How do you choose your co-founders

Company forms for founders and companies

Which types of company are used for the foundation?

The Federal Statistical Office regularly publishes data on which types of company are used to set up a company. The analysis shows that more than eight out of 10 start-ups are either sole proprietorship or freelance work. We have briefly summarized the most important types of company below:

  • Sole proprietorships are the clear front runners when it comes to corporate forms, at least when it comes to the number of start-ups.
  • As a form of company, the GmbH is clearly ahead of the GbR: The issue of liability seems to be important to the founders.
  • The UG, on the other hand, is used more frequently than the Limited in the company forms.
  • Relatively often, the GmbH & Co. KG is chosen from the bouquet of company forms - directly after the UG.
  • The company forms KG or OHG, on the other hand, are very rarely chosen for the establishment.

Nine criteria for choosing the type of company

Based on the data from the Federal Statistical Office, it can be seen that there are clear favorites despite all the diversity of company forms. The decision as to which legal form should be used to start self-employment should be made by every founder individually based on various factors. To this end, we have worked out nine factors that are helpful in evaluating the types of company. These factors are:

  1. Number of founders: Do I found my own or in a team?
  2. Limitation of Liability: Corporate or Private Assets?
  3. Start-up capital: minimum capital yes or no?
  4. Company name: What do I want to name my company?
  5. Formation costs and duration
  6. Bookkeeping and taxes for the company forms
  7. Disclosure regulations after the establishment
  8. Search for investors and participation
  9. Social entrepreneurship or not for profit

The following graphic shows these criteria again clearly before we explain the individual criteria for the different types of company.

1. Solo founder or team formation: number of founders

Usually the company is founded alone. This type of company is then commonly referred to as small business. Registration is very straightforward for a small business, and simple rules apply to founders in accounting. However, unlike other forms of company, small businesses are personally liable. To avoid this, individual founders can, for example, set up a GmbH (the so-called 1-man GmbH) or an entrepreneurial company (UG) and thus limit liability in these types of company to the company's assets. In addition, solo founders can also choose the company form of registered businessman or businesswoman, e.K. for short.

If, on the other hand, you want to set up a team, there is a wide range of company forms:

  • Partnerships such as GbR, OHG, KG or
  • Corporations such as GmbH, Limited, UG or even the AG.

This was followed by the question of the limitation of liability.

2. Limitation of liability for corporate forms: company or private?

Many founders first think of one thought: just no private liability. But the issue of liability must be viewed in a more differentiated manner. This is how you should first identify your liability risk. Often the risk is not as great as you initially assume. In addition, not everything in terms of liability is dealt with in the case of company forms that provide for limited liability. As a founder, you are usually personally liable to the bank for the company loan, for example. It is important to check which insurance you can and should take out for the company so that they accept liability in the event of damage.

In addition to the types of company that limit the liability of all shareholders to the company's assets, the limited partnership provides for personal liability for a group of shareholders (general partners). For a second group of partners in the KG - known as limited partners - liability is limited to their contribution. However, with this type of company there are also different rights of participation between the general partners and limited partners. If, in addition, the liability of the general partner is to be limited, you can use the GmbH in its place and you get the GmbH & Co. KG. The UG & Co.KG is an alternative to the GmbH & Co. KG, in which a UG (limited liability) takes on the role of the GmbH.

3. How much capital to set up: minimum capital yes or no?

No minimum start-up capital is required for the establishment of corporate forms that provide for private liability. However, this does not mean that you can start a company with zero euros. At this point, founders should view their savings (equity, as it were) as their start-up capital. In practice, this is often enough to set up a GmbH. The difference then lies in the formalities associated with the various types of company in the course of the formation (see point 5).

The GmbH, which limits liability to the company's assets as a corporate form, requires a minimum share capital of 25,000 euros, which is to be raised by the shareholders. At least half of this - 12,500 euros - has to be paid in for the foundation. If a partner does not fully contribute his share capital, he is liable for the difference with his private assets until he has made the full contribution.

As an alternative to the cash for the basic contribution of a GmbH formation, a foundation in kind with the GmbH and other forms of company can be considered. However, in connection with the establishment in kind, appropriate appraisals on the intrinsic value of the assets are required.

In addition to the GmbH, the corporate forms of the entrepreneurial company (UG) or the Limited are available. For these types of company, the minimum capital is 1 euro or 1 pound. In reality, however, these are only symbolic quantities. After all, a newly founded UG (also called mini-GmbH), which only has a share capital of one euro, quickly runs the risk of becoming insolvent or further capital must be raised through a capital increase.

