> Which leaves the only real question. Why 25,000 at all? It is my company and my risk. If I want to start with nothing, that is my call, not a toll the state collects before it will let me try. And the cheap door has a price of its own: to some clients, “UG” reads as “not serious,” and they would rather deal with a GmbH. The structure built to let me in quietly marks me for using it.
The 25,000 is there to make sure you can cover some liability. If you really wanted "your company and your risk", you could have used the "simplest setup", where you are liable with your own money, but if you think about it that way, it doesn't sound so appealing, does it? So of course the UG which does not (yet) have 25,000 in the bank sounds less serious than the GmbH that has 25,000 in the bank. A company that starts with nothing wouldn't be a GmbH (limited liability company), it would be a GoH (company without liability), and there's a good reason why those don't exist...
> A company that starts with nothing wouldn't be a GmbH (limited liability company), it would be a GoH (company without liability), and there's a good reason why those don't exist...
Those do exist in other countries. An LLC in the USA does not generally need to have a certain amount of assets. Such a company is more or less without liability until it has some assets; the worst case for its owners when it comes to a routine business debt is shutting down the company. Exceptions are possible in case of serious misconduct of course.
Of course a company like that will find it difficult to borrow money, but it's not rare for its last bills to go unpaid when it goes out of business.
Whether those should exist or not doesn't have a clear answer. Culturally, Germans tend to be pretty uncomfortable with "sometimes shit happens and debts go unpaid", while Americans tend to find a moderate rate of that sort of thing tolerable, especially if it makes starting a new business viable for a greater fraction of the population.
Not quite. In the US this condition is handled at the back end. Running a corporation or LLC without sufficient capitalization can be grounds for piercing the liability shield in a lawsuit.
> Running a corporation or LLC without sufficient capitalization can be grounds for piercing the liability shield in a lawsuit.
Which is exactly how it should be handled, IMO: Deal with the abuse situations directly.
Forcing new companies to capitalize with an arbitrary amount of money at time of founding penalizes small players who want to start a company. It's also not a hurdle at all for large players who want to commit large frauds.
Is the gmbh pierce proof? Because then I like the situation where if you start with $25,000 under no circumstance can they get past the liability shield.
Usually, yes. There are a few exceptions, such as serious misconduct, tax fraud and not declaring insolvency when necessary. But as long as you're following the law, you're fine.
I have the impression the situations where that actually happens are at least arguably serious misconduct, and usually targeted at someone with significant assets.
A construction company that pockets ten million dollars and doesn't build anything probably can't shield its owner this way, but a single-developer software consultancy that pockets ten thousand dollars and delivers buggy code can.
But the larger point still stands: Limited liability was granted “on the front end” without the entity needing to demonstrate a minimum amount of capital. You’re only pointing out that in the U.S. that it’s possible that “on the back end” the owners of the entity might become personally liable.
Thats cause the software and computing industry early on, disclaimed all liability.
"Computers are hard, yo!". It devalues the profession.
And I thought no liability was bad enough... But no. Now its LLMs and " for entertainment purposes only". I take it management and leadership also read that, and don't give one fuck.
The ability to build reliable software has existed for a long time. Commercial airlines make heavy use of it, and serious failures are vanishingly rare.
The problem is building software to those standards of reliability is expensive and slow. Consumer software never justifies it. Business software rarely does. If you want me to accept liability for the consequences of bugs in code I write, I'm giving you a schedule five times as long and a price twenty times as high.
While extreme cases are the easiest to imagine, in real life the plaintiff almost always argues to pierce the veil and the defendant always argues the opposite, and both sides earnestly believe that they are right.
I set up an LLC in the US for about $500 and pay Delaware a few hundred each year in fees. As it turned out, it was probably an unnecessary exercise and I probably won't renew in a couple years. But it wasn't a big deal.
Delaware is expensive and you must have had a very specific reason to build your LLC there, rather than for example in Wyoming - such that to raise capital, build a corporation, etc. Now if you want to shut it down in a couple of years, it's not exactly clear what you had in mind.
