I think this is one of the reasons why Germany doesn't have a startup ecosystem.
People who are loosely playing with the idea of running their own tiny company (e.g. as a student side gig, not with the "I'm planning this like a businessperson and here's my plan how to turn it into a unicorn and how to exit" approach) take a look at the system and bureaucracy, and simply give up and forever write off the concept of running your own company as a worthwhile option.
Even becoming an independent contractor is fraught with many of the same hurdles. This creates a strong push towards employment vs. doing your own thing.
Germany, particularly Berlin, have a pretty vibrant startup eco-system.
If you are just trying ideas, there is no need to register a business (legally you only have to do this once you intend to follow through long term).
You can register a business for 35€ - most cities offer this online. Registering a limited liability company is a little more complicated (you need a 1h appointment with a notary), but can be done from 500€ onwards.
If you plan to do less than 50.000€ in revenue this year you qualify as a micro business and don‘t need to file or pay VAT. You only need to file an annual account within a year of the financial year ending. Cost of this starts at around 500€.
Our legal system and corporate culture is set up in a way that you are very unlikely to be sued for damages. So even medium sized companies (several million in revenue) frequently operate as full liability companies.
As a student sidegig you can easily just found a small businesses for like 35 EUR and do business. There’s also GbRs that can theoretically be formed on a paper towel. Thought, it will probably not be easy to raise money this way.
Surely the requirement that a limited liability company has some minimum assets is reasonable for exactly that reason. You wouldn’t want someone to be able to form a company whose liability was limited to couple hundred Euros of assets the company was formed with.
That’s exactly what the UG (haftungsbeschränkt) does, you can set one up with (theoretically) 1€ (though in practice it’s more like 250€), and you then have a GmbH with lower liability
Well, isn't that exactly what is happening if you set up a US LLC or a UK LTD? You get limited liability and can set up the company with a couple hundred dollars or pounds. Why would that be a problem in Germany but not in these jurisdictions?
You can set up a UG for quasi nothing in Germany and it would be roughly equivalent to a US LLC or UK LTD with no capital. Thing is that almost no one does and the reason is that it is hard to do business as an UG because lack of trust as GP said.
I can't tell you why it is like that in Germany, but I'm curious why it isn't like that in the US and the UK.
(german here and part time owner of a business as GbR - a rock band). I think it clearly comming from another tradition, businesses in germany start as person/owner funded than as externally funded. But the mentioned UG was to help change this state. Still, most partners/contractors would like to see a GmbH.
The UK hasn't got something similar to UG because it does not need to.
They made Ltd companies simple and cheap so that there is no need to complicate things like in Germany and most European countries.
Since the vast majority of companies are Ltd companies there isn't any connotation attached to them. You can just look the company up to check how old it is and to convince yourself of its 'trustworthiness'.
IANAL but I think the answer for US single-member LLCs is that if you were ever to actually say, cause 100k of damage to somebody else's property through the actions of your single-person LLC and they were to take you to court, the judge would quickly find that the liability passes through to you, so it's not really all that different from a sole proprietorship (aka just doing business as yourself) in that regard.
As a "student" or even a starup entrepreneur, you usually don't have "assets" under your name that your creditors can take over in case of a potential lawsuit.
If I were an entrepreneur and my startup would incur 100 million dollars of liabilities, my assets won't cut it so the more appropriate to say " you are personally liable for damages to the extent of your assets. "
And you are not eligible for government startup funding support after you finish your degree, since it only supporte your first company ('exist' program).
> Even becoming an independent contractor is fraught with many of the same hurdles.
It depends, there is no simple entity "independent contractor". If you can run your business as Freiberufler - roughly but not quite a freelancer - you may have found a pretty lightweight framework - even compared to other jurisdictions. Simpler accounting, no need for balance sheets and therefore for a tax advisor in most cases (still recommended). Liability can be largely limited by insurance, depending on the field of business.
I'm doing this for over 20 years and I simply have no need to own any kind of corporation.
It is stupidly easy to create a GmbH or UG, especially the UG. Also very cheap, if you push it two days are enough, will cost you around 100 bucks.
And if you just want to run a side business, one that doesn't have the potential to ruin you, just run it as an independent income.
You can even have your employees participate in your GmbH, either in enquity or profit. That most German start-ups don't simply means they want to keep salaries down by paying in potentially worthless enquity.
That’s not correct. Creating a UG will set you back hundreds of EUR for notary fees, commerce registry entries etc. And you have to prepare your annual accounts, which, if you let a professional handle it, will easily cost you hundreds more
I love how being compliant, taxes, accounting, other regulations seems to be such a hard thing for people looking for millions of VC money while litterally thousands of companies do so every day. I do see a pattern there so, after all ignoring regulations is still a viable business model for SV companies.
Well, I had a UG as holding company in Germany and even though the company was basically dormant (besides holding shares in another entity) I still had file yearly accounts which cost about 1000€ / year. Plus another 200€+ for IHK, 100€ for Bundesanzeiger, GEZ / Rundfunkbeitrag etc. All for a company that didn't really do anything. Would you really argue that this is easy / good practice? Because in my understanding this really felt unnecessarily complex and expensive.
I never filed yearly accounts for the UG so afr, the first two years you don't have to. IHK sucks, I agree. GEZ isn't mandatory if you register your UG where you live, after all you pay already.
All in all, I'd say cost of doing business. What's next, do we atart complaining that Lenovo isn't providong free laptops? Or that office space costs money?
Well, no initial balance sheet required. Taxes are filed, of course. VAT had to be decleared, in theory, every month. You get reminders, so it can also be done for multiple months. Now, due to lack of revenue, I have to file a zero VAT declaration quarterly. And your deadlines are longer than if you eork with a registered tax advisor. That's why I said so far, I'll have to do all that this year, the 2021 balance sheet is due in 2023, no need to publish the latest in the Bundesanzeiger anyway. After all, that's par of the course of doing proper business, and cost of doing business.
> And your deadlines are longer than if you eork with a registered tax advisor.
True. If you're paying a tax advisor, you don't really care about the deadlines and all the paperwork, anyway, though. You just pay people to do all that for you.
I'm in Bavaria, and to the best of my recolection I never filed one. But then it was a cash-only incorporation, and honestly I don't remember all the files and formulars I filled and signed. Maybe there are exceptions to this under certain circumstances...
> I never filed yearly accounts for the UG so afr, the first two years you don't have to.
I've never heard about this and also can't find any sources for that when googling. Could you post an article that describes why a UG wouldn't have to file a "Jahresabschluss" in the first two years?
You need one for every year, you don't have to publish them. As an other comment elaborated, if you incorporated in 2021 you have to file you 21 balance sheet by end of 2022. Depending on when you incorporated in 21 it can be two years. You don't have to publish the latest ones in the Bundesanzeiger so.
