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Foundation of a GmbH – share capital, managing director, process

Setting up a limited liability company, or GmbH for short, is an important step for entrepreneurs who want to take their business to the next level. The process of setting up a GmbH differs from setting up another legal form, as more steps and a greater variety of legal decisions are required.

When founding a GmbH, the share capital, managing directors and the process of founding are associated with important questions that entrepreneurs must clarify in advance. When founding a GmbH, you can design many things freely and often deviate greatly from GmbH law. Depending on the number of shareholders and managing directors and the activity of the GmbH, various points can be important. In any case, you should include the following points in your planning.

The share capital

When founding a GmbH, the share capital must be determined in particular. The share capital is at least 25,000 euros. The share capital can be divided into shares of one euro (EUR 1). This is the smallest possible amount of a business share. With a share capital of 25,000 euros and a nominal amount of 1 euro, 25,000 shares are created, which are numbered consecutively from 1 to 25,000. It is permissible to choose higher amounts for the shares. However, if shares are to be divided and sold, this must be reflected in the numbering. If this happens multiple times, the list of shareholders can become confusing.

The founding shareholders take over the shares according to a free agreement. When founding a GmbH with a share capital of EUR 25,000 with three shareholders, for example, one shareholder can have 10,000 shares with the numbers 1 to 10,000, the second shareholder 8,000 shares with the numbers 10,001 to 18,000 and the third shareholder 7,000 shares with the numbers 18,001 to 25,000 take over. If each of the three partners is to have an equal share, the partners must choose a higher share capital, around 25,500 euros. In this case, each partner takes over 8,500 shares. It is always important that your share capital does not fall below 25,000 euros, unless you want to set up an entrepreneurial company (limited liability). This is a normal GmbH, except that the share capital is less than 25,000 euros and in return a retained profit of at least 25% per year is mandatory.

GmbH managing director

The GmbH is represented by the managing directors. The partnership agreement must therefore make provisions for representation. If only one managing director is appointed, he represents the GmbH alone. If several managing directors are appointed, the GmbH is represented by them jointly or by a managing director and an authorized representative. In addition, the partnership agreement should contain a clause stating that the shareholders' meeting can grant a shareholder the power of individual representation through a shareholder resolution. This decision can be made without a notary. However, a change in the power of representation must be registered in the commercial register so that business transactions are informed about it. Likewise, a managing director can be granted the authority - when the GmbH is founded or subsequently through a shareholder resolution - to act both for the GmbH and for himself or a third party. This is called exemption from the legal restrictions on self-dealing. This gives the GmbH greater flexibility, but also entails risks with external managers. Please feel free to contact us by email or telephone if you have any questions about the powers of the managing director.

The GmbH shareholders are largely free to design the partnership agreement of the GmbH when it is founded. In particular, you can introduce reporting obligations for management in order to monitor third-party managers in particular. This also helps minority shareholders. The shareholders should also consider non-competition clauses. These can be imposed on managing directors and shareholders. As a rule, they apply to the period during which the managing director or partner status exists. Within certain limits, they can also be determined for the time afterwards.

An important control instrument is the approval requirements of the shareholders' meeting. The partnership agreement stipulates a number of transactions that the managing directors may not carry out without the prior consent of the shareholders' meeting. This includes, in particular, transactions that exceed a certain amount, the establishment of subsidiaries, the taking out or granting of loans or the start of new activities. We will discuss together which other consent requirements may be important for you and your planned GmbH. If you are planning to set up a limited liability company, please feel free to get in touch.

The fact that the managing director is based abroad is not in itself a problem when founding a GmbH. There is no legal requirement that the managing director of a GmbH must be registered in Germany. However, in order to open a GmbH business account, many banks require that the managing director be registered in Germany. And opening a business account is mandatory so that the share capital can be paid in. This payment is in turn the prerequisite for the GmbH to be entered in the commercial register and thus legally created. In addition, the tax offices are checking more and more closely whether a GmbH with actual business activities takes place at its registered office. Tax offices may be hesitant to issue a tax number, particularly at business addresses that are known to many letterbox companies and for managing directors who are not based in Germany. This does not hinder the establishment of the GmbH itself. But without a tax number, business activities cannot be started. This must also be taken into account when planning the GmbH and its registered office.

Compensation for departing GmbH shareholders

Shareholders often leave the GmbH, either voluntarily or they are excluded. The exclusion always requires an important reason. An important reason is anything from the sphere of a shareholder that makes it unreasonable for the other shareholders to continue the GmbH with this shareholder. Such important reasons include serious breaches of duty, for example violations of non-competition clauses, or the insolvency of the shareholder. The shareholders are free to determine such important reasons independently. This is also recommended because it is clear to everyone under what circumstances an exclusion is possible.

