Types of Business

Business Law - Spring 2021

Dr. Begoña G. Otero
Legal forms for starting a business
1. Representative Office
2. Sole Proprietorship UNINCORPORATED
3. Partnerships
- GbR
- OHG
- KG
4. Corporations INCORPORATED
- GmbH
- AG
5. Trusts
 Starting a Business in Germany
Nature of Procedure (2006) Proc # Duration (days) US$ Cost

Clear the name of company at the local Chamber of Industry and Commerce 1 1 0.00

A notary notarizes the articles of association and foundation agreement 2 1 1,183.23

Open a bank account and deposit paid-in capital 3 1 0.00

Notary public files the articles of association with the local Commercial Register, kept at local 4 14 553.58
courts

Notify the local Office of Business and Standards of the establishment of the business 5 3 38.38

Register with the professional association of the relevant trade 6 1 0.00

Notify the local labor office of the establishment of the company 7 1 0.00

Register employees for health and social insurance 8 1 0.00

Mail out the documentation to the Tax Office 9 1 0.00

Totals: 9 24 $1,775.19

Note: Procedures sometimes take place simultaneously. Instances of this are marked with an asterisk (*).      

Source: World Bank – Doing Business.org

What are the laws to look at when starting a business?
Types of Business
 Germany / Austria
OHG – KG – GmbH – AG

 United Kingdom
Partnership – Limited Partnership –
Private Company – Public Company
 United States
General Partnership – Limited
Liability Company – Corporation/
Incorporation
Types of business: Unincorporated
Characteristics Examples
• no separate legal identity of its own • Sole Enterprise
• risks and liabilities belong to • Partnerships
individuals who own or manage it
meaning their personal assets are
at risk if the assets of the business
are not sufficient to cover all the
debts and other liabilities
• informal, flexible, sole enterprise or
partnership
 Types of Business: Incorporated
Characteristics
• legal entity in its own right, must
be created by legal process and
continues to exist regardless of
changes in membership
• business functions in its own
name and owners have limited
personal liability
• formal, with regulatory and
disclosure requirements
Examples
• Registered or incorporated
private/public limited companies
(Ltd., AG, Inc.)
• Limited liability companies (LLC,
GmbH) /partnerships (LLP)
• Limited Partnership (LP)
Business Formation
 A partnership is an agreement between 2 or more persons to carry
on a business together with the intention of making a profit.
 Relationship between Partners: general duty of care, duty of
disclosure, shared liability, Partners are jointly and severally liable
 Corporate Entity: creates a separate legal personality that has
contractual capacity and can sue/be sued in its own name. Companies
may own property, may be liable in criminal law and have perpetual
succession.
Choosing a Structure, Management
1. Registered or Incorporated Business: Directors manage the affairs of the
business, with or without a Board of Directors/Management Board and
Advisory/Supervisory Board. Separate legal entity, limited liability for
owners. Company pays corporate tax.

2. General Partnership: Partners have the right to manage the partnership’s

affairs. Not a separate entity, partners have unlimited liability. Partners
receive a share of the profits and pay income tax on the shares received.

3. LLC/LLP: Members have the right to choose management and taxation

structure.
Financing a Business
• Share capital – selling shares of the company (stocks) creates
Shareholders, owners of the company’s equity, who receive a return
on their investment in the form of dividends and ownership.

• Loan capital – obtaining a loan (bonds) creating owners of a

debenture, or debt of the company, who receive a return on their
investment in the form of interest on the loan and status as a creditor
– higher than the Shareholder in case of bankruptcy
Liabilities: Managers, Investors, Directors, Officers

Liabilities and Responsibilities (Duties) depend on the position an

individual holds and his relationship to the company.