Distraction. Being compliant with all these regulations takes the very valuable focus away from the main goal of a startup: Finding product market fit. Established companies have no problem being compliant because they already have everything setup.
This level of compliance is so low that every business in Germany manages it. It is dirt cheap to outsource to a tax advisor, and in doing so no distraction at all.
Product market fit doesn't matter if you are unable to run a business.
I don't think 1000€ per year for a yearly closing for a dormant company is "dirt cheap", but we might have different definitions of what constitutes "cheap".
Well, it is more like 800. And there is a difference between dormant, in my cade, and a holding. Because the holding is serving a purpose. The 800 are if you have someone do it for you, it is much less if you do it yourself. In case of a dormant company wothout activities it is easy enough. If you know how balance sheets work. I do, I'm just too lacy to do it myself. In the end, yes, all things considered 800 are cheap. After all, I have a mortgage.
And yet there is no successful German internet company on the scale of Amazon, Facebook, Netflix, Apple, Google. I claim the regulatory environment is a factor preventing such businesses being successful - why are are you so sure it couldn't be?
There are many difference. A key one: German companies will start to cater around German-speaking market, then expand to Europe, then further out.
An American company will focus on American market and while doing that is - due to using a wide spread language - immediately useable world wide and then can adapt to languages and cultures over time.
Because easy access to vebture capital, a huge single language market, a risk affine culture and prior success in these fields seem to play a much larger role than how difficult it is to incorporate. If an entepreneur is already discouraged by incorporating, maybe he should stay an employee.
Small things also. Bezos choose books for amazon since it is a perfect comodity with low consumer prices. You do not have to see the product to know what you will get. Then by using scale of volume they could reduce the sales price and become more attractive. The last step wouldnt have worked, since you are not allowed to sell books at different price in germany. Also if you ordered a book from a bookstore sometimes you had same day delivery to that bookstore or latest next day. Amazon mostly lifted of in Germany when they started to sell other stuff.
"looking for millions of VC money" = "I don't have money"
How is that inconsistent with wanting to avoid paying money for regulatory requirements that get in the way of solving your customer's problem?
The point is not that startups shouldn't follow regulations, it's that startups are a uniquely weak type of venture, but with the potential to be tremendously valuable to society. So designing a set of regulations for startups that balances the benefits to society of the regulation with the benefits to society of the potential startups is likely to lead to better outcomes for society.
As an analogy - in the city I live in, no-one is allowed to do any digging around a tree without prior permission from the city tree specialist. That regulation is designed to prevent large construction companies from damaging old and valued trees in the community. But in theory, a child planting an apple seed or small tree without permission would be breaking the regulation - can you see how that might reduce the number of trees being planted? The answer is not to remove the regulation, but to have exemptions or light-weight versions of the regulations for those use cases, and then apply more stringent regulations as the company (or tree) grows and becomes more robust and healthy.
If you already have funding these costs are peanuts, but if you just start out or want to bootstrap the running costs of a UG (~1200 yearly?) could be a dealbreaker.
> I love how being compliant, taxes, accounting, other regulations seems to be such a hard thing for people looking for millions of VC money while litterally thousands of companies do so every day.
Here is the thing: Most of these "startups" are never raising any money, let alone millions. The burden of regulation should be split into pre-raising and post-raising. (Many governments have figured that out with income, like if you have less than xx.xxx per year, you can get away from some reporting).
But they do have more investor money than 25k, don't they? Plus, proper incorporation serves your investors as well. Guess why YC ibsists in a Delaware corporation? From what I know, those are totally free of charge neither.
At the start? No, why would they? Raising money is usually something that makes sense after you build your mvp and all. If you really want an llc that's maybe $100 bucks. Otherwise cloud compute and stuff are near free at those scales and your own time isn't something you get paid for either.
We did go through a tax consultancy. Still took that long. While you may be technically right in that it is separate from incorporating, it still plays into how quickly a company actually becomes usable.
Wothout VAT number? Sure, if you stay domestic. It should also work internationally, but my two companies had VAT numbers to make things easier. Those are, I think, basically free. The time to get one varies depending on your local tax office. Some are faster than others.
If you need a new GmbH really fast you can just buy one. There are companies and lawyers that are specialized in this kind of business and they keep a pool
of registered GmbHs for founders to buy.
If you look up GmbHs in the central registry (Handelsregister) you will notice that many of them were founded by law firms and sold after a couple of months to the real founders. This is true even for (now) bigger and reputable companies.
It happens in Spain as well.
I remember some time ago when airlines had paper magazines, there was a huge section just fur this. Not limited to Spain, but also UK companies.
If you need to incorporate and have money, you don't need to wait to start doing business.
It is. But how is your prospective millionaire entrepreneur with his 100 buck corporation paying his bills? The 12.5 k from a GmbH can be used to pay your own salary for example. Or IT, or pay for AWS,...
Point being, even a dirt cheap corporation will need some money at one point.
Sure but then that's not really anyone's goal starting a company in Germany. So ultimately you will have to deal with this issues if you don't fancy being homeless.
> It is stupidly easy to create a GmbH or UG, especially the UG. Also very cheap, if you push it two days are enough, will cost you around 100 bucks.
Having gone through the process (and a rather smooth one at that), I can say with absolute confidence that this is not true at all.
1) Talking to the notary alone and arranging the details (articles of organization, fees – as the notary might try to rip you off –, and the notary appointment) will take several email round trips, aside from the actual appointment to sign the paperwork and the required self-study to understand what you're doing.
2) Opening a bank account as a UG/GmbH that's in the process of being founded is not difficult but it's not exactly easy, either, because you will have to do it before you sign the documents at the notary, i.e. before you are incorporated, because the notary wants to see a bank statement as confirmation that all shareholders have paid their share. The bank, however, wants to see your founding documents which of course you won't have before you've gone to the notary and received the other paperwork from the local company registry (Amtsgericht / court) confirming the existence of your company. Resolving this catch 22 means several more email round trips and even more paperwork.
3) The fees of the notary alone are in the range of 100€. Add to that the fees at the Amtsgericht for incorporating and the fees for the local government (for registering your business / official company address) and you're looking at a few hundred euros in total founding costs. (I forgot how much exactly; I would have to look it up.)
4) The bank account requirement alone means that you'll probably be paying ~15€ every month to the bank. On top of that, unless you want to do the bookkeeping on paper (i.e. by hand), you'll need proper (tamper-resistant!) double-entry bookkeeping software, which (last time I looked) is not free, either. (Excel is no longer allowed!)
5) Every year you'll be paying ~60€ to hand in your balance sheet (Handelsbilanz) to the Bundesanzeiger and your "electronic tax balance sheet" (Elektronische Steuerbilanz) to the tax authorities. You'll also pay ~150-200€ to the local IHK (Chamber of Commerce and Industry) just because your company… exists(?!)
