German comipanies

By:

James Knight

James is a lead editor for Invezz, where he covers topics from across the financial world, from the stock… read more.

Updated: Aug 20, 2021

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Germany recognizes various types of commercial organizations but the two principal kinds that are met with in international commerce are the GmbH (Gesellschaft mit beschrankter Haftung), the rough equivalent of a U.K. private company (though without similar restrictions on the number of members). and the A G (Aktiengesellschaft), similar to the U.K.public company.

The AG is subject to strict laws on both organization and the conduct of its affairs. laws which tend to be more rigid and demanding than those applicable to British public companies, e.g. founders of an AG must be five or more in number and are themselves responsible for putting up at least one quarter of the minimum share capital (at present DM 100,000) in cash before the company can be registered. Another way in which the AG differs from the U.K. public company is that members are never liable for more than the issued price of their shares (including any share premium) even if the number of members is reduced to one. There are also many differences in the regulations covering the management of German companies.

The GmbH is a more loosely knit organization than the AG, and the lack of restrictions on the number of members can result in some of them becoming very large national or international businesses. However, there is at present no legal requirement for the accounts of a GmbH to be independently audited, rules as to management requirements are less strict and, unlike an A G, a GmbH can be founded by one or more members. Since 1981 all new companies seeking GmbH status have been subject to new regulations stipulating a minimum capital of DM 50,000 of which DM 25,000 must be subscribed. Existing companies had until 1 January 1986 to meet these capital requirements and submit reports that they had so complied.

One other type of German business organization that still exists, though no new units can now be created, developed from the GmbH and is known as the GmbH & Co. K G. This is effectively the equivalent of the U.K. partnership firm and particularly a limited partnership wherein the GmbH is the general partner with unlimited liability.

Reference: The Penguin Business Dictionary, 3rd edt.