a UG.
Shared Control: All shareholders have an active role in the management and control of the company.
Cons:
Unlimited liability: The partners are personally and unlimitedly liable for the obligations of the GbR, which represents a financial risk.
Limited financing options: It may be more difficult to attract investment or borrowing as the risk of liability is higher.
Lack of seriousness: GbRs are often seen as less serious than legal entities such as GmbHs or UGs.
Limited legal personality: A GbR does not have its own legal personality, which can potentially lead to legal challenges.
Advantages and disadvantages of a UG (limited liability):
Advantages:
Limited liability: The personal liability of the shareholders is limited to the capital contributed to the UG.
Seriousness: UGs are often considered more serious than GbRs because they offer limited liability.
Low start-up capital: Founding a UG requires less start-up capital than a GmbH.
Fast foundation: The UG can be founded faster than a GmbH.
Cons:
Limited flexibility: Establishing and managing a UG is subject to more formal requirements than a GbR.
Lower funding opportunities: The UG may have a harder time attracting investors or obtaining credit compared to a GmbH.
Long-term planning: As the company grows, the UG may need to be converted to a GmbH to support larger business activities.
The choice between a GbR and a UG depends on the individual goals and needs of the company. It is recommended that you seek professional legal and tax advice in order to make the best decision for your specific situation.
A look at the financial situation of founders in Germany
The German government has ambitious plans that could shake the foundations of the business landscape in Germany. A centerpiece of this reform is the planned introduction of mandatory old-age provision for founders, who have so far been outside the traditional old-age provision systems for specific occupational groups. The aim is to ensure that the self-employed can also build up a solid old-age provision. This directive could be implemented as soon as profit income exceeds the marginal earnings threshold for dependent employment after a waiting period of two years.
Background: opportunities and challenges for the self-employed
This reform is a response to the growing importance of self-employment and entrepreneurship in today's workforce. The self-employed have often been excluded from traditional social security systems, leading to uncertainty about financial security in retirement. The proposed mandatory retirement plan is intended to close this gap and ensure that the self-employed can also benefit from adequate retirement provisions.
Insights from research: IfM Bonn provides insights
A recent analysis by the Institut für Mittelstandsforschung Bonn (IfM Bonn) sheds light on the potential impact of the planned mandatory retirement provision. The analysis excludes individuals who are already insured elsewhere or who operate low-yield energy production facilities. Instead, the focus is on the income development of young start-up cohorts and established self-employed workers.
Data and methodology: a closer look at the numbers
The analysis draws on the Taxpayer Panel, an income tax data source provided by the Research Data Center of the Federal and State Statistical Offices. This dataset covers the period from 2001 to 2018 and allows for a detailed examination of the income situation of the self-employed.
Income distribution and trends: who are those affected?
The study focuses on the income distribution of founders from different cohorts in 2018. Interestingly, it shows that many self-employed people still report negative or low incomes years after their start-up. This suggests that many self-employed people are running their business part-time or part-time.
Outlook: Challenges and opportunities for the future
While the introduction of a mandatory retirement provision for founders is undoubtedly an important measure to secure the financial future of this group, the analysis of income trends makes it clear that many self-employed people may continue to face financial challenges. The federal government faces the task of taking advantage of these findings and, if necessary, adjusting the draft legislation to better address the needs of the self-employed.
The years 2012 to 2016 mark a crucial phase for the startup scene in Germany:
Founding year 2012:
Over 46,000 people ventured into self-employment.
About 24,700 of them recorded negative profit income in their first year.
About 31,900 people earned incomes between €0 and €5,400.
Founding year 2013:
More than 39,700 people ventured into self-employment in 2013.
Over 23,400 of them struggled with negative profit income in their first year.
About 29,000 earned incomes between €0 and €5,400.
Founding year 2014:
Over 38,000 people bravely founded businesses in 2014.
About 23,500 of them struggled with negative profit income in their first year.
About 25,800 earned incomes between €0 and €5,400.
Founding year 2015:
Over 38,800 people ventured into self-employment in 2015.
More than 32,500 of them recorded negative profit income in their first year.
Approximately 30,900 earned incomes between €0 and €5,400.
Founding year 2016:
Over 40,500 people courageously founded a company in 2016.
About 27,700 of them struggled with negative profit income in their first year.
About 38,700 earned incomes between €0 and €5,400.
On average, self-employed individuals with incomes above €5,730 earned a whopping €64,448.
These figures shed light on the financial reality of young businesses in their early years. Many struggle initially with low incomes below €5,400. Those that record higher profits are instrumental in raising the average. This highlights the many challenges young founders face as they build and develop their businesses.
An analysis of commercial register data shows that start-up activity in Germany has plummeted this year after the corona pandemic ended in 2022.
In recent years, Germany has experienced an unprecedented economic roller coaster ride, ranging from the corona pandemic to inflation. But while the pandemic has put many businesses to the test, and even forced some to close, inflation has managed to affect startup activity in the country in a very different way. A detailed analysis of commercial register data over the past five years sheds light on this remarkable trend.
A look at the data
The commercial register data show a significant decrease in the number of company start-ups in Germany since 2022. In particular in the years 2019, 2020 and 2021, the number of start-ups remained relatively stable, with fluctuations being recorded in the various calendar weeks. In 2019, the year started with 2,880 foundations in the 20th calendar week, but reached a low point of 2,354 foundations in the 25th calendar week before it rose again.