6) Speaking of bookkeeping & balance sheets, you'll also be handing in tax declarations for the different taxes your company will be subject to (USt, KSt, GewSt). Learning how to do all that is a proper time sink. Unless you want to pay an accountant, you're looking at dozens if not hundreds of hours of self-study and paperwork every year.
7) The second you want to hire anyone, social security and employee wellfare laws will mean even more work for you (at which point you'll probably hire someone just to take care of all of that paperwork for you).
I went through the same process multiple times in the past and every step on the way (like you describe) is complicated, expensive, slow and error-prone. And I am actually fluent in German. I can’t imagine how someone would navigate the process without speaking it.
point 1) "as the notary might try to rip you off" i'd like to see an example. The position of the notary is the neutral one on signing deals OR notfifying the documents you sign to give you an undisputable legal binding document. Any notary trying to rip you off is walking dangerously close to immediately loosing his job - forever.
I had the same assumption. However the last notary that I worked with didn’t hand in documents in time (which caused lots of trouble), handed in incorrect documents and simply did not answer to emails or calls for weeks.
He only started to act when I used my lawyer to threaten him. Even then my lawyer said that it would be very hard to start legal proceedings against the notary.
I would have to look up the exact details but I was basically following the standard "Musterprotokoll" to found my company, with one tiny difference/change somewhere. Well-established court rulings said that this change didn't make a difference regarding the notary fees. The notary still charged me for it. When I pointed out the court rulings to them, their response was basically "Right, sorry, we forgot".
I have heard about several other cases like that from friends.
I see. But this sounds like his/her office made a mistake in calculating the fee, but let's say this far away from "ripping off" and can be cleared in one telephone call.
That was not my impression. I asked them about the fee, they claimed that it's legal/required by law. Then I asked them again (in a more detailed manner, i.e. explaining my thinking why there shouldn't be a fee), they still upheld that it's legal, and then I send them the court rulings and suddenly they had "forgotten" about that.
Plus, notaries are working on standardized fees. No ripping of to be had. Settimg up special charters is diffnrent so, but those are best done by a specialized lawyer anyway.
> one of the reasons why Germany doesn't have a startup ecosystem.
But they do.
In fact every hiring post here has plenty of German companies
(not defending bureaucracy here - but it is good to know the rules and tricks before doing this kind of stuff - in fact I'd even argue you might just establish your company somewhere else in the EU, or even somewhere close)
Also - even in the US there are foot-guns that you can get into if you don't know what you're doing
Reading this made me quite angry - politicians here in Germany always talk out of their asses about improving the situation for startups, but when it comes to removing these ridiculous administrative hurdles, absolutely nothing happens.
In Austria, where I live, it's even worse. It's not even possible to start a limited liability company without at least 35k starting capital in the bank.
As a Danish software engineer I'm puzzled by how much Germany has convinced the rest world that it is some kind of high-tech powerhouse. Outside the old West German legacy giants the country is stagnant.
I mean, it's not as if the bar is that high within the EU, specially that now UK is gone so London is not officially a contestant for the title of tech capital of Europe.
That also explains the terrible tech jobs market both local and remote available to Austrians, even when you compare to some Eastern European companies. The bureocracy and tax system here severely discourages any kind of remote or self employment or starting your own gig.
Plus, AFAIK it's the only EU country I've encountered where non-competes are legal and enforceable without any penalities for the employer. Madness.
I don't know how startups in Austria manage to get anything off the ground.
Ditto and fully agreed with the post and the other commenters re. the insane complexity and costs of founding an UG. It took me over two months to have such a company established, and the number of institutions you have to interact with is rage inducing and mindnumbing. I'm afraid to even move to another place because apart from all the institutions I'll have to notify individually for me as a natural person, there are now a handful more for the company. And it's not just the notification, I'd have to unregister and reregister the thing, especially if moving to another city. And each of these actions costs time, and money and disgusting amounts of paper. For the same reasons, I'd avoid hiring any employees.
"Digitalstaat" my ass. It's IMPOSSIBLE to found even this simplest of limited liability companies without dozens of forms. The politicians ARE really talking out of their ass.
Expect the founding of an UG to cost not only two months, but 1500€ in the first year, and 1000€ each following year. Oh, and your nerves, because at some point in the process will the bureaucratic machine fuck up and/or delay.
The same goes for the scammers, which the German "Rechtsstaat", as it likes to call itself appears to be completely helpless against for decades.
My advice, if you've never founded an UG/GmbH before, don't do it alone. Find a cofounder who can care about all this bullshit so you can focus on the actual product and business. (Or don't found in Germany at all)
The loophole I've successfully used in the past in Austria was to incorporate a Ltd in the UK and operate it in Austria (similarly to how, in the U.S. The free movement provision, which is one of the central pilhars of the E.U., extends to free movement of legal persons, and does not end with free movement of natural persons. The UK is no longer in the EU, but you could go with the Republic of Ireland or Malta.
>The loophole I've successfully used in the past in Austria was to incorporate a Ltd in the UK and operate it in Austria
Do you have any more details on the benefits of this operation? AFAIk, operating any business in Austria subjects you to Austrian labor and tax laws, negating any advantage.
I was thinking about opening a LTH in a cheap Eastern RU country instead of the UK, and operate it in Austria but that last part seems to throw a wrench in my idea.
> Do you have any more details on the benefits of this operation?
You'd mostly do this if you're Austrian and want to stay in Austria. The benefits are relative to starting a GmbH under Austrian law.
* You won't need to put up the €35k in capital.
* You'd have freely transferable shares. In that sense a Ltd is more comparable to an AG under Austrian law than to a GmbH, but much lighter in overhead. You'll need to play by the rules of the country you're incorporated in, where share transfers are concerned, though.
* I've read of companies in Germany using related constructs to try to get around provisions mandating employee co-determination ("Betriebsrat") for larger companies. Air Berlin used to be a Plc & Co KG for that reason, but I may be mistaken.
Couldn't Austria come after you and say you're running an Austrian company, given you're an Austrian business with no ties to the UK? I'd recommend talking to an accountant.
In Italy or Spain this wouldn't fly 100%, it would even be a criminal charge (foreign dressed companies).
> Couldn't Austria come after you and say you're running an Austrian company
They would, and you would indeed have to do accounting according to Austrian rules and pay taxes in Austria, etc. ...so you wouldn't do it for that reason.
Just noticed that I didn't finish my sentence there: Should read: "...incorporate a Ltd in the UK and operate it in Austria (similarly to how, in the U.S. you might incorporate in Delaware and do business in California) ..."
You do, you don't need a local legal entity but having one makes a lot of things easier. E.g. employment and profit allocation. The latter has serious tax implications.