We have an UG for that. A GmbH is simply the wrong legal form for that sort of thing. You can create an UG with a single Euro on the bank account (and then immediately go bankrupt once you need to pay the notary).
No we don't. UG is still a GmbH bureaucratic monster which a bit less start capital. You still need to follow all taxation rules like GmbH, which costs you few more thousands per year (Bilanzeirung, Steuerberater, Abschluss, ...) just to be legaly compliant.
American LLC taxation is as simple as or even simpler than Anlage EÜR. And you don't need a tax advisor to do it.
What’s wild is that this is pre-debt. The banks will have their own risk math for you so it’ll be a completely separate set of hoops before you get to be in debt as a company. Most will not even talk to you if you have 0€ in the business account. I don’t feel like a company with no assets or income can do that much damage to their societies.
Also as a small company in the EU I have to have liability insurance for the company for any major clients so the insurance company also will make you jump through further hoops.
> I don’t feel like a company with no assets or income can do that much damage to their societies.
Keep in mind that those companies will almost always own some debit to their employees when they blow up.
IMO, $25k is a ridiculous amount of capital to require from a company before they can operate. But capital requirements are good, and they should be proportional to employment, not company existence.
There are ways to go into debt without dealing with banks. Any time you use something and are charged afterwards, it's a debt (which you could fail to pay by being broke by the time the invoice arrives). Common example - rent/lease. Or gas/electricity.
The problem here is that 25k€ is too little for some types of businesses (say, a bridge architect), and way too much for others (say, selling spice mixes online).
I don't get the "seriousness" memes in Germany, which sound more about gatekeeping than anything else. Why not require 1M€? This is serious! More serious! Meanwhile, they have companies likes Wirecard that went under in a day after it discovered a "hole" of 2 billion (magic!).
Why not just allow people to create a Gmbh with 2k€, and then publicise the amount of share capital so clients can make their mind? It's how it's done in France for instance, allows some flexibility (I know, a swear word in Germany), and sounds less like a social punition (something Germans love).
The hack anyway is to create an Estonian e-company, with almost no maintenance/creation costs. Germans are the largest funder demographic for this reason.
I don't know what that example is supposed to prove? Everyone in a business relation with one of these companies can make claims against them. The problem with Wirecard is rather that the 25k of each of them aren't going to make up for the massive damage caused by Marsalek. Then again, I don't think we should structure our systems to expect the blackest of swans that guy was.
The 25k are intended to ensure liability coverage for very small and young companies, not giant corporate networks with billions in backing (well, theoretically anyway... hah)
Running a business in Germany is for a closed inner circle. The apparatus is not meant for broke college students turning their weekend project into a company.
In Germany getting 25k as a working adult is hard, because before taxes and social security that's 50k you need to earn. Thats more then an average person earns in a year before taxes, so they'll likely be saving for 5-10 years if they want to start one.
Now wherever that's an issue with the 25k admission fee OR with the fact that wages have stagnated for about 25 years in Germany, consequently mostly wiping out the middle class ... That's debatable.
This estimate includes things like a car, a partially paid off house and other assets.
Most of that wealth cannot easily be converted to cash which you'd need to start a company.
Also that's median. Germany is a country with a median age of 45. So yeah, someone who likely worked for 20+ years will likely have saved around 100k, I don't think you realize how that's an argument in favor of what I just stated...
They are jealous of the US system where you can create an LLC in one hour for $200, and by the next day be doing business with all your personal assets isolated.
The US system is built to support entrepreneurship while the EU system broadly is to support the consumer and employee. The US will never be able to match the EU's consumer and employee protections and the EU will never be able to match the US's ease of doing business, because to have one you have to fundamentally give in on the other.
Depending on who you ask, one system is wildly better than the other, but at the end of they day they are just different systems with different tradeoffs.
In a healthy market economy, entrepreneurs are meant to support the consumer, and they do so partly by competing with one another for talent, which requires supporting the employee. We could argue ad nauseam about the health of the US's market economy, but ultimately is has resulted in unignorably higher wages than in Europe, even at the lower end of the economic ladder.
