§ 7 Registration of company

The incorporation of a limited liability company (GmbH - German Limited Liabilty Company) or an entrepreneurial company (limited liability) (UG (haftungsbeschränkt)) takes place in various steps. First, the incorporation of the company is notarised by the notary: The shareholders establish the company by concluding notarised articles of association. The company's directors are also appointed in the formation protocol. Alternatively, under certain conditions, incorporation can be effected by notarisation of a model protocol. Incorporation by means of a model protocol is often considered when establishing an UG (haftungsbeschränkt). The advantages and disadvantages of a model protocol must be weighed up carefully - as a rule, incorporation using a model protocol is not advisable. GmbH and UG (haftungsbeschränkt) differ in the amount of share capital: While the GmbH requires a share capital of at least EUR 25,000.00 (section 5 (1) Limited Liability Companies Act (GmbHG)), the UG (haftungsbeschränkt) can have a lower share capital. For the UG (haftungsbeschränkt) the special regulations and requirements of section 5a GmbHG must be considered apart from the general regulations of the GmbHG.

With the conclusion of the notarised articles of association, a "pre-GmbH" or "pre-company" GmbH is created, which only "strengthens" with the entry in the Commercial Register to become a GmbH or UG (haftungsbeschränkt) and is then a legal entity with the desired limitation of liability. The limited liability company does not exist before the entry in the Commercial Register of the company's registered office (section 11 (1) GmbHG). If the directors act in the name of the company before the registration, then they are personally and jointly liable for this (section 11 (2) GmbHG). In addition comes the liability of the shareholders for any under-balance at the time of the entry of the company in the Commercial Register, as developed by jurisdiction. This liability implies that the shareholders are liable for the losses incurred in the share capital up to the time of registration. The aim is to ensure that the company can dispose of the full amount of the paid-up share capital at the time of its entry in the Commercial Register. If the company is not registered, the shareholders who have consented to the commencement of business are liable in accordance with the rules on liability to cover losses for those liabilities which are not covered by the company assets.

The registration of the GmbH or UG (haftungsbeschränkt) in the Commercial Register is therefore crucial for the successful completion of the company's incorporation. For the registration of the company, a notarised application for registration is required, which must be signed personally by all directors. As a rule, the application for registration is signed immediately after the notarisation of the incorporation of the company. If one or more of the directors are not present at the notarisation meeting, they can also have the notarised signing of the application for registration done in a separate notarisation meeting, which can also take place at another notary - also at a notary abroad, taking into account the necessary instruction requirements. The application for registration signed by all directors is submitted to the competent registration court together with the other incorporation documents by the notary who has notarised the incorporation of the company.

Competent for the registration of the company is the local court as registration court in whose district the company has its registered office. The registered office is specified in the notarised articles of association. The registered office must be located in Germany and may differ from the actual administrative headquarters, which may also be located abroad. The domestic business address of the company to be stated with the application for registration may also differ from the registered office. It is therefore possible to set up a company with its registered office in Stuttgart and its domestic business address in Munich. The local court (registration court) of Stuttgart would then be competent for registering the company in the Commercial Register.

Section 7 (2) GmbHG regulates at what point in time the application for registration of the company may be submitted to the Commercial Register. Until then, the notarised application for registration is kept in safe custody by the certifying notary. Before submission, the notary must check whether the registration requirements are met. The decisive factor here is the payment of the share capital or the provision of the agreed contributions in kind: Pursuant to section 7 (2) GmbHG, the application for registration of the GmbH may only be submitted to the Commercial Register if, in the case of cash contributions, one quarter of the nominal amount has been paid in for each share. In total, at least half of the minimum share capital of EUR 25,000.00 must have been paid up on the share capital, i.e. EUR 12,500.00. Agreed contributions in kind must be taken into account. The contributions in kind shall be effected to the company before the application for entry in the Commercial Register is filed, in such a manner that they are finally at the free disposal of the directors (section 7 (3) GmbHG).

