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Establishing a limited company as a legal form for business start-ups: 5 X 4 tips on the costs and risks of a foreign company

The Limited is the English form of the GmbH with the abbreviation Ltd. Such a foundation is also possible in Germany and is correspondingly popular, especially if you are working abroad.

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Limitation of Liability?

Every fourth foundation in Germany should be a Limited! The Limited is popular because it is advertised accordingly on the Internet. The big, seemingly tempting advantage of a limited company is that, as with a GmbH, liability is limited to private assets. But there are restrictions: As a director of a limited company, you have to be personally liable for certain breaches of duty. Because this limitation of liability only applies to contractual partners.

So she can help people who can no longer pay their bills. The claim, however, that self-employed people could limit their liability for damages for the consequences of mistakes is simply wrong: Anyone who harms another through gross negligence is liable for it with his full private assets - always and regardless of the legal relationship in which he is Error committed.

4 tips on the costs and obligations in Germany

After all, you do not need 25.000 € deposit capital, as with a limited company, but initially only 2 pounds. Nevertheless, the Limited is only worthwhile for those who already planned to green a limited company. For small entrepreneurs, a limited company still has some disadvantages:

  • Just like the limited liability company, the Limited is a corporation and thus subject to commercial taxation, even if it is operated by freelancers. However, as a commercial sole trader, a person who is already a commercial sole proprietor is much more likely to pay than a limited company, because there is no exemption and a deductibility of the trade tax on income taxation as for individual entrepreneurs and the GbR:
  • Here, from the first earned Euro, depending on the municipality 10 - 24,5 percent commercial tax is due on the profit! As a corporation, the Limited is also subject to corporation tax. As a corporation, the Limited is finally obliged to keep accounts.
  • Instead of the simple income statement, which allows freelancers and small businessmen to make a profit of 30.000 Euro per year, they have to calculate their profit with double bookkeeping and balance sheet. Anyone who is insured through the artist's social insurance fund may also be the owner of a limited company - in the specific case, one has to disagree with the KSK in advance.
  • You have to register the company with the trade office and in the German commercial register and open a corresponding bank account (costs around 20 euros).

4 documents that you need to set up a Limited

  1. the Certificate of Incorporation (Certificate of Incorporation)
  2. an extract from the Commercial Register (Current Appointment Report)
  3. the memorandum and articles of association of the company and the report on the allotments of shares.
  4. You will also need a certified translation of all the founding documents (costs from 29 Euro).

4 obligations that you assume when you set up a limited company

  1. English company law requires a company secretary, a person of flesh and blood, who manages your limited company (costs approximately 120 Euro). The place of business of the Secretary must be in England or Wales.
  2. And you need a Registered Office on the island. An address where the English authorities use the Company reachable. Many vendors provide only a mailbox and no office, in which really someone is to be found.
  3. You will have to submit a year of important annual data to the English company register as well as the accounts, which is a business report, the balance sheet and a profit and loss account. Additional fees will then be charged for these obligations. However, the companies that help with the start-up usually only cover the start-up costs, but not these running costs.
  4. You need an apostille (diplomatic certification) to register a limited company in Germany. It is required for all administrative procedures in Germany.

The choice of company form was limited for a long time

The limited is also advertised as opportunities for start-ups and young companies. For start-ups and small businesses, the choice of corporate form was limited for a long time. Mostly it stayed with a risky GbR, the establishment of a GmbH was simply too expensive. The latest ruling by the Federal Court of Justice on company law now also helps less financially strong German companies to found a so-called Euro-GmbH.

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The European Court of Justice had already ruled in its ruling on November 05.11.02th, 13.03.2003 that entrepreneurs who legally set up a company within the EU in order to circumvent domestic (anti-business) company law are taking legal action. The Federal Court of Justice confirmed this ruling on March XNUMX, XNUMX, thereby recognizing the legality and legal capacity of companies founded abroad. The ruling of the Federal Court of Justice (BGH) now allows GmbHs founded in other European countries to have legal capacity in Germany. The BGH thus bowed to the judgment of the European Court of Justice (ECJ). So far, Germany had opposed the

Companies from other EU countries are blocked from bringing legal action in Germany. But this violated the guaranteed European freedom of establishment and thus against EU law. The European Court of Justice passed a ruling that makes it more attractive to set up a company abroad. But who benefits, which disadvantages have to be taken into account and which tax peculiarities apply here? Entrepreneurs found a company within a state of the European Union, this type of company must also be recognized in the other EU states (so-called foundation theory).

