Frequently asked questions (FAQ)

No! You do not have to incorporate a GmbH (German limited liability company) to run a business in Germany. You can also pursue your business idea as a sole trader or in a partnership (GbR, OHG, KG). A GmbH or another type of corporation (UG, AG) mainly makes sense if you want to limit your personal liability or are looking for investors. You can also operate directly through a foreign company. In that case, you may have to appoint certain official points of contact for the authorities. A range of service providers offer this.

A GmbH often still inspires rather more confidence in the outside world, but UGs are now widespread and well accepted. Under German law, the UG is simply a special form of GmbH. If the share capital is later increased to EUR 25,000, the UG can change its name to become a ‘real’ GmbH. Anyone able or willing to raise this capital from the outset will therefore usually choose a GmbH straight away. But that should not put you off incorporating.

You can incorporate using the Musterprotokoll if the company has no more than three shareholders and only one managing director. The Musterprotokoll leaves no room for individual arrangements. It therefore makes sense mainly for a sole founder, for a holding company or for very simple, clear structures. As soon as several founders with different interests are involved, you should have tailored articles of association drafted.

Beyond the mandatory provisions, the split of shares and the organisation, co-founders should above all set out how they will deal with disagreements. What happens if someone leaves the founding team, contributes less or is no longer able to work? Who decides if there is a deadlock? Who gets which shares, and how (pre-emption rights, tag-along and drag-along rights)? Various instruments have become established for this, for example vesting, a ‘Texas shoot-out’ or ‘Russian roulette’, as well as tag-along and drag-along provisions. These instruments come in variants, each with its own advantages and disadvantages, which you should consider before incorporating. In addition, every agreement should contain rules on non-compete obligations, confidentiality and IP transfer. Further clauses may be advisable in certain scenarios.

Under German law, managing directors can become liable both to the company and to third parties. The standard for liability towards the company is generally ‘the due care of a prudent businessman’. Liability towards third parties and the state usually arises only where this is expressly provided for. Examples are taxes or social security contributions that were not paid over (also a criminal offence), payments made after grounds for insolvency have arisen, and delay in filing for insolvency. In compliance cases, liability can also arise if adequate precautions were not taken. D&O insurance can cushion some risks, but it is no substitute for managing the company properly.

There is no general obligation to use T&Cs. If you do business with consumers online, statutory information duties apply, and these are usually met through T&Cs. T&Cs are also useful in other cases. They standardise liability, payment and the scope of services, so you do not have to renegotiate every time. Even between businesses, however, T&Cs are subject to strict review for enforceability under German law, and invalid clauses fall away without replacement. That is why it is dangerous to adopt templates from the internet without checking them.

More than price and quantity. The key points are a precise specification (what counts as a defect?), delivery dates and the consequences of delay, the delivery term (Incoterms), retention of title, statutory liability for defects and periods for giving notice of defects, limitation of liability, price adjustment when costs rise, term and termination, force majeure, and choice of law and jurisdiction. For ongoing relationships, a framework agreement with call-off orders is advisable. Where the contract is silent, the statutory rules apply; for commercial contracts, these are often stricter than founders expect. (Supply agreement)

Under German law, a duty to inspect and give notice of defects applies to deliveries between merchants. You lose your rights if you do not give notice of apparent defects without undue delay after delivery. Depending on the circumstances, you may only have one or two days to do so. For hidden defects, the same applies from the time of discovery. So inspect deliveries as soon as they arrive. Describe any defects and, where possible, document them with photos. Then give the supplier notice of the defects and set a deadline for remedying them. If in doubt, keep the goods for the time being to preserve evidence, and do not repair or dispose of them on your own initiative. If that is not an option, I am happy to help you find alternatives.

LLMs can be very helpful for drafting contracts. I use them in my daily work, as do other lawyers. For legal tasks, however, the results are not as easy to assess as for code or maths. The training data is often based on Anglo-American law, which cannot simply be transferred to German law. In addition, commercial contracts in particular are generally not publicly available but sit behind NDAs in businesses and law firms. As a result, good templates are missing from the training data, and the mainstream providers have no access to specialist legal databases either. Legal work also often calls for a sensitivity in dealing with people that AI models do not yet have. AI drafts are therefore a good starting point. They only become good and legally sound once an expert has reviewed and adapted them.

Under German law, interference with the basis of the transaction occurs where circumstances change so seriously after a contract has been concluded that one party (or both) cannot reasonably be expected to stay bound by the contract as it stands. In that case, Section 313 of the German Civil Code (BGB) gives a statutory right to have the contract adapted and, in exceptional cases, to withdraw from or terminate it. This applies even if the contract itself does not provide for it. The requirement is that the parties would not have concluded the contract, or would have concluded it on different terms, had they known how things would develop. In addition, the risk must not already be allocated to one party. This became relevant, for example, in commercial tenancy law during the COVID-19 pandemic, or where costs under supply agreements soared because of the changed global situation.