Sure, but now you spend a nontrivial amount of time and attention on logistics. Costs can be a couple k Euro per branch per year, depending on what deals you can strike with accountants. You also need to make sure you always respond to mail from authorities in both countries, in time.
And if you don't you face an investigation by authorities. And they will reclaim due social security and taxes. And you face a potential court case. All of which is a lot more expensive. Not to mention that managers and directors already went to jail for stuff like that.
And all that to safe a couple of bucks because smart start-up founders can't wrap their head around the simplest legal principles and requirements.
I’d add that in Germany there are archaic requirements that all documents need to be signed in person on paper in front of a notary. Such a waste of time & money.
I think that the concept of the GmbH in general is a good thing, although I share some of the complaints from the article, notably that getting it started still requires a lot of physical paperwork instead of digital processes. But requiring a starting capital of 25,000 Euros in exchange for limited liability is a fair deal. It is quite an effective barrier against a lot of scams (of course, it makes them not impossible). And no one hinders you to start a business without limited liability with zero Euros. Arguments that this is a major obstacle for startups therefore do not seem convincing to me. I worked as an IT freelancer for eight years before I founded my GmbH. Even without a GmbH I could include clauses of limited liability into my contracts. And if one could not in principle raise 25,000 Euros for a startup, it propably is not such a good business idea in the first place. Also note that you only have to pay half of the money into the GmbH at the beginning and only have to top up the amount when the first 12,500 Euros have been used up. In addition, you can use the capital to pay your own wages from the beginning, so in practice you can withdraw a considerable amount of money from the GmbH until it is profitable.
> “In order to start a GmbH in Germany you will need to buy-in. While you can most likely lend the money, it’s a risk you need to keep in mind. If you’re a solo-entrepreneur, that’s a whooping 25.000€ for you.”
That sounds pretty uncompetitive when compared to other EU countries such as Spain and the Netherlands, where it's 3000€ and 0.01€ respectively. In Ireland it's also 25.000€, but corporate taxes are much, much lower.
It's 1€ (or more on your choice, usually ~100€) in Germany, if you go with a UG instead.
You also don't "pay" 25k, it's more like your GmbH has to have constant reserves of 25k used in case of an insolvency. Through this means:
1. It's not limited "cash", but can also include e.g. a bought office room, machinery or even resources (it just must always be equal or above 25k at any point in time eve if the company also has 50k dept) (through I'm not sure if it can be 100% non-cash, also only cash for a UG I think)
1.1. Which means it's much less big of a deal for a classical company, as e.g. office+car+machinery can easily be 25k+.
2. You get it back if the company is dissolved without insolvency.
Lastly you can start a GmbH with 12.500€ but then you are liable for the missing 12.5k in case of an insolvency.
The 25k are tha capital of the GmbH, no need to have it in cash reserve. If you go for an initial value of less, the owners are liable for the reminder, but not more.
> You also don't "pay" 25k, it's more like your GmbH has to have constant reserves of 25k used in case of an insolvency.
It’s not even that. The GmbH can use that money to buy things or pay for services and entirely use them. There’s no guarantee that there’s any money at all in a GmbH - the only guarantee you have is that someone invested 25k at some point in the past.
That‘s simply not correct. Instead of founding as a GmbH you can start with an UG. A UG is legally virtually the same thing as a GmbH and you only need 1€ Stammkapital.
Once you start generating money with it, you can transform it to a GmbH. The only thing you achieve by that is displaying that your business is at least backed by 25k€.
In addition to that, you could also just start your business as a GbR. Funding this can be done completely for free (without needing any lawyers, paying fees etc.). As a GbR you‘re personally liable as a founder but when starting small that usually isn‘t a problem.
Founding in Germany kind of sucks, but for many different reasons.
Or you choose an UG, eith a stagerring capital requirement of 1, one, Euro. Having had both, a GmbH is easier when it comes to the everyday B2B stuff, people simply trust an GmbH more.
Exactly. And to be honest, if you don't have 25k it is going to be hard to start a business anywa. Plus, you don't need that amount in a bank account as a minimum.
Oh God, this thread will be the usual Germany bashing. There is nothing fundamentally wrong with how Germany handles corporations. The German corporate law is actually pretty good. If I could change two things, I would make IHK membership optional and allow free filings of the financial reports. These are changes that a willing government could implement in a heartbeat.
And I think no country should handle corporations like the US does. The US is a tax haven and the corporate system doesn't benefit anyone but the owners.
I've started a UG in Germany. It is one of the worst professional experiences I've ever had.
It's extremely cumbersome, bureaucracy heavy, slow and expensive. In addition I've never encountered as many scummy companies (GmbH or otherwise) as in Germany. Corporate rules and culture are both complete trash.
For reference I've started companies in Sweden, and I can do the full process online in an afternoon. Probably less than 30 minutes.
If I ever had to have a business for operating in Germany again, I would create an Estonian business. There's no reason that you corporate entity has to be German itself.
How did you do it? My UG was set up in two days, or three including the bank account, and cost, if memory serves well, 200 bucks ir so. Not the lowest anount because I do have a partner and we had some changes to the companies articles.
Doing the notary/banking/incorporation/tax-agency dance took a while.
But that's only one part of the process. The continuous level of bureaucracy is really high too, and during the years I ran my corporation it never seemed to diminish.
Like what? Notary and bank, sure, that's a requirement. Tax consultabt? Unless you want to do your own accounting you need one, easy enough to send invoices and bank statements once per month. Every company needs accountants to keep the books. I do it once per quarter now for the basically dead UG, it just exists as an empty shell for now.
Regardless of jurisdiction, the bureaucracy will be there. Someone would want you to pay taxes after all.
Is it a possible for a solo founder in Germany to register an Estonian Business?
I had the impression (althought i'm not sure about it and would happily be corrected) you would need to apply for e-residency and need a local contact person for bookkeeping + banking. With the yearly costs being higher than just going for a Gewerbe / UG + local (german) tax advisor.
Would having a "foreign" company have any disadvantages comparing to a german company?
I investigated that, and if you din't live in Estonia you need to go there to finalize some paper work. You are still liable for taxes in Germany, as you are a tax resident. That alone makes you tax advisor more expensive, findibg one that knows his way aroubd German corporations is easy enough, that's bread and butter. International taxation is different, and thus nore expensive. In the end, Estonia is just not worth it IMHO.
Also, most start-ups don't need to be registered as a Gewerbe anyway. And let's be honest, if a "start-up" fails to cope with business and bureaucracy requirements your Döner shop successfully tackles daily you might reconsider running a business in the first place.
Let's be real, that's not an Apples to apples comparison. You Döner shop doesn't sell internationally to various business customers like SW companies do, plus they often involve a lot of tax fraud by not giving receipts to all paying customers and not declaring all profits.
Any Döner shop usually has constant revenue from day one, while SW startups can go a long time without any revenue.