Deviating from this, the share capital of a UG (haftungsbeschränkt) must be paid up in full before the application for registration is filed with the Commercial Register; contributions in kind are excluded (section 5a (2) GmbHG). In practice, therefore, provided that the minimum contribution in the amount of EUR 12,500.00 can be raised immediately, the incorporation of a GmbH is generally preferable to the formation of a UG (haftungsbeschränkt). This is because the registration of a GmbH may already be effected when an amount of EUR 12,500.00 has been paid in or contributed to the share capital. The decision for the incorporation of a GmbH instead of a UG (haftungsbeschränkt) also has the advantage that neither the special regulations of section 5a GmbHG have to be observed, nor is a subsequent capital increase necessary for the purpose of "conversion" into a GmbH, which triggers further costs (advantages GmbH vs. UG).

The application for registration must include the assurance of the directors that the payments against the shares referred to in section 7 (2) and (3) GmbHG have been effected and that the object of the payments is finally at the free disposal of the directors (section 8 (2) GmbHG). This assurance by the directors only becomes legally effective at the time when the notary submits the application for registration to the Commercial Register. If false statements are made here and the directors' assurance is therefore not correct, the directors are threatened with a prison sentence of up to three years or a fine in accordance with section 82 (1) GmbHG. The notary must therefore, also in the interest of the directors, have evidence presented to him that the cash contributions and the contributions in kind were made in accordance with the agreement and in conformity with the law before he can submit the application for registration of the company to the Commercial Register.

Proof of the cash payments made is usually provided either by a confirmation from the bank holding the account that the share capital has been paid into the newly opened company account. Alternatively, a deposit slip or an account statement of the newly opened company account can be presented, from which the payment of the share capital can be deduced. For the opening of the company account, the certifying notary will provide either a scan of the company's incorporation documents or - if requested by the account-holding bank in individual cases - certified copies thereof. With these documents, the directors of the pre-GmbH/pre-company can open a company account into which the share capital is paid in. It should also be noted that account management fees must not be immediately debited from the company account, because then the directors would no longer have the full amount of the payments on the share capital at their free disposal. Any debits by the bank would have to be settled in advance by the shareholders.

As proof of the agreed effecting of contributions in kind to the company, their transfer is often notarised at the same time as the company is incorporated. In the event of agreed contributions in kind, the other requirements of the GmbHG must also be observed. Especially, a report on company formation on the basis of contributions in kind is to be made and proof must be provided that the value of the contributions in kind is equal to the nominal value of the shares acquired in return.

Compared to the formation in kind, a cash formation with a premium/agio in kind offers an often easier alternative. In this case, the payments on the share capital are paid in cash and the object of the contribution in kind is brought into the newly founded company as a premium/agio in kind. By structuring a cash foundation with a premium/agio in kind, for example, company shares can be brought into the newly founded company in a tax-neutral manner in order to create a holding structure. It is also possible to contribute partnership under civil law (GbR) shares for the purpose of accrual to the newly founded company so that the assets of the GbR are transferred to the GmbH. The contribution of a sole proprietorship as a contribution in kind to the newly founded GmbH is also conceivable, provided that no universal succession is required, particularly in the contracts of the sole proprietorship. Otherwise, the transfer of the sole proprietorship would have to be structured via a spin-off in accordance with the Transformation Act (UmwG).

NEW: Online formation as of 1 August 2022

From 1 August 2022, it will be possible for the first time to form a GmbH online, in that section 2 (3) sentence 1 GmbHG n.F. expressly declares notarisation by means of video communication to be permissible.

The online formation of a GmbH is only permissible in the case of a pure cash formation without contributions in kind. The founding shareholders of a GmbH formed online can be both natural persons and legal entities in Germany and abroad. There is no limit to the number of persons participating in the formation. The online formation can be carried out using a model protocol.

The online formation of a GmbH takes place exclusively using a video communication system, which is operated centrally by the Federal Chamber of Notaries and is intended to ensure the technical requirements for online notarisation. The parties involved in an online notarisation must identify themselves by means of an identity document that is eID-capable with a high security level.

For the online formation of a GmbH, the notary cannot be chosen completely freely. Rather, the notary is only competent for the notarisation of the online formation if the registered office of the GmbH or the (residential) registered office of a shareholder lies within the area of the notary’s office.