This probably also has a lot to do with it's much tighter market integration than the EU, although they seem to be finally addressing that issue with the 28th regime.
A popular theory of Europe's historic economic outperformance relative to the rest of the world, leading up to the industrial revolution, relies on competitive market theory: constant warfare spurring innovation, as well as relatively free movement of the best and brightest to seek greener pastures elsewhere on the continent. These days, the most ambitious Europeans tend to move to America to raise money and find talent, and it seems many EU countries are finally waking up to the fact that they need to do better to support entrepreneurship.
I would posit that many EU citizens are still living with the idea of their historic economic outperformance even though it has not been true for many years.
Is that so? In Germany for example, you have a legal right to return anything you purchased via a remote means of communication - so e.g., the internet, or a phone call - free of charge, within two weeks, and it must be simple to do so; if a vendor tries to obfuscate how to cancel a purchase contract, you can simply write them an email.
The word "most" is doing a lot here. Europe guarantees consumer rights by law, while the US relies on companies adopting the practices voluntarily. Most do, but larger companies more universally than smaller, and it's by no means universal.
We are talking of entrepreneurship and new companies, what small business are required to do for returns/refunds in the US is definitely not ahead of Europe for consumer protection.
It's not word choice, you are just making the wrong argument.
The same exists in the EU, French Le Monde (NYT local equivalent) required you for a long time to send a registered letter costing 7€ and a trip to the post office to cancel your subscription.
most large companies, maybe, but small-to-medium-sized businesses can and will tell you to take a hike. there are no consumer protections in the US regarding returns beyond the goodwill of the company
Exactly my point. In Germany I can order from the smallest of webshops without even reading their return policy, because I am guaranteed favourable terms by law.
This isn't without downsides though: As somebody with a niche technical hobby, it is hard for me to order from many suppliers because they understandably don't want to deal with consumer protection laws and thus exclude B2C transactions outright ("Verkauf nur an Gewerbetreibende").
I would be fine with waiving my right to returns but this is not possible on purpose, so my only options are to shop somewhere else (often not possible) or found a company (not possible because it would be Liebhaberei - "Running a company without intent to make profits").
In the US, if the remote merchant doesn't accept a return (or is non responsive), a credit card chargeback would be in order.
The customer almost always wins those. And the merchant always has to pay a fee for the chargeback, even when they win, so they're incentivized to avoid them.
The merchant agreement isn't as effective as a well enforced law, but it's pretty close.
So the person that wants to sell that ultra-unique item that isn't produced by mega-corp, and the person that wants to buy that ultra-unique item despite unfavorable return policies never gets their needs met.
That’s not true. From mandatory refunds when selling online, to capped credit card fees, to longer warranties, the EU is clearly better for consumer rights. Some US businesses have realized that openly screwing your customers isn’t good business practice, but they’re somewhat of the exception I hear (and a lot of those companies offer the same policies, or better, in the EU, e.g. Costco)
Apple is another good example. Their base warranty is two years in the EU versus one year in the US, and there’s additional protection on top in many EU countries that extends it to the expected life of the product, in some cases as long as 5-6 years.
And again, all of these are backed up by the law, not just a policy that the company can revoke or decide not to enforce.
And all of Apple's products are much more expensive in the EU. In Austria, a MacBook Air starts at EUR1199, and the same device starts at USD1099. At today's exchange rate, that European device costs USD1360, or nearly 20% more.
We can argue about the consumer friendliness of the regulations in the EU but they also add demonstrably to the cost of tech products (and likely other categories).
It seems to me that if there is some sort of law or regulation that can be passed, then that policy will be better in the EU. If the better service is a result of competition, then it will likely be better in the US.
In general though, culturally, the US is much more "the customer is always right", whereas in the EU, it's considered a hassle to cater to customers that much. This mentality translates across the economy as a whole.
At least that's in my experience of being American and living in the EU for the last 10 years.