But they registered a Gewerbe, cope with cash registers, file for VAT monthly, are maybe even properly incorporated.
International sales are easy, in most acses they are without VAT and easy enough to file. International slaes, so, have nothing to do with German incorporation but are either EU or whatever driven.
Ah yes, then i would conclude that this is not a simple solution.
Please correct me, but would a start-up don't need to be a Gewerbe / UG / Gbr / ... to have an entry in the Handelsregister? You can't just make up a "company" a filed it as "Einkommen aus Selbstständiger Arbeit" when doing your taxes, can you?
Gou need a Handelsregister entry, that's what makes it a corporation. Depending on what you do you might or might not need a Gewerbe on top. Some businesses need one, e.g. car repair shops, others don't. eCommerce doesn't, software usually neither. Best to check with your notary or tax advisor, they know that stuff. If you need one, you take an appointment at your local administration and sign a piece of paper (from what I understand, I never needed one).
Edit: Regarding your last point, yes, you can. Upside, it's simple. Downside, you are liable and carrying losses forward is tricky. Among other things.
> If I ever had to have a business for operating in Germany again, I would create an Estonian business. There's no reason that you corporate entity has to be German itself.
A lot of people in Germany founded a British Limited with a captial of 1 Euro. Then came Brexit ...
Anecdotally, I've also never encountered as many scummy and cheating companies and GmbHs as in Germany.
Granted it's just another data point but I feel there's real substance behind this Germany bashing and it's not uncalled for.
Also, Germany is the only EU country I've encountered where scummy law companies break citizens privacy hand in hand with ISPs to spy on your internet traffic and send you fines if you torrent anything copyrighted, while at the same time marking huge fuss about how important privacy is in Germany. Ironic.
If you move to Germany make sure to get defense insurance to protect yourself if you ever need to use a lawyer.
I had been working in Austria for last 15 years.
From Europe I had to work with companies from Serbia, Croatia, Romania, Bosnia, Greece. Not even one single bad experience!
From my three bad experiences two are from Germany and with both we lost a lot of money and time on lawyers.
Might be a matter of statistics: All countries you mention are significantly smaller than Germany, i.e. have fewer companies, so the chances of you encountering a (fraudulent) German company when doing business in the EU are higher(?)
Wasn’t the whole first part about how annoying it was to create a startup in Germany, and what he learned in the second part made him realise he shouldn’t have even bothered in the first place (regardless of whether or not YC would eventually be involved)? That was how I interpreted it anyway.
The first part was annoyance at becoming a company in general. What annoyed the author, like figuring out how to structure ownership, would be annoying anywhere.
And all the problems the author ran into sound very much like somebody just winging it, rather than investing a day or so getting informed on the available options and alternatives, and their implications.
And if investing a day into informing yourself about (1) incorporating and (2) its implications is too much to ask, then I honestly don't know whether a startup would be the right thing for the author in the first place.
When I started my company, I founded in the US and it was way more like what he described in the second part than all the hoops he jumped through in the first part.
I will play devil's advocate and defend some parts of the German system. Although my actual personal opinion of some of those institutions may vary, I will try very hard to keep this simple and just take the opposing side.
- IHK: Not bad, see German apprenticeship system
- GEZ: Not bad, see American media landscape (e.g. Fox News vs. CNN)
- Paying 25.000 € for your own GmbH shares: (1) These are not shares. (2) There are other options. (3) Your company keeps the money, you are not paying anyone. (4) It is only 12500 € up front, you can guarantee for the other 12500 € (5) You get rid of personal liability, so it is fair for everyone to know, there is at least some money within the newly created entitiy.
- Notary, having registers with names etc.: Not bad, see tax havens
- (Seemlingly) not having to pay taxes when your company is sold by a holding company: It is not the same thing. While a holding company selling shares is taxed a miniscule amount, it is actually taxed as soon as the money is paid out to you personally, making you effectively pay more taxes overall in addition to the operating costs of the holding company. The holding gets the benefit of being able to reinvest the gross amounts.
The holding allows you to defer paying the taxes on the sale of the startup as part of an investment round to simply restructure the company. You don’t have to pay taxes now on gains that aren’t liquid, and if the startup goes bust u just count the losses against the gains and u get zero tax burden.
> The goal of an UG is to have limited liabilities from the start, however you need to convert it into a full GmbH, once you have generated €25.000. It still baffles me, that you need to buy your own shares in Germany, in order to receive the “status” and protection of being a fully incorporated company.
I hope I am not too far off the truth, please correct me if I am: "mbH" in "GmbH" means "mit beschränkter Haftung" = limited liability. In case of insolvency, creditors will only be paid from what the company has and that's where this money comes in. To avoid potentially screwing creditors over right from the beginning, (co)founders have to pay in that amount into the company pockets so that there is some money that could be used to pay creditors in case of insolvency (or half of that =12.5k€ and be personally liable for up to another 12.5k€ in case of insolvency, right?).
Also: Döner for 2€? Really? Good Döners in my city are 5-6€, I can't (and don't want to) imagine what a 2€-Döner must taste like.
This blog post is two years old. In 2019–20, I think I could get a decent Döner for €3,50 in Berlin (depending heavily on the neighborhood, specific location, etc.). Prices have come up a fair bit since then. But yeah, €2 is eyebrow-raisingly low.
i get ptsd reading about this and would rather die than having a gmbh again even though i had a holding ug from the start. what also no one tells you is that to get rid of these companies if it does not work out takes one to 2 years and costs a few thousand euros and many nerves you likely don't have anymore at that point. if i start again i am moving to estonia and start a OÜ.
As stated in another commebt, you can merge a GmbH with yourself. Sure, it costs money but is quite simple, fast and straight forward. I have no idea why start-up entrepreneurs fail at stuff your Döner shop or local garage succeed. Or tire change shop is part of a small local chain, every site is it's own GmbH. Just saying...
that is only possible if no other shareholder exists even in tiny minority amounts otherwise you need to buy back all shares according to book value even if the company is practically worthless to you, also dont forget transfer of shares in germany requires notariat with in person paperwork and fees, etc. in addition you transfer all liabilities back to you as natural person that might exist, which defeats kind of the reason for having a limited in the first place. so this is not an option in virtually any normal failed startup cases.
Ok, my one person start up had assets: My laptop, office gear, etc... Now imagine you have an office to pay. Or you are multiple people. Or you need some fancy hardware. All of that can be assets owned by the corp. And the exoebses, software etc..., can be paid of those 12.5/25 k as well.
This discussion proofs one point so, a GmbH shows that someone is serious about it.
But you do see why, geneally speaking, incorporating a business is necessary and required, do you? Because otherwise this discussion is kind of pointless.
Of course, but not why it needs 25k in reserves/assets.