Manager: employee
Investor: non-employee (No Duties)
Director: (1) Non-Executive Director: non-employee (Duties)
(2) Executive Director: employee
Officer: employee
Piercing the Corporate Veil
A company having its own legal entity: it is separate from
that of its shareholders.
Watch out!! Only the company is responsible for its
liabilities and its shareholders are said to be protected by “a
veil of incorporation”.
The shareholders are hidden from view and protected from
incurring liabilities.
However, there are circumstances where the veil will be
lifted, or “pierced”, and the business treated as if it were
being run by its individual shareholders or directors.
Piercing the Corporate Veil can be authorized by a court or
statute.
In Common Law countries, a court will look behind the
company façade in a number of different circumstances,
including if the company is being used for a fraudulent
purpose to evade legal responsibilities.
Types of business in DE: Their characteristics
Sole Proprietorship
• Suitable for start ups and small businesses

• No minimum capital required

• Just one person needed to open the business

• Low formal costs

• ! managed by the founder / owner of the business only

• Personal unrestricted liability of the owner

• Only natural persons as partners possible

Partnerships - GbR
• Suitable for small and new companies

• No minimum capital required

• At least two partners required

• Low formal costs, articles of association not required but advisable to clarify obligations and
rights
• Managed by all partners or just by one/several appointed ones, also possible by non-partners

• Personal unrestricted liability of all partners

• Partners can be natural person and/or legal entity

Partnerships - OHG
• Suitable for large and medium-sized companies
• No minimum capital required
• At least two partners required
• Formal costs for written articles of associations and accounting obligations, that are more strict
than for GbR
• Application for entry in commercial register required
• Managed by all partners or just by one/several appointed ones
• Company management by non-partners possible
• Personal unrestricted liability of all partners
• Partners can be natural person and/or legal entity and partnership
Partnerships - KG
LLPs as a “GmbH & Co. KG (limited
• A KG originates through a partnership agreement of at leastcommercial partnership
two partners. with a is liable
One partner
limited liability
without limitation (general partner). The other’s liability is limited company as a (limited
to his contribution
partner) partner.” generally
include partnerships among
• Partners in a KG can be natural and legal entities (e.g. with aphysicians,
“GmbH & Co. KG”),
attorneys, also foreign
accountants,
ones architects, licensed financial advisers,
• A minimum capital is not necessary veterinarians and undertakers
• Its purpose of business is aimed at operating trading business
• The partnership agreement should regulate: object, corporate name, nature and scope of the
partners’ contributions, management and representation power, allocation of profits and losses,
ending of the company and departure of partners
• The limited liability of each limited partner and the amount of this liability must have been
agreed in the partnership agreement by setting of a certain amount. It can, but does not
necessarily have to be identical with the contribution to be made in the internal relationship
Corporations - GmbH
• Suitable for large and medium-sized companies
• One partner required the minimum
• Minimum capital of 25,000 Euros
• Formal costs for articles of association that need to be certified by notary
• Application for entry in commercial register required
• Managed by managers, that are appointed by the partners
• Company management by non-partners possible
• Liable with the company assets, partners liable only to the level of their obligation of investment
• Partners can be natural persons and/or legal entity
Corporations - AG
• Suitable for large companies
• One shareholder required the minimum
• Minimum capital of 50,000 Euros
• Formal costs for recording the statutes by a notary, the appointment of the first supervisory
board and statutory auditor
• Application for entry in commercial register required, that has to be certified by notary
• Managed by the board of management, that is appointed by the supervisory board
• Liable with company assets (basic capital)
• Shareholders can be natural persons and/or legal entities
 legal form private corporation public corporation
limited liability company joint-stock company
(GmbH) (AG)
characteristics
shareholders
• number • one or more shareholders
• restrictions • no restrictions
directors no restrictions, i.e. third party management or by
shareholders themselves
establishment articles of association:
notarial deed
registration application for entry in the commercial register in
notarial (certified) form
minimum capital 25.000 € 50.000 €
 legal form private corporation public corporation
limited liability joint-stock company
company (AG)
characteristics (GmbH)

transfer of notarial deed; registration dependent

interests /shares application to the on type of stock
commercial register
by the MD in notarially
certified form

governance • managing director, one • managing director, one

or more or more
• shareholders’ • supervisory
meeting board, at least 3
• supervisory members
board, more than • shareholders’
500 employees meeting
 Types of Business
joint-stock company; 1,6% located in Germany

limited liability company; 98,4%

 Largest business in Germany (Fortune Global
500, 2018)

Source:Wikipedia. List_of_companies_of_Germany