I have never received cash compensation for a delayed flight in the US, but I have in the EU. In my opinion, in the EU if the business screws up it’s their problem: in the US it is the customers, unless you shop somewhere large enough to voluntarily cover their mistakes. Which is, indeed, one reason that anybody can run a business with nothing in the US.
Not sure if that matters much. Only the actual end result does.
The better policies given by US companies is also likely driven by competition, so by definition they wouldn't be something that a government regulation could accomplish (other than to incentivize more competition.)
It does because for one you can go to court. If a company stops playing nice because they think you’re defrauding them if you tell them your package went missing during transit, company niceness doesn’t get you anything. (That’s a random example btw, I don’t know how this is handled legally in the US. The point is that there are situations where you actually want the law on your side).
You don’t have to go to court even - there is usually a regulatory body that will enforce these for you. This is the whole reason why there is an image of America as sue-happy: they have chosen a regulatory system of “so sue them” instead of a functioning consumer protection system (or any authority with the ability to enforce the ADA, for example).
This is the result of the US embracing capitalism more than Germany. The market has set minimum expectations, but outliers with other benefits can have an opportunity to thrive until they have an opportunity to meet those minimum expectations.
Although, this is rapidly changing. Places like California are putting in similar regulatory barriers and excessive minimum taxation.
Even when the UK was in the EU, you could create a limited liability company (LTD) for something like 200 pounds or less, no capital needed. So it's not true at all that setting up a business at a low cost is somehow against EU legislation.
The issue in question is a Germanic system, not an EU one. Outside of Germany, Austria, Luxembourg, most EU countries are far more sensible with capitalization requirements.
State fee is 265 € now in Estonia. But the tax system is cool [1] and admin is a breeze (if your passport colour is right and you can get e-residency – not a problem for any EU/EEA citizen, obviously).
Here in Portugal the legal requirement is 1€ for an LLC (lda) and it took me a few hundred euros in fees only, all in morning to take care of everything.
I get that this gives you less liquidity personally, but (a) you're only required to pay in half, i.e., 6,250 EUR each, and (b) this money isn't gone, and you don't lose the ability to recover it should you decide to liquidate the company later. As others have pointed out, you can use that money to pay costs associated with the founding (e.g., the notary) and also expenses required to maintain the company (IHK dues, bookkeeping, etc.).
But yeah, obviously, the more capital you pay in, the more “credible” your company looks. The whole concept of limited liability means that if your company capital is X €, the creditors can only get the X € (unless you do something stupid, see https://en.wikipedia.org/wiki/Piercing_the_corporate_veil).
The fact that the minimum capital amount is so high in Germany is bonkers to me.
The minimum capital amount is 1€, that's the entire point of the UG, to encourage entrepreneurship.
The intended path for the upgrade from UG to GmbH is that once the UG makes a profit, this should be used to save up the 25k€ and convert to a GmbH once it's reached.
HN commenters are acid, but from one author to another don't let them get to you because they'll shun you for losing your temper even if it's totally justified.
The author can surely understand it. And this system is what is keeping Germany and many European countries from propelling their economies forward by reducing market dynamism. Its not a coincidence that China, US and many other countries, which have more dynamic markets and large GDP growth let you set up a company in a day.
Registering a private limited liability company in the Netherlands costs around 400 euros. If you can file all of the taxes and other legally required paperwork yourself, you can be set up in a week or two. You will be a salaried employee of your own company, though, with a minimal salary you will need to rake in.
The combination of "no personal risk whatsoever, minimal funds/risk coverage, maximal profit extraction" doesn't lend itself well to places with basic regulations.
Capital investments in Europe are definitely not as easy to obtain as in the US for various economic, cultural, and historic reasons, which all led to some pretty weird laws here and there, but the extra week it takes to set up a business isn't the cause.
The reason this all took so long and was so expensive is simple. As the author states:
> I wanted real limited liability
They wanted two different companies with different setups to get out of having to save up the funds or find investors while also paying the least amount of tax possible. They set up a two-company system with all the risk in one and all the earnings in the other. It's like one of those tax dodging schemes the multinationals like, except within a single country. That comes with overhead.
