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Capital: Berlin
Largest city: Berlin
Official Language: German
Government: Federal Parliamentary Republic
Area: 357,022 km2
Population: 83,166,711
Currency: Euro (EUR)
GDP total: EUR3.905 trillion (USD4.743 trillion)
GDP per capita: EUR46,893.19 (USD56,956)
Time zone: UTC +1/UTC+2
Calling code: +49
Internet TLD: .de

[Source: Wikipedia]

No. of domestic companies: 1.390.173 as at 2019
No. of foreign companies: 26.828 as at 2018
[Source:Statistisches Bundesamt (www.destatis.de)]

Principal Legislation governing Companies

  • Civil Law Code (BGB)
  • Commercial Code (HGB)
  • Limited liability Company Code (GmbHG
  • Stock Corporation Code (AktG)
Q&A on Company Law
  1. What are the different kinds of legal entities available in Germany?
    There are 2 kinds of legal entities available in Germany:

    • Legal entities under private law (limited liability companies, corporations and associations, foundations and institutions, public limited companies, cooperatives, registered associations)
    • Legal entities under public law (foundations and institutions, corporations of the federal states, the municipalities and the federal government, universities).
  2. What are the laws and regulations governing legal companies in Germany?
    The most important laws and regulations are:

    • Civil Law Code (Bürgerliches Gesetzbuch – BGB) especially: associations §§ 21 ff. BGB and civil law partnership §§ 705 ff. BGB
    • Commercial Code (Handelsgesetzbuch – HGB)
    • Limited Liability Company Act (Gesetz betreffend Gesellschaften mit beschränkter Haftung – GmbHG)
    • Stock Corporation Act (Aktiengesellschaft – AktG)
    • Cooperative Society Act (Gesetz betreffend die Erwerbs- und Wirtschaftsgenossenschaften – GenG)
    • Partnership company Act (Partnerschaftsgesellschaftsgesetz – PartGG)
  3. What are the procedures and requirements for incorporating or registering a company in Germany?
    The articles of limited liability companies such as GmbH (Ltd.) or Aktiengesellschaft (Stock Corporation) are to be notarised before a German notary and registered in the commercial register.
    Traders and trading companies must be entered in the commercial register. Small traders can register voluntarily (GbR). Notarisation is not needed.
    The commercial register (Handelsregister) is a public register kept by a registry court.
    Non-EU citizens need a temporary residence permit or an unlimited settlement permit according to the Residence Act (AufenthG) in order to become the managing director (MD) . EU citizens enjoy freedom of movement and do not need a residence or work permit.

    • Registration procedure

    Drawings of signatures under the articles of incorporation intended for safekeeping at the court must be certified by a notary public before submission to the commercial register. The documents are transmitted in electronic form to the register court and checked there. If there are no objections, the court enters the relevant data into the register.

  4. What are the reporting requirements for companies in Germany?
    There are reporting obligations for companies.
    Companies are required to submit a summary report once a year which consists of the balance sheet, the profit & loss sheet and others. Basically, the purpose of the list is to compile and process information on the economic situation of a company in a comprehensible way.
  5. What are the procedures and requirements for foreigners and/or foreign companies to establish a company or business in Germany?
    Non-EU citizens require a temporary residence permit or an unlimited settlement permit in accordance with the Residence Act (AufenthG). Business visa is initially required for entry into Germany.
    EU citizens, but also nationals of the EEA states Norway, Liechtenstein and Iceland, benefit from the freedom of establishment and freedom of trade applicable in the Schengen area. This means they do not need a temporary residence permit or an unlimited settlement permit.
    Step 1: Apply for a business visa or a residence permit for Germany.
    A residence permit to start a business in Germany is usually granted if:

    • there is an economic and/or regional interest in the business idea;
    • the business idea is expected to have a positive impact on the local economy;
    • financing is secured by equity capital, subsidies or a valid loan commitment.