Is the establishment of a foreign company worthwhile?

Since there are significant differences in the minimum capital required in the individual Member States, especially when founding corporations, the establishment of a foreign company can be worthwhile. If you have to invest at least 25.000 EUR when establishing a German GmbH, it is only 7.500 EUR in France, 3.000 EUR in Spain and 2 Pound in the UK.

But this apparently cheap start-up also has disadvantages from a competitive point of view. Customers and business partners often become suspicious when a Limited or Société anonyme appears on the letterhead. Contracts are preferred to German companies, with whom one can fight a legal dispute on German soil in case of doubt. The tax office also assumes that an English 2-pound limited company is usually a company that only wants to shield its shareholders and protect profits from the German state by cleverly relocating its headquarters. Frequent and, above all, more intensive checks are therefore inevitable.

Before founding a foreign company, you should definitely talk to a tax or business advisor. Also important: Despite being founded abroad, such corporations are often used for corporation tax in Germany. The reason: a foreign corporation is already subject to unlimited tax liability in Germany under Section 1 (1) of the Corporate Income Tax Act if it has its management in Germany.

Euro GmbH for 279 euros?

With less risk: in particular entrepreneurs as well as small and medium enterprises profit from the new law. The founding act is no longer associated with bureaucratic and time-consuming hurdles thanks to the much simpler corporate law in England.

The start is faster, cheaper and safer. Because the biggest advantage: Personal liability is excluded with a Euro GmbH. Up until now, young and smaller companies in particular could hardly afford to raise EUR 25.000 in equity for a German GmbH. So it often stayed with a GbR, associated with high risk. Because as the owner of this company, you are liable with all of your personal assets. With the establishment of a limited company in England you can now eliminate this risk. Without a large investment of capital. In fact, no more than 279 euros are necessary to turn a German sole proprietorship or GbR into a Euro GmbH.

German companies can take advantage of the significantly lower hurdles that exist abroad for establishing a GmbH and still continue their business in Germany. This repealed the jurisprudence practiced for years that prevented this. Every European can thus set up a Limited in the UK, even if he only does so with the Objective makes to bypass the German (or other European) anti-business company law. It takes less than 2 weeks to set up your Limited (a one-day service is also possible).

Outsourcing of operational risks - formation of a holding structure

Large companies regularly outsource operational risks to new companies and set up expensive GmbHs or AGs for this purpose. Nevertheless, these costs are still low when you compare the risks of a “non-outsourcing”! The judgment also gives entrepreneurs and all small and medium-sized enterprises (SMEs) the opportunity to set up their own companies, for example for high-risk business areas. This is useful, for example, if you fear warnings from competitors or claims for damages.

If your company A is actually "charged", this has no effect on your other limited companies. Or you use a limited company if you do not want to appear under your current company name, for example to test a new business area or to expand a business area. It makes sense to outsource companies if you have high demands in a business area. Should these fail, it will not affect your other business areas. This will protect your company and jobs from bankruptcy in the other business areas. A simple establishment of a holding structure (also with the holding of any previous company shares of a GmbH) is possible.