In many other countries it's very cheap and simple. In the UK where we did it, it took half an hour, we did it online in an hour and we needed about £20 all-in to get incorporated and set up a business bank account.
Or assets, or equipment or whatever. You need quite a bit of money to put into it that you won't necessarily get back if it fails.
The point is, whether it's 25k or 12.5k, and whether it's reserves or founding capital, share capital, equipments, assets, savings or whatever else, or whether it's 1 EUR as in the case of a UG but you have to save 25% of profits until you hit 25k - it's all still a significant barrier to forming an LLC that other countries have proven is unnecessary. That, along with paperwork, high costs, notary requirements, slow timescales and a time consuming dissolution process.
There are a bunch of other countries within the EU that make the process much quicker, simpler and cheaper, so it's hard to see what reason one would have to bother with the German system.
Do not forget about expatriation tax („Wegzugsbesteuerung“) when sfter a few years move to another countries. The tax is about 350% of your share of the average of last 3 years profits (might be reduced a tad, but will always be extortionate)
(There are ways to avoid the exit tax: u only pay if u lived in Germany in 7/12 last years, u could move ur shares to a trust early, or maintain residency status)
Is there any company structure suitable for a startup that doesn’t require exit tax for founders (gmbh und co kg?)
The Germans requiring everything on paper with people witnessing signatures is of course rather silly, but whether it takes 3 weeks to form a company or 3 days is ultimately not going to be a real difference. I think the thing here is more that American companies have trouble handling non American companies and hence the flip. I sold a Dutch B.V. to an American company once except they didn't want to buy the company because they didn't understand it and instead we ended up selling the assets and taking a tax hit.
Also if you are in the EU you can just start an Estonian company and run that in Germany
I did it with a GmbH. You can always merge it with you as solo-entrepreneur. You need a balance sheet (don't ask me about the time limits, there was a Covid exception when I did it), a notary for paper work and of you go. Fast, easy and painless. Needs some additional paper work if there a more than one share holders. There are some loss carry forward limits and liability aspects to consider, the act itslef is quite easy so.
Not so fast if you’ve already moved on and not in Germany anymore. I’ve tried it, even set up an online fax number in 2021 to communicate with them, but there’s no real resolution.
Also German post won’t properly forward mail anyway and to me it’s a foreign country to which I don’t intend to return, so I’ll probably just let it go and treat it as resolved.
Great post, fully agree. Also, if you plan on leaving Germany you can save a lot on taxes if you do it before 100k profits/year and as a Personengesellschaft (without limited liability, so no UG/GmbH).
Basically because the Wegzugsbesteuerung (moving away tax) only affects limited liability entities and Personengesellschaften are only affected by the Steuerentstrickung, which can be minimized by saying your profits are equivalent to a salary you'd be making elsewhere.
Or keep the GmbH / UG and create a sperarate entity in an other country that has full or partial ownership. Either way, paying some tax law expert, even if expensive is the best advice.
And not having a limited liability entity is actually pretty stupid, for a full catalogue of reasons.
I keep hearing about the concept of a Lichtenstein Stiftung, some sort of trust that “owns” itself but that you can still control indirectly using a trustee. But it feels like one doesn’t actually “own” whatever is in the trust, and it’s unclear how distributions are taxed in North America.
Careful, many countries (especially in the EU) look “through” the trust if there is only the slightest notion of you controlling it.
Generally, in order for the trust to be fully recognized all assets have to be irrevocably owned by the trust and you can’t exercise any control over them as soon as they are transferred.
Mainly liability, a UG is liable for whatever amount it was founded with, a GmbH for 25k. A person is liable for, well, an unlimited amount. Which can suck, e.g. you run eCommerce and sales crash. A GmbH is liable for 25k of ooen invoices (or whatever assets the company currently has), a person would owe the full amount.
Plus, a GmbH is a professikbal business, the looks cannot be under estimated.
great post! having been through it I can confirm that it is a really bad idea to start your startup business in Germany with a GmbH. You end up doing more paperwork than your own business.
However I have one question in your proposed schema. Germany Holding UG ... it owns the Delaware C-Corp right ? how would you deal with the paperwork and taxes of that Holding UG ? isn't it also time consuming and painful ?
The thing is: even if your company is abroad, if you live in Germany then that constitutes "Permanent Establishment". So that means that Germany considers that the company is in its own juridiction so german laws would apply.
This also should be true about the holding (although I am not sure). You cannot simply have a German holding which contains foreign operating companies and not get involved with German bureaucracy. Logically you should report operations of those foreign companies (thus declaring taxes) in Germany. That would be an even more painful headache ...
While I generally agree I am wondering if this still applies if you have multiple founders in multiple countries.
Eg the founders are living in Germany, Australia and the US. The company is a German GmbH. You’d probably not automatically create PEs in Australia and the US just some of the founders living there?
As a software dev freelancer I was using the Single-Person-Company (Einzelunternehmer) option that Germany offers. Personal liability is a risk of course (that can be mitigated by getting insurance and was never an issue for me) but in terms of upkeep it was very easy thanks to my tax consultant. This option is however not recommended if you want to get investors, especially from abroad.
Generally, in most European countries, if you're resident in one country and open a company in another one (and start paying corporate tax there) you need to prove there's a valid reason to have the company there.
It can be hiring people there, having a director there, having an office, having your board meeting there.
Otherwise the company where you reside can argue that your foreign company is actually done to avoid paying taxes in the country you reside and ask you to pay corporate tax rate as you would in your country of residence.
Maybe having shareholders (Y-comb) is proof enough you can claim to be a Delaware company - but for small German businesses I don't think it's as simple.
I am wondering, too - how would you actually solve this issue if you have founders living in multiple countries, inside and outside the EU (created a new topic here https://news.ycombinator.com/item?id=31620700)
I started a company across two countries and it's not a big issue. As long as you have some reason to incorporate in one country (eg. Director and shareholder in the country) you're good even if you have foreign partners.
I think there is a way to abuse this by having income of individuals in high tax country be received in low tax countries and held there until the individuals relocate to a low tax country. I believe if you were to accumulate income from different individuals in different high tax countries it would be hard for the tax department to prove the setup is done with the intent to avoid taxes. You could even reallocate shares dynamically to reflect how much money each party brought to the company.
You're trading taxes with trust in who is running the low tax company, though.
Looks like his real problem was that a US VC wanted the company incorporated in Delaware for their convenience, but wasn't willing to pay the costs of doing that.
> We invest in US, Cayman, Singapore, and Canada corporations. We have founders who apply to YC from all around the world and many have already incorporated in their home countries.
Are you sure? - they still have this in the FAQ section:
"What if we incorporated as a non-US corporation?