The exclusion of a partner requires a shareholder resolution in which the affected partner is not allowed to vote, as no one can be a judge in their own case. At the same time, the shareholder resolution must decide what should happen to the shares of the excluded shareholder. The partnership agreement should also contain detailed regulations on this. The shares can either be withdrawn; they are then destroyed. Alternatively, the shareholders can decide that the shares are transferred to a third party. The partnership agreement should also provide clear regulations for this, in particular the implementation of the transfer by the other shareholders.

The excluded partner is entitled to payment of severance pay. This must either be paid from the assets of the GmbH when the shares are withdrawn or taken over directly by the company. Or the person who is supposed to take over shares has to pay them to the excluded partner. The partnership agreement can regulate how the severance payment is to be calculated. But great care is required here. The amount of the severance payment is generally determined by the value of the shares. This value in turn can be determined using various methods, of which the so-called income value method is the most common. According to this, the value is the estimated future income of the GmbH. The partnership agreement may provide for a different procedure or a deviation from this income value method. However, care is required here: If the severance payment according to the partnership agreement is significantly lower than the actual value, courts usually decide in favor of the partner and award him a higher severance payment. Feel free to speak to me by mail or by phone if you would like more information about severance pay regulations in GmbH. I would be happy to support you as your specialist lawyer for commercial and corporate law.

Process of founding a GmbH for the company

In addition to the points mentioned above, which you should pay particular attention to when setting up a GmbH, the selection of the company headquarters and business address is also crucial because business premises have to be rented there. To avoid liability, it is advisable to agree with the landlord that the GmbH, which will become the tenant when it is created. The partners should be careful about signing the rental agreement themselves. You must be aware that you are personally liable for rental payments until the GmbH is formed.

At the beginning, the shareholders determine the content of the partnership agreement, in particular the object of the company and the share capital. In order to establish a company, the founding certificate must be signed by a notary. The partnership agreement is also concluded there and the managing directors are appointed. After the notary appointment, the managing directors open the GmbH's business account at a bank. The shareholders pay in the capital contributions and send proof of payment of the capital contributions to the notary. The notary then registers the founding of the GmbH with the commercial register. The commercial register checks the documents and enters the GmbH in the commercial register.

The establishment of a GmbH requires the notarial certification of the founding certificate and the partnership agreement. The company, the registered office, the share capital, the shareholders, the shares taken over and the GmbH managing directors are named in the founding certificate. In addition, a list of shareholders and a commercial register registration are required. However, only when at least half of the share capital has been paid up will the commercial register register the GmbH.

In order to pay in the share capital, the GmbH must open a bank account. However, the bank will regularly require that the GmbH be registered in the commercial register. However, this entry requires a GmbH bank account. This contradiction can be resolved. The GmbH shareholders should speak to their bank before the notary appointment and make an appointment to open the bank account after the founding certificate and the partnership agreement have been notarized. The bank should agree to open the company account based on these notarized documents. The shareholders must obtain proof of the payment of - at least half of - the share capital and hand this proof over to the notary. The GmbH formation can then be published in the commercial register and the formation process can be completed. The costs of establishing a GmbH can be borne by the GmbH in the amount of up to 10 % of the share capital, which is also accepted by the tax office.

Differentiation from the establishment of other legal forms

Which legal form you choose for your company depends on factors such as start-up capital or liability. If you have lower starting capital, an entrepreneurial company (limited liability), or UG (limited liability) for short, is an option. Only a single shareholder is required here, which is why we are talking about a one-man UG or one-man GmbH. In order to found a UG (limited liability), a lower capital contribution is required than a GmbH, although the process of founding remains largely the same. You can find one here Overview of the legal forms of companies such as UG, AG, GbR, OHG and KG.

After the GmbH was founded

If all steps are planned correctly, setting up a GmbH can be completed within two to three weeks. However, there are still other issues to be addressed. The GmbH should conclude a managing director employment contract with the managing director. In addition, the GmbH must register a business and take care of a tax number from the tax office. The issuing of the tax number in particular can take several months in individual cases. This does not prevent the GmbH from conducting its business. But the GmbH must be prepared for delays here.

Do you have questions about legal regulations, the capital contribution or the structure of your GmbH? Or are you still not sure which legal form – from UG to GmbH to AG – is the right legal form for your company? Feel free to join me by email or telephone Please contact us if you would like more information about the process of setting up a GmbH and starting a company.

Anwalt Gesellschaftsrecht und Handelsrecht

dr Andrelang, LL. M

Specialist lawyer for international business law

Specialist lawyer for commercial and corporate law


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