Force majeure refers to unforeseeable external events that cannot be prevented even with the utmost care. Under German law, a party that cannot perform as agreed for this reason is not responsible for the failure. As a rule, they do not have to pay damages or contractual penalties. The legal consequences are usually set out in the contract, because there is no single statutory provision and the concept has largely been shaped by case law. Recently, for example, businesses have invoked force majeure because of low water levels on the Rhine and the resulting delivery delays. Extreme weather also regularly plays a part in air and sea freight.

Which rules apply to a product depends on the product. But the answer is rarely ‘none’. Almost all consumer products are subject to product safety rules, which involve a risk analysis, labelling and a responsible person in the EU. Specific rules that include CE marking also apply to many product groups: machinery, electrical and radio equipment, toys, medical devices and protective equipment. The Cyber Resilience Act will cover connected products and software, and the AI Act will cover AI functions. The first step is to establish which legal acts apply, which role you have (manufacturer) and what must be documented before the product is sold.

Whether you are a manufacturer, an importer or merely a distributor largely depends on what you actually do, not on the contract. The exact allocation of roles differs depending on the legal basis that applies. As a rule, the manufacturer is whoever makes a product themselves. Anyone who has a product made by a third party and then offers it under their own name or trade mark is also a manufacturer. Even a business that has goods produced in Asia and prints its logo on them can be a manufacturer. The importer is whoever places a product from a country outside the EU on the EU market for the first time. Depending on the circumstances, importers may have the same obligations as manufacturers. A distributor is anyone who merely distributes products.

A provider is anyone who develops their own AI systems or offers them under their own name. Anyone who integrates a third-party model or open-source models into their product and markets this as their own feature is generally a provider as well. A deployer, by contrast, is anyone who merely uses a ready-made system in their own business. Deployers become providers if they substantially modify a system or use it for a new purpose. This classification determines which obligations under the AI Act apply to you. For most applications, only transparency and AI literacy obligations apply. Compliance takes considerably more work in high-risk areas such as recruitment, lending or medicine.

An authority’s letter (Anhörungsschreiben) gives you the opportunity to comment on a decision by an authority. Under German law, when an authority has indications of a breach and opens administrative proceedings, you have the right to be heard as the person concerned. Importantly, you are often not obliged to comment. However, responding is often the best chance to actively shape the investigation and set out your position. Even if there have been irregularities in your business in an individual case, good written statements and the right decisions can prevent or limit formal measures. Requesting access to the file is often sensible too. It is advisable to get external help to assess the right course of action and develop a strategy.

For a large number of EU product rules, the moment of placing on the market is the decisive point in time at which the requirements must be met. Sunset dates for new rules also often refer to this moment. However, depending on the legal act and its protective purpose, the definitions of placing on the market and making available may differ slightly and must be determined separately in each case. A product is usually ‘placed on the market’ when it is ‘made available’ on the (Union) market for the first time. A product is made available when it is offered or supplied for sale or other use in the course of a commercial activity. Its manufacture must also be complete. Both placing on the market and making available refer to each individual unit of a product, not to the product line. Each unit can be placed on the market only once.

Under German law, an employment contract can in principle also be concluded orally. Only a fixed term must be agreed in writing. Otherwise, the fixed term is likely to be invalid. Employers must document the essential terms of the contract in accordance with Section 2 of the Act on the Documentation of Essential Employment Conditions (Nachweisgesetz, NachwG). These include, in particular, the job, working time and place of work, pay, holiday, probationary period and the rules on termination of employment.

This documentation can be sent electronically in text form if the document is accessible to the employees, can be saved and printed, and the employer asks them to confirm receipt when sending it. On request, the employer must hand over signed documentation on paper without undue delay. For the sectors listed in Section 2a(1) of the Act to Combat Undeclared Work and Unlawful Employment (SchwarzArbG), such as construction and hospitality, signed documentation on paper remains mandatory. The statutory deadlines for providing the documentation must be observed. Breaches can be punished with an administrative fine.

Whether someone is falsely self-employed depends largely on how the working relationship operates in practice. What matters most is how far the person is integrated into the organisation of work and bound by instructions, whether they bear entrepreneurial risk and how many businesses they work for. The consequences fall mainly on you as the business engaging the freelancer: back payment of social security contributions for up to four years (or even 30 years in cases of intent) and liability for wage tax. A status determination procedure gives you legal certainty. I am happy to advise you on this.

Where an establishment (Betrieb) regularly has ten or fewer employees, general protection against dismissal under the Protection Against Dismissal Act does not in principle apply (Section 23 KSchG). Apprentices are not counted. Part-time staff count as 0.5 if they work no more than 20 hours a week, as 0.75 if they work no more than 30 hours, and as 1 above that. Special transitional rules may apply to employment relationships that already existed before 1 January 2004.

Sections 4 to 7 KSchG continue to apply even in small businesses, in particular the time limit for a claim challenging a dismissal, which is in principle three weeks. Notice of dismissal must be given in writing with a handwritten signature. An email is not enough. Notice periods must be observed, and the dismissal must not be discriminatory or contrary to good faith. Special protection against dismissal, for example during pregnancy or parental leave or in the case of severe disability, may also apply.