If your company is already incorporated somewhere other than the United States, Canada, Singapore or the Cayman Islands, in order to participate in YC you will need to create a parent company that is in one of those jurisdictions. The existing company will then become a subsidiary of the new United States, Canada, Singapore or Cayman parent company. While lawyers will drive this process, it will require a significant effort on your part."
That doesn't really contradict what I posted? If you have a company in US, Canada, Singapore or Cayman Islands you can use that. If not you need to set up a company in one of these jurisdictions.
Ok, got it. My point was that you need to found a parent company in general. As I'm Austrian it doesn't matter if it's in the US, Canada, Singapore or Cayman Islands.
True, as Europeans we are basically always disadvantaged and need to set up a new entity to be able to receive an investment from YC (or likely most US investors).
A lot of US investors have, afaik, EU branches. Plus, you can easily have foreign owners of RU entities. YC is special because they refuse to go throigj the pain of doing so. Fair enough I guess, considering the number of investments they do.
As someone who also has fought a lot with the German bureaucracy, I'd tend to use another jurisdiction in the future as well.
I'd be more than interested in hearing your opinions about what the best jurisdiction for internationally distributed teams actually is: https://news.ycombinator.com/item?id=31620700
If you want to avoid tax problems, and problems around social security, you would need a local legal entity in every country you have employees. At least in Europe. You also need, in cases you move e.g. inventory, local VAT numbers. Those can be had without incorporating.
All that is just usuall incorporation and emoloyer stuff so. Solved hundred of thousands of times every day.
Or skip the "digital" shit and do it the proper way. If you get VC money we talk millions just do it professionally. If it's not VC money chancesvare you won't need any of it. And if you di, kudos, your business is viable enough to go international. Which brings us back to point one, do it professionally.
You should not start a startup in Germany at all. It has the highest taxes in the world. As a result 200.000 highly qualified people leave Germany every year. Those people are replaced with unqualified immigrants mostly causing additional costs thanks to the generous welfare system which makes sure that the taxes won't be lowered any time soon.
It's a clusterfck regardless of which way you do it.
There are 3 problems with the structure he describes:
(1) In the early days, you might find yourself being a 1-person business, with that 1 person living in Germany and all the business partners you might end up interacting with in real life would be in Germany (especially banks, regulators, etc.) In that situation, it's a bad look if you make your business partners contract with your Delaware C-Corp. It's an even worse look from the angle of money laundering prevention, which is going to be the primary point of view of the bank that you're trying to get an account from, the accountant you're trying to hire, etc. etc.
(2) A P.O. box in Delaware will not be enough to convince German tax authorities not to tax your Delaware C-Corp. They will want to see that your Delaware C-Corp has an actual office with actual people in Delaware, before they give any level of credence to the notion that they shouldn't just tax your Delaware C-Corp as a German GmbH/AG-like entity. If you're already at the stage where you have people contracting for you who actually are in the U.S., maybe you can get away with that. If you're just one or two people in Germany and a P.O.-box in Delaware that won't fly. I tried doing that in Austria where the relevant laws are basically the same, and the court wanted to send an emissary fom the chamber of commerce to visit my supposed office in Delaware. Now, even if you do clear that hurdle, Germany will still try to tax profits that your Delware C-Corp generates in Germany. But how do you determine that number? By doing accounting, based on German accounting standards of course. -- So now the clusterfck really starts to unravel, once you have an actual American wanting to invest in that vehicle, when you've never done accounting the way you were supposed to, from their point of view.
(3) German law recognizes the "Scheingeschäft" [1] and "Umgehung" which is a situation where two people draw up a legal contract that differs from the way they truly arrange their business in real life. E.g. Buyer buys house from seller. They draw up a sales contract for the house for $1M and a contract wherein buyer gives a gift of $1M to seller. They tax $1M as a sale of a house and $1M as a gift, which might come to less than the sale of a house for $2M. German law says that such an arrangement is null and void, and the contract should be treated as if they had contracted to sell a house for $2M in the first place. -- This same theory applies to more complicated situations involving businesses etc. So German law might look at your Delaware C-corp as basically just concealing what is in real life a German GmbH, and might start treating your Delaware C-corp as if it actually was a German GmbH. -- Now you have German law and Delaware law looking at the same legal structure in entirely different an incompatible ways. That's a total nightmare.
SOLUTION: You'd have to add at least a third layer below your Delaware C-Corp, which is a GmbH that actually does business in Germany.
You'd need:
- Max Mayer GmbH, a holding which serves as Max Mayer's alter ego.
- Startup Inc, a Cayman corporation 100% owned by Max Mayer GmbH.
- Startup GmbH, a German Gmbh 100% owned by Startup Inc with a provision in the partnership agreement that says something like: Startup GmbH must return 100% of all profits in excess of $1M to Startup Inc.
Now, for the early part of your growth curve, Y-Combinator wouldn't be involved, and you wouldn't earn $1M: Startup GmbH is now the only thing that matters. Your business partners won't much care who owns the entity they interact with (except for purposes of money laundering prevention, but the only thing they care about is that Max Mayer ultimately owns the whole thing not about what goes in between). The situation of Startup Inc from the pov of German law would still be precarious but it wouldn't really matter. It would have no revenue, no costs, no bank account, nothing, so it wouldn't be something that tax authorities would much care about.
When Y-Combinator comes along, you'd sell them shares in Startup Inc.
When Startup GmbH starts making more than 1M, then Startup Inc will start to handle money for the first time. At that point it becomes a relevant entity from the point of view of tax authorities, banks etc. But also: At that point there's a lot of money involved, you might have actual people and a physical presences across the globe, etc. so you'd just be like any other trustworthy multinational. (As opposed to like a hustler with big plans and nothing to show for it).
When Startup Inc start generating capital gains, they'd go to Max Mayer GmbH where they're initially tax-free (until they're actually returned by Max Mayer GmbH to Max Mayer).
But that's a pretty complicated setup! It may be what you'll wish you had done when your revenue actually takes off and/or investors want to start throwing money at you. But it'll be more expensive and cumbersome in terms of administrative overhead than if you had just done one GmbH and left the complicated bits for later. Remember: Most startups fail. Most Y-Combinator applicants do not get in. So it's not necessarily good advice to broadly give to people to always go for that structure from the outset.
* Set up Topexpress UG (haftungsbeschränkt) with €2k in capital but no more. This needs to exceed the cost for the notary, otherwise it is technically insolvent as soon as the notary performs his services on behalf of that entity. It is 100% owned by you, Max Mayer.
* Set up "Topexpress UG (haftungsbeschränkt) & Co KG", a limited partnership (KG) with a limited partner who is you, Max Mayer, and a general partner who is "Topexpress UG (haftungesbeschränkt)". -- This is the entity through which you'll end up doing your day-to-day business.