4. Finding a name: What should my company be called?

The different types of company have different implications for the name with which you can appear in business. If you would like to give your company a name of your choice, a corporation (e.g. GmbH or UG) or an OHG or KG are available - in short, one of the forms of company that are entered in the commercial register for establishment. This also includes the registered merchant. We have put together a lot more information about the company name on another page.

If, on the other hand, you are starting out as a small business owner or have opted for the GbR when you set up a team, there is not so much freedom of choice with regard to your company name. For these types of company, the first and last name must usually be included in the designation. One speaks of the business name.

5. Establishment costs and duration as well as formalities

Analogous to the variety of company forms, there are also great differences in the founding process and thus in the costs and duration of a foundation.

  • Forms of company with a simple establishment process: You can register with the trade office for your sole proprietorship or the civil law partnership (GbR) in one morning at most. You can often do the business registration online. Then you have to register with the tax office and you will receive the questionnaire for tax registration.
  • The other forms of company such as GmbH, OHG, UG or KG are much more extensive in terms of registration. In a study, the BMWi calculated around 15 working days for the registration of a GmbH or UG. In addition to registering a business, going to the notary and then entering it in the commercial register drag the process out. The business account must also be opened and the share capital paid into the account. This can quickly result in an amount of 1,000 euros in start-up costs. Further costs can result from the articles of association, connected with the articles of association and management contracts.

For the company forms of the GmbH or UG, a sample protocol can be used to reduce costs. However, the sample protocol may not be changed or adapted. It also only provides for three shareholders, whereby only one managing director can be appointed when using the sample protocol.

Overall, however, founders should not fail because of the formalities or the costs of setting up and should not make these the main factor when analyzing the various types of company. So that the founding process remains manageable for you, we have put together the essential information for important types of company:

Depending on the legal form, different accounting obligations must be observed.

6. Bookkeeping and Taxes

Forms of company that do not have to be entered in the commercial register - for example, small businesses or the GbR - can use a simplified rule in accounting. These types of company use the income-surplus-account (EÜR for short) for accounting. In the case of company forms that are entered in the commercial register, the accounting must be carried out according to the requirements of the much more extensive double-entry bookkeeping.

With regard to trade tax, small businesses and partnerships have an allowance. This amounts to 24,500 euros per year. No tax exemption is available for corporations.

It is often cited as an advantage for partnerships that losses in the initial period after the establishment of the company do not remain in the company. Instead, they can be offset against other income in these types of company (provided the founders have other income). In the case of corporations, on the other hand, a loss carryforward is created which can later be offset against profits if the desired profits then materialize.

Talking to a tax advisor is recommended for the optimal tax structure of the corporate forms.

7. Disclosure requirements for corporate forms

For some types of company, publication requirements apply even after the establishment. This includes, in particular, corporations (as well as a GmbH & Co KG), which have to enter the annual financial statements in the company register every year. In addition, further notifications such as capital increases or reductions as well as possible changes of shareholders must be made public. For you as the founder, this means that you are a lot more transparent than possible competitors with these types of company.

8. Search for investors and participation

The decision for or against a certain type of company also depends on whether an investor should join. For start-ups looking for investors, the only thing left is to found a corporation, as the limitation of liability is a central element for investors.

Alternatively, one could use the limited partnership (KG) from the variety of company forms. In the case of the KG, however, the investors, as limited partners, do not have any say in the matter. Accordingly, the GmbH or the UG are the better corporate forms for investors who often want to acquire a blocking minority.

9. Company forms for social entrepreneurship or non-profit status

In the area of ​​social entrepreneurship, non-profit company forms have gained in importance for founders and start-ups in the past. If you want to use the attribute of charitable in your company name, you can found a non-profit GmbH (gGmbH) or, alternatively, a non-profit UG.

Conclusion on the types of company

When analyzing the different types of company and deciding which legal form it should be for self-employment and the company, there are a number of factors that are important. We have briefly explained the individual factors. Tax advisors and lawyers are available to provide additional details on the corporate forms. When it comes to company forms, always check which criteria are relevant for you personally and your start-up situation. If you are still unsure about the corporate forms, use this legal form test.

Author: Für-Grü editors

As editor-in-chief, René Klein has been responsible for the content of the portal and all publications by Für-Grü for over 10 years. He is a regular interlocutor in other media and writes numerous external specialist articles on start-up topics. Before his time as editor-in-chief and co-founder of Für-Grü, he advised listed companies in the field of financial market communication.