Yes, a name can usually be protected as a trade mark, provided it is eligible for protection (purely descriptive terms are excluded) and does not infringe existing trade marks. It is therefore advisable to carry out a trade mark clearance search before applying. At registration, the trade mark office does not examine whether similar earlier trade marks exist. This only comes to light if an opposition is filed, which can be expensive.

The official fees for a trade mark application depend on the scope of protection. For national trade mark protection in Germany, the fee for filing electronically with the German Patent and Trade Mark Office (DPMA) is EUR 290. This covers up to three classes of goods and services (trade mark classes); each additional class costs EUR 100. EU-wide protection through the European Union Intellectual Property Office (EUIPO) costs EUR 850 for one class, EUR 50 for the second and EUR 150 for each additional class.

There are further costs for the trade mark clearance search and for review and filing by a lawyer.

Trade marks, designs, patents and copyright all confer intellectual property rights, but each protects something different. A trade mark protects signs (name, logo) and distinguishes what you offer from what others offer. A design describes the outward appearance of a product and can protect it. Patents (and utility models) protect technical inventions. Copyright protects personal creations such as texts, photos and software. Unlike the others, it always arises without registration and, under German law, cannot be transferred; only rights of use can be granted.

The same product can be protected in several ways. A computer, for example, can be covered by several patents for technical inventions, and its specific shape can be protected as a design. The name and the logo can be trade marks, and the software and the pictures on the box are usually protected by copyright.

There is no general ban on using AI-generated images and texts commercially. The terms of use of the major providers generally permit commercial use but may impose restrictions. However, the output may infringe third-party rights in individual cases, for example if the images or texts are too similar to other works. It is often irrelevant whether you know this or could have known it. For example, the AI may also have been trained on protected works and then reproduce them. The responsibility often lies with you as the user. In addition, purely AI-generated content is often not protected by copyright, so you may not be able to grant licences for it. You may also have disclosure obligations, for example under the AI Act.

Where developers are employees, the rights of use in the code typically belong to the employer by law. With freelancers, by contrast, it depends on how the contract is drafted. Without an express grant of rights, the contract has to be interpreted case by case. This becomes a problem particularly if you later want to rework the code, license it to others or sell it together with the business. That is why investors, too, often look very closely at the chains of title and expect express and comprehensive IP clauses.

If you have received a cease-and-desist letter, you should act quickly. Take the deadline it sets seriously. However, you should not simply sign the cease-and-desist declaration without reviewing it. The declarations provided are often drafted more broadly than necessary. In most cases, it also makes sense to review the facts. If the cease-and-desist letter is justified, in most cases you will also have to bear the costs. However, German unfair competition law makes exceptions for small businesses for some infringements.

A court order for payment can be a better route than a court claim. It is cheaper and faster. However, it only helps if you can assume that the debtor will not raise any objections to the debt. If the debtor has already disputed that the debt exists, the court order for payment will only cause delay.

If you are sued, you should act immediately. Under German law, once the claim has been served on you, you generally have two weeks to state whether you intend to defend it. If you do not, you risk a default judgment, which is immediately enforceable. If the claim has been brought before a Landgericht (regional court), legal representation is required by law. In some circumstances, you must also contact your legal expenses or liability insurer without undue delay. This depends on the terms of your insurance. Whether you defend the claim, acknowledge it or seek a settlement is decided after an initial review of the prospects of success and the costs.

Under German law, court fees and statutory lawyers’ fees depend on the amount in dispute. As a rough guide for the first instance: with EUR 10,000 in dispute, court fees come to about EUR 850 and lawyers’ fees to around EUR 1,600 per side. With EUR 50,000 in dispute, the figures are about EUR 1,900 and EUR 3,400 per side, in each case plus VAT, expenses and, where applicable, expert fees. The losing party pays everything, including the other side’s lawyers’ fees at the statutory rate. If a party succeeds only in part, the costs are split. The claimant must pay the court fees in advance. The statutory lawyers’ fees are the minimum amount. Depending on the amount in dispute and the work involved, they do not always cover the actual cost of your own lawyer. Each side must itself bear any lawyers’ fees that exceed the statutory fees.

I review your documents and your enquiry in advance. During the consultation, I assess your case: what legal options you have, how I weigh up the risks and opportunities, and what costs are involved. There is no obligation to engage me for further work. However, I will credit the fee for the initial consultation towards any subsequent engagement in the same matter.

As a lawyer, I am bound by a duty of confidentiality under both the professional rules and criminal law. Where I use service providers, I make sure that the statutory requirements for data protection and confidentiality are met. My privacy policy explains which services I use and how personal data is processed. If your business has particular requirements for confidentiality or data transfers, we discuss them before you engage me.

As a lawyer, I am bound by a duty of confidentiality under both the professional rules and criminal law. A separate non-disclosure agreement (NDA) is therefore not required in most cases. If you have particular confidentiality requirements, we can discuss suitable arrangements.

When giving legal advice, I process personal data as a controller in my own right. As a rule, a data processing agreement is therefore not required.