* Here, "Topexpress" is a non-descriptive name that could stand for anything. You might think you know what your company will do, what its product is, and what the product is called. But you probably don't. So use a funny company name generator and make sure not to overdo actually mentioning the name of your company, except where the law requires it.
* If you anticipate that €100k per year will be more than enough for you to live on comfortably, then give your partnership a partnership agreement that says that profits below €100k go directly to the limited partner (you) who does all the work, and profits in excess of €100k go to the UG that, nominally, provides the capital.
* This is a very nice setup: As long as your earnings stay below €100k, the entity is just like the kinds of entities that craftsmen use. You can flexibly take money out of the business, debiting your partnership account or put money into the business, crediting the partnership account. That's a great structure for when you don't yet know how much money your business needs, but you anticipate that you have enough money in the bank yourself to bankroll it initially. Conversely, when your private finances get tight but you know you have excess earnings lying around in the business you can take money out of the business easily. It's as easy as a bank wire, with no immediate paperwork required. Your accountant just does the tally at the end of the year.
* Since this is pass-through taxation, it's also great for when you end up generating a loss. Say your business fails and you go back to work for someone else as an employee. You can then offset these losses against future earnings to reduce your future tax bill.
Now, let's say that after countless stumbles and pivots (think "the lean startup") you've figured out "Super Product". It's already making €80k in earnings per year, and you anticipate a lot of growth and interest from investors. It is at this point, not earlier for reasons of admin overhead, and not later for tax reasons, that you do the following (while having professionals help you with this):
* Incorporate Max Mayer GmbH, 100%-owned by Max Mayer.
* Incorporate Super Product Inc in Caymen, 100%-owned by Max Mayer GmbH.
* Draw up a sales contract between Max Mayer and Superproduct Inc wherein Max Mayer agrees to sell his ownership of Topexpress UG (haftungsbeschränkt) to Super Product Inc while simultaneously resigning as limited partner and renaming Topexpress UG (haftungsbeschränkt) to Super Product GmbH.
This last piece will be a taxable event but, technically, "Topexpress UG (haftungsbeschränkt)" has never made any money. All the money has always been earned and taxed by Max Mayer. So you have a good basis to argue for a low valuation, possibly even zero, vis-a-vis the taxman who does his valuations based on rulebooks and laws, rather than how a sane business person would value a business.
Getting that tax bill will give you a level of certainty that the taxman won't later find you holding a pile of money too big to ignore and retroactively try to tax you on it based on the fact that you tried to dodge the tax at the time when the taxable event actually happened.
After the transaction is through, you have a clean structure, namely all the Germans do business with Super Product GmbH (the legal successor of the entity they have been doing business with all aong), you have the Cayman Corp for doing business with investors and international players, and you have your alter ego holding that can collect capital gains while deferring the tax liability.
I actually don’t live in Germany but this is definitely an interesting setup. I might actually run it by my German tax consultant to see what he thinks about it just out of curiosity :)
Does anyone know if having a Gewerbe would be just as difficult to transition to a C-Corp?
The whole process of registering a UG or GmbH is ... not so straightforward while registering a Gewerbe (especially if using the Kleingewerberegelung) sounds like a good starting point. Not sure if you can raise money that way though.
Solution looks problematic if you want to hire a team in germany (since the deel shdnt work with regular staff). If you stay lean it sounds interesting. Waiting for the next article 'why you shd not hire people on a C corp owned by UG'.
There is also the UK Ltd as an option. Can also be done from home. It’s a possible replacement for a UG or even GmbH. AFAIK SoundCloud initially used this model.
Sure. These are two different things. Liability protection and, let’s call it social acceptance. OP article suggests a UG as your personal holding company, which then owns the shares in the actual outward facing entity. That UG, I think, could be replaced by an Ltd. it’s easier and cheaper to set up, and insulates you against personal liability just as well as a UG or even a GmbH would.
In theory, you can't employ someone in Germany for longer than 18 months via an employer of record. If you want to employ someone for longer than that, you must have a German legal presence. This is one of the ways that Germany ensures that employee rights are actually enforceable.
I'm not an accountant, but I believe you would US taxes on C-Corp profits, and German taxes on wages/dividends. There are also reciprocal tax agreements for earned income. It would probably be best to leave your profits in the c-corp, and wait until you are in America to do a dividend (which if your shares have been held for over a year is long term cap gains).
Also had a (failed) startup in Germany, with a slightly different perspective. Possibly outdated.
> It still baffles me, that you need to buy your own shares in Germany, in order to receive the “status” and protection of being a fully incorporated company.
It depends on how you read it, but it isn't true that you have to put in 25.000 in cash on the table. A GmbH is a Limited, which needs to have a value of at least 25.000EUR, so anyone trading with you knows, you are at least good for that amount.
The easiest way is to put the money in cash into the account of the company.
But it can also be done via transferring the ownership of either tangible or intangible assets into the company. The problem here is, especially with software, that the evaluation of assets is not for free and difficult.
> Now, you don’t need to convert the UG to a GmbH but if you want to be taken seriously in Germany by customers and investors, it can be a huge factor doing business. For our investor, it was a must-have.
The feedback I got from institutional investors was the following:
- If you are not willing to put down 25k, while asking for millions, it doesn't send much of signal of confidence in your proposal from your side.
Maybe it is a matter of German risk averseness, but I think it is reasonable, especially paired with the next advice:
- You will take a top level management position in your new company, your salary should reflect that. You have to strike a balance of not asking too much (you are after all a startup), but also not asking enough (you need to know the market value of your position). But chances are, the increase in your salary by your "promotion" should pay your initial investment in two years time.
In Germany, composition is much more salary based.
> I don’t know what to tell you, other than this process can take up to 3–4 weeks to get finished. Even most challenger banks (neo banks) are not really faster.
> How do I know? We’ve incorporated another holding company UG and wanted to use a Berlin based challenger bank — it took us almost a month to get done.
> Choose your bank provider wisely or at least switch early. We went with a 0$/month neo bank and it was horrible.
Yeah, we went with a traditional physical bank. Costs a fair bit more than 0€/month, but it took a couple of days, maybe?
> A mail popped up along the lines of: “We would like to do a 10 minute interview in Mountain View with you. We compensate your travel expenses”
And I think, that is the most striking difference in culture between the US (or at least SV) and Germany.
Those guys where trying to safe a couple (granted couple of thousands) Euros, and a couple of Euros per month for the bank, and the investor is paying the travel costs probably coming close to the founding costs for a 10 minute interview.
People who are loosely playing with the idea of running their own tiny company (e.g. as a student side gig, not with the "I'm planning this like a businessperson and here's my plan how to turn it into a unicorn and how to exit" approach) take a look at the system and bureaucracy, and simply give up and forever write off the concept of running your own company as a worthwhile option.
Even becoming an independent contractor is fraught with many of the same hurdles. This creates a strong push towards employment vs. doing your own thing.