The English limited company as Euro GmbH: 4 case studies

  1. Example: A UK Limited company can be used as a Euro GmbH. For example, you intend to legally circumvent the disadvantages of setting up a company in Germany and set up an English limited company. This is easier to set up, manage and use than the German GmbH. Of course, you can do all kinds of business with UK Limited and open branches across Europe.
  2. Example: For example, customer X already operates a company in Germany or has decided in favor of the German market after a market analysis. Employees and a personal appearance at the customer are required because the products require explanation or, for example, have to be installed and / or serviced. Here it is advisable to set up a limited company in England and only set up the company's administrative headquarters there, ie the business is carried out in Germany. The Limited is on a par with a German GmbH on the basis of relevant EU provisions (Maastricht Treaty, Art 52-58). Like a GmbH in Germany, you can open bank accounts, acquire and manage real estate, register motor vehicles, etc. A business registration is not required, but the commencement of business activity must be reported to the authorities. In special cases it is also possible to have your Limited registered as a branch in the German commercial register, if you wish.
  3. Example: Entrepreneur Y operates with his Limited (or worldwide) through the EU. He is the only employee of his company and carries out a small number of transactions a year, but with a high order volume. The customer contacts are exclusively via Internet or telephone / fax. Few personal meetings take place with his customers. This is the ideal case to operate the UK Limited entirely in London. In this case, an office service could be of great use: customer calls and faxes can be forwarded everywhere (telephone fees in the UK correspond to the German), the Internet is already available worldwide, an office service is cheaper than an office with secretary and representative rooms and flights to London are currently available for under 50 EURO.
  4. Example: Company Z operates a German limited liability company and has, for example, transferred properties or patents and licenses of British Limited. Since in this constellation the Limited Company is not actively active in the market anyway and, possibly, anonymity criteria also play a role, it is advisable to limit the Limited to Great Britain.

The activity of an English limited company in Germany: 4 possibilities

  1. The English Limited is itself directly in Germany, represented by its directors (managing director). Each English Limited, registered in the English Commercial Register, is already legally recognized and capable of doing business on a global basis. The director (s), or one of these directors, may represent and operate the Limited on a worldwide basis, including, of course, in Germany. This does not require an office, a trade license, nor a commercial register entry in Germany. The official office in England is enough.
  2. The English Limited establishes a dependent branch in Germany. This is the most chosen form. As a result, the presence in Germany is officially documented, as this branch office must be displayed at the local city or municipality in which the German branch takes place (§14 Gewerbe-Ordnung). It is, however, except for licensed trade, such as restaurant, food, pharmacy, craftsmen, etc., no approval by the advertising office necessary. Instead, the trade office is obliged to officially confirm this within three days on the basis of the proper notification (§15 Abs.1 GewO). This confirmation is commonly referred to as a trade license and the document can also be used everywhere as an official confirmation of the establishment. The Trades Licensing Office may not discriminate against foreign companies due to EU regulations. The German Trade and Industry Code, which was amended several years ago in this regard, corresponds to EU law in this respect.
  3. An independent branch registered in the German Commercial Register. To do this, a notary must register the German branch with the commercial register. Since this not inconsiderable notary and commercial register costs arise, should be carefully considered whether the commercial register entry in Germany really brings real benefits. It is under corporate law in almost all cases not required.
  4. The English Limited may establish a German GmbH as a subsidiary. It is then the main or sole shareholder of the GmbH. This is a big step in special circumstances, when the German GmbH should play a special role in an international company construction, or sometimes even in a large business operation in Germany, several branches and a large number of employees in Germany.

Caution Sanctions for violations

After all, you must expect a series of sanctions if these rules are not complied with. Those who do not comply with the deadlines of the British authorities quickly land on a so-called black list. In any case, penalties of up to 5.000 pounds are due.

In the worst case, the Limited is simply canceled by the authorities. It ceases to exist. Whoever works with a deleted Limited in Germany will inevitably get problems.

Conclusion: Limited is a legal form with many pitfalls

The European Law offers decisive advantages, in which more and more German entrepreneurs are taking part. However, it is even more important to pay attention to the fact that everything from the outset is legally correct in the rest of the business life, as a new company is a matter of trust and is the basis for all future business. To ensure this, the choice of the founding partner is of crucial importance ,

For these reasons, one should warn against companies that offer limited company formations at a low price without pointing out the numerous obligations of such a company in England. If you want to set up a limited company, which also often does not have the reputation and trust of a GmbH in Germany, you should definitely turn to a reputable specialist who has the regulations of English company law in mind and a trustworthy partner, and the limited company neatly administered in England.

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4 responses to “Founding a limited company as a legal form for business start-ups: 5 X 4 tips on costs and risks of a foreign company”

  1. John says:

    Great article, is it normal that the menu items in the navigation overlap?

  2. Mandy says:

    I also have such a limited foundation behind me and can only recommend it. It is really easier than in Germany.

  3. Adolf says:

    The great, tempting advantage of a Limited is that liability is here, as in the case of a limited liability company, restricted to private assets.

    Liability only with the paid-up capital but not with the private assets!

  4. Self says:

    […] A few links (not easy to find between the different farmers)

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