In drafting your shareholder’s agreement, opt for a contemporary version that will also take account of modern forms of communication and thus allow a meeting of shareholders to be conducted and resolutions to be adopted by email as well, without all shareholders having to be physically present.
Do I actually need a shareholders’ agreement for a GmbH?
While the German legislator has made efforts to simplify the establishment of a GmbH, the answer to this question nonetheless is “Yes, you will need to have the shareholders’ agreement for your GmbH recorded by a notary.” In fact, you should devote considerable attention to your shareholders’ agreement, all the more so if, as is the case in most companies, the founders come from very different economic and business backgrounds. This agreement is of utmost importance for a GmbH, and you need to make sure that its provisions tie in well with your specific situation.
Among other things, this agreement will provide for what is to happen with the shares in your company should a shareholder die; for the rights that the meeting of shareholders is to have; and how votes are to be cast. These are considerations that many shareholders do not spend much time on when they establish their GmbH. Another aspect to which founders will not really pay attention is the matter of the circumstances under which their company’s managing director(s) will need to obtain approval from the meeting of shareholders. Often, they are not aware of a list of “transactions requiring approval.”
The meeting of shareholders must be governed by rules in keeping with modern times. In our law firm, we see an increasing number of founders asking for a provision allowing them to deliberate and vote on a matter by email, since it is not possible for them to hold a meeting of shareholders, attended by everyone in person, without expending considerable amounts of time, effort, and money.
But just one bit of advice: do not rely on templates published on the internet. If you opt against working with a specialist attorney for corporate law in establishing your GmbH, you will risk creating rules for your own company that do not properly fit in with its actual reality. And that decision can end up being very expensive indeed. Take the transfer of assets in the course of founding a GmbH, for instance – the question that arises most frequently and needs to be dealt with is what will happen to them should one of the shareholders leave the company.
Generally, a template agreement will not include any provisions for this case. But you do need binding rules in this regard to ensure that you as the shareholder contributing the assets, for example, do not leave the company empty-handed. Because unless a provision is made, the assets so transferred will remain in the company without the shareholder receiving anything in return.
Does the GmbH need a bank account of its own?
Yes, in order to establish a GmbH, you will need to maintain a separate bank account for it. This is the account into which you will transfer the contribution agreed in the shareholders’ agreement, of which payment you will then need to provide documentary evidence to the notary. Please ensure that, also after having been established, your company will permanently have available the funds so contributed. It is not permitted to reimburse shareholders, once the GmbH has been founded, for the contributions they have paid in. Any such reimbursement would mean that, should the company become insolvent, you must once again pay the contribution.
What do I need to file with the Tax and Revenue Authority?
After you have established your GmbH, the Tax and Revenue Authority will send you a tax questionnaire. You will need to complete it to the best of your knowledge; it is recommended you do so with the assistance of a tax consultant. The questionnaire will ask important questions regarding the establishment of the GmbH, and you will be asked to file an opening balance sheet – both of which generally will require the involvement of a tax consultant.
To cite but one example, the question of whether you are liable to pay turnover tax as it accrues (on the date of the invoice, this is termed “Soll-Versteuerung” in German), or only once you have received the funds (so-called “Ist-Versteuerung”), will have significant impacts on your company’s liquidity.
Opting for the latter model will ensure your company has to pay only the turnover tax it has actually collected, while in the former case your company will pay the turnover tax at the time it issues it invoices. In other words, company liable to pay turnover tax on an accruals basis at the time it issues its invoice will be in the special situation of having to pay taxes regaring invoices that have not been paid yet.
Upon sending the questionnaire and the required documents to the Tax and Revenue Authority, your company will be assigned a tax identification number and will be registered with the Tax and Revenue Authority.
Must the GmbH be registered as a business?
Yes, following its foundation, every GmbH must register as a business. This is the case also if the GmbH pursues activities as a consultancy and thus actually is to be considered a member of the liberal profession – it must register as a business since, as a legal entity, it will be operating a commercial business.
What name should the GmbH have upon its foundation?
Before you have the foundation of your company recorded by a notary, you will need to clear the name under which it is to do business with the Berlin Chamber of Commerce and Industry (IHK). In this way, you can ensure that your company will have precisely the name you would like to give it. Otherwise, the Handelsregister (Commercial Register) may determine that the name you have selected for your company is already being used by a different enterprise, or is capable of being confused with that of a different enterprise. In this event, the Commercial Register will refuse to enter the GmbH in its register. This is aggravating because whenever this happens, you will have to once again make an appointment with the notary to record a new name – and unnecessarily expend more time and money on the establishment of your company than strictly necessary.
Do all founders have to be present when the company is founded?
Yes. At the end of the process, all of the shareholders must have recorded their intention to establish a GmbH before a notary. In many cases, and in particular where international partners are taking out an ownership interest, this may pose a problem: it is not always that easy to have all shareholders appear before the notary at the time the GmbH is founded. One option is to have a proxy act on their behalf at the foundation. For this to be done, the proxy will have to be issued a power of attorney recorded by a notary, or for the shareholder concerned to retroactively approve the declarations made by the proxy before the notary recording the company’s foundation.
As a foreign citizen, can I establish a GmbH?
Of course you can! Foreigners can also establish a GmbH in Berlin. The only pre-requisite is that the company must have its registered seat in Berlin. Other regulations apply where the appointment as managing director is concerned.
As the shareholder of a GmbH, will I be liable for the company’s debts?
No, you will not be liable as a shareholder. However, the following should be noted regarding the initial contribution: this contribution needs to be paid in only at a share of 50%. Should the company become insolvent, however, the insolvency administrator will demand that you pay the remainder of the contribution. Accordingly, we always recommend to the GmbHs we establish that the initial contribution be paid in in full as soon as profits are distributed.
As the managing director of a GmbH, will I be liable for the company’s debts?
Yes. Certain debts of the GmbH may entail a liability on your part as managing director in the event of the company becoming insolvent. To cite but one example, the social security contributions for the company employees must be paid, while the taxes withheld from the employees’ wages and turnover tax are to be remitted – regardless of the circumstances. Should the GmbH become insolvent, the Tax and Revenue Authority and the Social Security Benefits Office will lay claim to the managing director(s) for these payables, which may be due in significant amounts. This means that you will have to be very careful in ensuring that these payables are in fact paid and remitted under all circumstances.