    Differences between a residence permit and a settlement permit:
    Foreign entrepreneurs who want to start a business in Germany initially receive a temporary residence permit that is valid for up to three years. If the business is successful, an unlimited settlement permit can be applied for after the three years have expired. Those who have been in possession of a residence permit for five years usually also receive an unlimited settlement permit.
    Step 2: Choose a suitable legal form and, if necessary, conclude the articles of association
    Step 3: Register a trade and enter the company in the commercial register
    Trade register (Gewerberegister)
    Before starting a business, every entrepreneur must register his or her trade with the trade or public order office of the respective city or district.
    Afterwards, the entrepreneur usually automatically receives a questionnaire from the tax office for tax registration.
    Commercial register (Handelsregister)
    An entry in the commercial register is mandatory for the following legal forms:

    • General partnership (OHG)
    • Limited partnership (KG)
    • Limited liability company (GmbH)
    • Public limited company (AG)

    Activity of foreign legal entities in Germany
    Foreign legal entities may set up branches and dependent branches or establish subsidiaries in Germany. When establishing a branch or a subsidiary, the company’s name must be registered with the commercial register. EU/EEA companies may be transferred to Germany in the course of the EU freedom of establishment. A company founded in another EU country may fully carry out its business activities through a branch in Germany.

  6. What are some of the challenges that foreign companies should take into consideration prior to entering the industry or market in Germany?
    The greatest challenges include federalism and decentralisation in the German system and the high number of financial centres. The German market is competitive. An investor should be well prepared and the investment well planned.
  7. What are the duties, responsibilities and liabilities of directors in Germany?
    Duties and responsibilities:

    • Responsibility for the proper organisation of the company (e.g. by preparing the annual financial statements, safeguarding the share capital against prohibited disbursements, etc.)
    • Control of the observance of general and special regulations (compliance)
    • Duty of loyalty (avoiding conflicts of interest, non-competition during the term of office, etc.)
    • Convening and possibly participating in the shareholders’ meeting
    • Constant monitoring of liquidity and indebtedness as well as ensuring proper accounting
    • Careful written documentation of the GmbH’s activities
    • Risk management
    • Employee protection
    • Duty to file for insolvency

    There are 2 kinds of liabilities:

    • Internal liability of a managing director towards the company and the shareholders:
      • If he does not observe the above principles, the company may claim damages against him.
    • External liability of a managing director towards third parties:
      • Personal liability of a director
        • in case of infringement
        • in tax law
        • in social security law
        • in representation of the company
        • in case of insolvency
  8. What are the requirements or criteria to be satisfied for an individual to qualify as a director of a company?
    The managing director must be a natural person of unlimited legal capacity, with a valid residence permit in the case of non-EU citizens.
  9. What are the requirements or criteria to be satisfied for an individual or a legal entity to qualify and be a shareholder of a company in Germany?
    In general, there are no limits on a foreign investor being a shareholder over and above those imposed on a resident German investor, which include:

    • being 18 years old
    • having a current account with a bank
  10. How are shares in a company allotted and/or offered in Germany?
    This depends on the company.
  11. What are the corporate governance practices in Germany?
    The declaration on corporate governance, also referred to as the corporate governance statement, initially consisted of the following 3 components:

    • declaration of compliance with the German Corporate Governance Code,
    • description of the relevant information on corporate governance practices that go beyond the legal requirements, such as ethical standards, labour standards, social standards or guidelines on compliance or sustainability,
    • description of the functioning of the executive board and the supervisory board as well as the composition and functioning of their committees. Here, a reference to the internet is possible, provided that the information is publicly available there.

    For companies in which the federal government holds a majority share, a minimum participation of one woman on boards with more than two members has been introduced.
    For supervisory boards of companies listed on the stock exchange and subject to parity co-determination, a gender proportion of 30 per cent has applied since 2016.
    The General Equal Treatment Act aims to “prevent and eliminate discrimination on grounds of race or ethnic origin, gender, religion or belief, disability, age or sexual identity”.

  12. Who are the regulators for corporate governance in Germany?
    There is no organisation that regulates corporate governance in Germany.
    Supervisory authorities include the Federal Ministry of Justice (Bundesministeriums der Justiz und für Verbraucherschutz, BMJV), German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin).
  13. What are the taxes which apply to companies in Germany?
    • Income taxes
      • Income tax between 14-45%
      • Corporate income tax depend on the size of your company and your annual turnover
      • Trade tax 3.5% base rate
    • Value added tax normally 19%
    • Substances tax (houses or land)
  14. Are companies in Germany subject to competition laws and regulations in Germany?
    The German legislator has regulated German antitrust law in the Act against Restraints of Competition. However, agreements restricting competition are judged under EU law if they are capable of affecting trade between the Member States of the European Union. The Act to Strengthen Fair Competition (Gesetz zur Stärkung des fairen Wettbewerbs) prevents abusive ‘cease-and-desist’ letters.
  15. What are the data privacy laws in Germany that companies should be aware of?
    The German Federal Data Protection Act (BDSG) together with the data protection laws of the States regulate the handling of personal data. Since 2018, this law has been adapted to the EU General Data Protection Regulation.
  16. What are the company insolvency laws and regulations in Germany?
    The German Insolvency Act provides that insolvency proceedings are initiated by the application of the debtor or a creditor. Insolvency proceedings are opened, if the insolvency estate covers the costs of the proceedings and the application is justified (acute or imminent insolvency, over-indebtedness). As soon as the court decides to open the proceedings, an insolvency administrator is appointed. He investigates the company’s affairs and distributes the insolvency estate among the creditors.
  17. Have there been any recent reforms or regulatory changes pertaining to company law in Germany?
    The Federal Cabinet is planning reforms to the modernisation of partnership law (MoPEG). These include, among others, the following points:

    • Company register for GbR
    • 3 forms of GbR

    In the course of implementing the EU Company Law Package, simplifications for companies and more uniform rules in company law across all EU states are to follow. The Digitalisation Directive will make it possible to form companies online in the future. Within the framework of the Mobility Directive, there are to be special, uniform regulations for European corporations for cross-border changes of legal form and cross-border demergers for the purpose of new formation.

  18. What are the main changes with company law in Germany that differ to company laws in other European countries?
    Due to membership in the EU, the provisions of EU law also apply in Germany in addition to the national regulations. Entrepreneurs enjoy freedom of establishment. Companies have the right to carry out their activities in another EU member state through a branch and to have legal capacity there.
  19. In light of the Covid-19 pandemic and various governmental movement control orders in Germany, has the German government implemented changes or temporary orders to assist companies to cope with financial constraints?
    The following measures have been taken by the federal government:

    • Bridging aid
    • Kreditanstalt für Wiederaufbau offer loans with lower interest rates and simplified risk assessment
    • Economic stabilisation fund (Wirtschaftsstabilisierungsfonds)
    • Guarantees (Bürgschaften)
    • Tax aid measures: deferment of tax payments, adjustment and refund of advance payments, support for start-ups, short-time allowance
ABOUT THE AUTHORS

Henning Von Zanthier
Founding Partner, Von Zanthier & Schulz

Following his legal studies in Germany and France, Henning von Zanthier obtained the LL.M. degree at Tulane University in the United States in 1989. In 1991, he was admitted to the Berlin bar and started working at a large international law firm. He founded the law firm “VON ZANTHIER & SCHULZ” in Berlin in 1992, with its focus on business law, tax law and bookkeeping.

In 1995, he established the first German linked law firm in Poznań, Poland. In 2003, he was the first member as a foreign lawyer at the Poznań Bar. He is the first non-Polish lawyer who has also been fully admitted to the chamber in Poznań. He lectured on Polish law at the Free University of Berlin between 2004 – 2007. He focuses on corporate law, commercial law and Polish renewable energy law. Henning von Zanthier was the chairman of the Polish-German Association of Legal Experts between 1993 and 1998.

He is one of the founders and was President of the League of Lawyers in 2014-2020 – an association of 20 medium-sized business law firms from Asia and Europe. He has authored a number of articles on German Business law. He regularly gives lectures on this subject for various institutions. He also lectured at the Adam Mickiewicz University in Poznań on the UN Convention on International Sales of Goods (CISG). His law firm has clients from China, Japan and India, who invest in Germany or Poland. He has been a member of LAWASIA since 2006 and was a constant speaker in the M&A subcommittee (2006-2015). Since 2016 he is the Chairman of the Asian-European Subcommittee within LAWASIA.

ABOUT THE FIRM

Name: Von Zanthier & Schulz
Address: Kurfürstendamm 217, 10719 Berlin Germany
Telephone: +49 30 88 03 59 0
Email: berlin@vonzanthier.com
Website address: www.vonzanthier.com
Key contact: Henning von Zanthier, Partner, vonzanthier@vonzanthier.com
Established: 1992
Number of lawyers: 17
Languages: German, English, Polish, French

Brief description:
We are an interprofessionally organised law firm of solicitors, auditors and tax consultants with offices in Berlin, Poznań and Warsaw. We offer consultancy services in Germany in the field of German business and tax law and can assess your economic situation. Since 1992, we have been dealing with international matters and guiding you in national and cross-border law. In Poland, we can support you with Polish business and tax law.

Key practice areas:
Commercial law, Corporate law, Real Estate law, IT law, Labor law, Law on Renewable Energy, Medicine law, Tax law and Bookkeeping

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