GmbH

In practice

Legally, a GmbH is a separate entity, like any other legal person. It is separate from its shareholders and has assets of its own that management must protect, including against the shareholders. Even someone who is both the sole shareholder and the managing director therefore cannot simply help themselves to the company’s funds. In return, claims against the GmbH are limited to the assets of the GmbH. The shareholders’ private assets are generally protected. To give creditors some protection, a GmbH needs share capital of at least EUR 25,000. For a cash incorporation, only half of this has to be paid in at first. The share capital does not have to sit idle, however, and can be used for business expenses and investments. The limitation of liability is not watertight. Banks and landlords usually also require a personal guarantee from young companies, and anyone who breaches their duties as managing director is personally liable. The red tape compared with a sole trader business should not be underestimated: the obligation to prepare a balance sheet, annual financial statements, disclosure, and resolutions in the correct form.