Funnily enough, they then end with:
> Which leaves the only real question. Why 25,000 at all? It is my company and my risk.
Weird to think it would be their own risk if they spend so much time, money, and effort setting up a system that explicitly removes all the risk from them.
All of this feels like it was based on a business plan generated by some over-eager AI that tried to optimize to tick as many boxes as possible, ignoring the real-world consequences of those choices.
> If you can file all of the taxes and other legally required paperwork yourself, you can be set up in a week or two.
Is realistic in the Netherlands to try and fulfill all formal paperwork requirements?
In my native Belgian city, outsourcing that be from ~3k€ excluding VAT/year for the very simplest CIT liable structure. That's excluding 409.3€ corporate social security contribution and 148€ provincial tax. That makes for about 300€ ex. VAT before you can start to earn anything at all. Unless you can fulfill all accounting yourself.
No he doesn't. You can register a Kleingewerbe at the Gewerbeamt online ([1] for NRW) and start right away. You can create an UG (literally supposed to fill the gap between a GmbH and a Kleingewerbe) within 2 weeks depending on the notary. And those 2 weeks come from the fact that the notary has better stuff to do than a UG registration and therefore probably doesn't make time specifically for you.
If you want to start a business and you don't need to pay for an office or whatever (because you can actually use those 25k for something), you can literally start over night. If you need a proper company that limits your liability, you can literally start in 2 weeks.
It is, I guess it's depending what you wish to achieve. I'm a independent software consultant based in Germany (no employees etc, also not selling any SaaS or anything) and I've got a liability insurance to cover any mess ups.
This is not an argument that founders should seed 25k EUR to cover liability, it's an argument that GmbH bank account amounts should be visible publicly. If I want to put in a catering order, the catering business does not need 25k EUR to cover liability. If I want to build a data center, 25k EUR is not nearly enough.
> GmbH bank account amounts should be visible publicly
Not sure about Germany, but e.g. in Estonia it’s essentially public info (albeit unaudited, usually), as part of the annual report. The company has to maintain at least the declared capital amount in their bank accounts (or other assets), but the amount can be pretty much any number, so the business owner can decide what sum makes sense in their case.
25k € is way too much for most small businesses, yeah.
The trust in a company should still be left to the criteria of suppliers, customer, etc. Not the random number that a bureaucrat pulled out of his arse.
You call €25k liability? I just decided I won't work with a company that can't cover €25M in liability. Should the state force you to block that in your bank account just in case you want to work with me?
It's because some understanding was lost somewhere between the article and OP.
The €25k are not a liability insurance or anything like that. It's a starting capital to make sure that the company can honor its bills. Liability is covered via separate insurances.
When I co-founded a company in the UK in 1995 there were two £1 shares - one for each founder. Mind you it was an off the shelf company - but the process couldn't really be much simpler back then - and its probably a lot simpler now.
For a limited company in the UK, you need a number of pieces of legal paperwork which I think you can technically write yourself but may prefer a solicitor to draft them correctly for you, and then you pay £100 to register the company, and you (and any other directors, shareholders or guarantors) capitalise the company yourself.
You are now limited in liability for what the company does, to no more than the capital you put into it.
You then have to supply yearly accounts, may have to register for corporation tax, VAT, register as an employer for paying national insurance, you'll probably need business insurance, etc.
You don't need to use a lawyer to draw up the docs unless you have special requirements: you can use the proforma memorandum (it's auto-filled if you apply online) and adopt the model articles of association.
If you buy and off the shelf company then you don't need any of that - they supply a pile of stuff (e.g. articles of association) and you don't need a solicitor to be involved.
Edit: And these days you don't even need two people - used to be that you needed two directors or director and company secretary.
You can open an Estonian company with 0.01 € capital. It will look ridiculous in the registry, and you will still be liable for the remaining 2499.99 € personally anyway, but it is possible. I’ve seen a couple 100 € companies, which is more reasonable I guess.