The post-pandemic tipping point
However, times changed after the end of the Corona pandemic in 2022. While the economic outlook was initially optimistic, analysis of the data for this year shows a striking void in start-up activity. Only 1,878 and 2,414 start-ups were recorded in calendar weeks 24 and 23, which represents a drastic decline compared to previous years, even if these figures do not include the start-up of associations. Post-pandemic uncertainty, coupled with economic uncertainties and rising inflation, seem to deter potential entrepreneurs.
Inflation as the new stumbling block
While the Corona pandemic has undoubtedly had a significant impact on business activity, it is worth noting that inflation has emerged as a new factor negatively affecting start-up activity in Germany. Inflation can increase the cost of starting a business as commodity, rent and labor prices rise. This could make budding entrepreneurs reluctant to start new businesses as economic uncertainty and rising costs pose a significant risk.
Outlook and challenges
Current data suggests that start-up activities in Germany are facing serious challenges. As the economic landscape continues to be characterized by uncertainty, it will be crucial for governments, business associations and companies alike to devise strategies to encourage entrepreneurship and support budding founders. The effects of inflation on start-up activity illustrate the need for a holistic approach to ensure economic stability and growth in Germany.
Overall, the analysis of the commercial register data makes it clear that start-up activity in Germany is influenced by a variety of factors, from the pandemic to inflation. The coming months and years will show whether and how Germany can overcome these challenges in order to stimulate start-up activities in the country again.
| Year | KW 20 | KW 21 | KW 22 | KW 23 | KW 24 | KW 25 | KW 26 | KW 27 | KW 28 | KW 29 | KW 30 | KW 31 | KW 32 | KW 33 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2880 | 2746 | 2148 | 2708 | 2157 | 2354 | 2793 | 2785 | 2801 | 2770 | 2714 | 2770 | 2596 | 2692 |
| 2020 | 2697 | 2069 | 2625 | 2121 | 2237 | 2807 | 2840 | 3048 | 3034 | 2735 | 2954 | 2861 | 2682 | 2809 |
| 2021 | 3458 | 2744 | 2857 | 3467 | 3286 | 3266 | 3334 | 3181 | 3278 | 3068 | 3219 | 3046 | 2939 | 2992 |
| 2022 | 2344 | 2299 | 2708 | 2414 | 1878 | 2345 | 2372 | 1993 | 2138 | 2111 | 2431 | - | - | - |
| 2023 | 1692 | 1821 | 1327 | 1861 | 1604 | 1791 | 2235 | 1749 | 1703 | 1888 | 1755 | 1128 | 2294 | 819 |
Data sources: Commercial Register 2019-2021, StartupDetector Newsletter 2022-2023 (excluding associations).
Note: Data missing for week 31-33/2022
The GEM country report Germany 2021 presents pleasing results regarding start-up activities in 2021 and their connection to the COVID-19 pandemic. The start-up rate, measured by the total early-stage entrepreneurial activity (TEA), has increased significantly compared to the previous year. This could be due to a positive response from business and the adaptability of those looking to start a business during the pandemic.
Start-up rate at the second highest level since 1999
The TEA rate, which represents the proportion of 18-64 year olds in Germany who have founded a company or are in the process of founding one, reached the second highest value in 2021 since the survey began in 1999 – 6.9%. This represents an increase of 2.1 percentage points compared to the previous year (4.8%). This increase suggests that, despite the ongoing uncertainties due to the pandemic, the willingness to start a business has increased in Germany.
Pandemic as driver for new business opportunities
Interestingly, more than a third of the TEA founders surveyed appear to indicate that the COVID-19 pandemic has opened up new business opportunities. This makes it clear that in the midst of the crisis, entrepreneurial opportunities can also arise that lead to new start-ups. In 2020, that proportion was even lower (a quarter of TEA startups were based on pandemic-related opportunities).
More focus on digital sales channels
Although around 76% of TEA founders in Germany have set up their sales channels digitally, the report shows that there is still room for further progress in the field of digitalization. In particular, cooperation between established companies and young, up-and-coming start-ups could lead to a win-win situation. Digital sales platforms and the customers of established companies could offer young companies faster market access.
Gender differences in start-up activity
An interesting aspect highlighted in the report concerns gender disparities in start-up activity. This shows that the gender gap, i.e. the difference between the start-up activities of men and women, was reduced during the COVID-19 pandemic. This applies above all to the prospective founders (nascent entrepreneurs), whose proportion is equalizing. The results indicate that women are more likely to intend to start a business, but are less likely to put them into practice than men.
Measures to promote start-ups by women
The report proposes various measures to further reduce the gender gap and to promote the start-up activities of women. This includes the expansion of childcare options, the promotion of women in business and STEM subjects and the presence of successful female founders as role models. Access to venture capital for female founders could also be improved, especially in the technology-oriented area.
Conclusion: increase in start-up activities despite the pandemic
The GEM country report Germany 2021 shows that the start-up rate in Germany increased in 2021 despite the ongoing COVID-19 pandemic. This could be due to an increased adaptability of the entrepreneurs, the identification of new entrepreneurial opportunities and the positive reaction of the economic policy. Gender differences in start-up activity have also narrowed during the pandemic, indicating increased support for start-ups by women. In order to further support this trend, targeted measures could be taken to strengthen the framework conditions for women in the start-up world.