You can also declare that you’ve paid the capital in, without any proof required for small amounts (up to 50k € IIRC). If you lie about it, I suppose you’ll be personally liable for everything, so definitely not worth risking it. Just put in like 500 €, set it aside on the business account, and don’t touch it.
You could put in 2500 € in capital – then your personal exposure will be zero. In practice, I don’t think it’s a meaningful difference, you will just have to keep the whole 2500 € on the company balance by the end of each FY. (Unless you wanna deal with non-monetary contributions!)
If you put in 500 €, you’re liable for 2000 € personally, but you don’t have to keep them for your annual report. (It also means your company looks a bit riskier, since you might not have the 2000 € personally, so you might have trouble getting credit or whatever, but otherwise I don’t think it’s a big deal.)
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Edit: to the author: you should really look into Estonia (or any other sane jurisdiction mentioned elsewhere in the thread). You can still set up a KG (or a sole proprietorship), then put an Estonian OÜ in front of it. Costs something like 300 €, can be done online (you’ll probably need an e-residency card, an Estonian e-signature thing for foreigners, which is another ~150 €). Annual reports are fairly easy if you keep your books properly. And you’ll need an address in Estonea which is also like 125 €/yr. No additional taxes most likely (but check with a real accountant).
Still a limited-liability company. "You might be personally liable for up to €2,499.99" is not anything like the same as "your personal assets are exposed to all company debts".
Yeah I don't really understand the part about not being able to invoice either. IANAL but it's the other way around - you need a VAT number to invoice clients in Germany (and the EU), not outside of it. VAT is exempt for clients outside of the EEA.
Also: I've always used a ZZP structure (one man company - Dutch version) for mine, not a BV (LLC), because there's a thing called Professional Liability Insurance. But maybe it's different in Germany? I can't imagine that doesn't exist there though.
Not incorporating would be very fiscally suboptimal here (.be) for anything tech related. Your marginal tax+ social security contributions rate would be ~66% starting from 50k€ gross...
You are right, of course, but in most jurisdictions the limit is lower than 25k EUR (e.g. in PL it's 5k PLN ~ 1.2k EUR; I believe in the UK it's even less), and you can trivially look up the capital of any business in the business registry online --> you can decide if you are dealing with a multi-million behemoth or a mom-and-pop shop.
This could have been resolved by listing how much capital company has set aside for liabilities. If someone sees company only has 1 EUR, then they can assess their own risk accordingly before engaging.
> A company that starts with nothing wouldn't be a GmbH (limited liability company), it would be a GoH (company without liability), and there's a good reason why those don't exist...
What's the good reason? In the UK I can started a Ltd with £1 of share capital, about £100 of fees, and filling out a form online. I will be shielded from personal liability if it goes tits up unless I've broken the law, knowingly traded insolvent, or otherwise been an idiot.
The wider thread appears to be Germans commenting that it's unthinkable that such a thing could exist, and thus it's all the author's fault.
> In the UK I can started a Ltd with £1 of share capital, about £100 of fees, and filling out a form online. I will be shielded from personal liability if it goes tits up unless I've broken the law, knowingly traded insolvent, or otherwise been an idiot
That's what Germany calls an "UG". Which is what OP actually ends up doing.
UG forces you to retain profit to hit a capitalisation target. An Ltd is a real company, and my £1 company has an identical legal status to one with hundreds of millions of pounds of assets.
what you probably mean is an OHG, an Offene Handelsgesellschaft
It is one of the simplest form a group of people can found. All members are liable with their personal assets if the OHG files for bankruptcy or is unable to meet its obligations.
- There is no double taxation if you just pay yourself a salary (since it’s a normal business expense). If you want to take money out of the company flexibly, a GmbH is the wrong structure.
- I’ve never heard of anybody doing an UG/GmbH + KG to get started. This is highly unusual. Most people either do just a simple UG or maybe they set up a holding structure with two separate GmbH / UG entities.
- Related to the above: if you go with a simple, standard structure you will incur minimal legal fees. You don’t need a lawyer, you just directly task a notary and tell them you want a standard setup.
- If you don’t want the complexity of a limited liability company, the standard way to reduce liability risk is to get liability insurance. Many, many people do this instead of having a GmbH.
The valid criticism is the a) lack of digital processes and b) sequential processing of steps that could happen in parallel. For example, I sped up my own GmbH process by driving to the register court and paying in cash on-site. For whatever reason that’s much faster and saves about a week.
> The standard way to reduce liability risk is to get liability insurance
Exactly! That's what I do in the Netherlands. It's also common to cover this contractually too - you can negotiate where liability falls for many cases.
Getting a limited liability company for a one-person operation is just overkill.
Like he said the GmbH is just the wrong legal form of his company. You can register a Kleingewerbe online over night and an UG within 2 weeks and that waiting period is only 2 weeks because it's such a simple and cheap process that notaries won't make time for you and they are busy people so you just take the next free slot they have in their calendar. So if you are lucky you can get an appointment the next day.
My wife works for a notary and most of the time people are really pushing to get an appointment but then fail to register a bank account on time so they have to wait a couple of weeks anyway without anybodies fault but their own.
Also this is not some secret knowledge. Like, these are not some tricks you learn over time this is something you could technically just ask a tax consultant or a notary. In fact the notary even likes it if you do that because if you try to be clever on your own you are most likely going to cause them more work. Like, you can literally go to a notary and say "this is my business. What should I do?" and they are either going to just do an UG with you or sent you to a tax consultant just to be sure.
Like, we have notaries because and they are as expensive as they are because they are supposed to consult you in legal matters and they are required for so many things so that you don't accidentally mess something up that is complicated.
Going to a notary really makes this so easy. You just sit there, dude's gonna read his legalese text and then sums it up in 2 sentences for you. Didn't get something? Ask questions. That's why you are there. That's their job.
It's really only difficult if you need a lil something for the AppStore for a side hustle and then try to get a GmbH straight away without ever consulting anybody that is literally only there to consult you and make it easier for you.
> Which leaves the only real question. Why 25,000 at all? It is my company and my risk. If I want to start with nothing, that is my call, not a toll the state collects before it will let me try.
> And the cheap door has a price of its own: to some clients, “UG” reads as “not serious,” and they would rather deal with a GmbH
The post itself explains exactly why the first complaint is a fallacy and the second one is true:
> The simplest setup is a sole proprietorship [...] also makes me personally liable for everything. A client sues? They are not suing a company. They are suing me. My savings, my apartment, my name.
> So I wanted real limited liability, which means a company.
The liabilities of a limited-liability company aren't your risk.
The people who stand to lose out if your company folds are not you but your customers, creditors and anyone else with a claim to more than the company can repay.
The more capital it has, the less likely it is to collapse while having more liabilities than assets.
Also, you can found a GmbH and only pay in 50% of the €25k. My understanding is that you're still personally liable for the rest, but it lowers the hurdle to founding a GmbH at least somewhat.
Yeah, he has no clue and complains about having no clue.
He wants a company but not put down any assets, but still limited liability, he has to get a UG. But obviously customers don't want to deal with that because there are no assets in case they pay 5.000€ and the company goes belly up.
Customers deal with GmbH, because they know they have at least a little bit of value in assets. So if I buy from you for 5.000€ I know that should be covered by your assets.
The guy is an idiot and has been misconsulted by the law firm and has been pulled over the table by said law firm.
I've run a tech business on three continents, and nothing comes close to the Kafkaesque labyrinth of the German world.
Everything is unbelievably complicated and over-engineered, and every layer is immune to change. Every rule was rational when it was added, and now everyone has a financial stake in continued complexity. The German notary is the highest-paid notary in the world, and the highest-earning professional in the country.
That said, I think a lot of the frustration comes from a mismatch of expectations. Germany wasn't designed for randos to start companies and thrust change on society. All the bureaucracy is a filter, and what it filters out is change itself.
You were never supposed to incorporate a company. You were supposed to get a job at Volkswagen.
Germans will say they're not very patriotic, but really the way German patriotism manifests is a resistance to outside criticism paired with a stubborn insistence that things ought not change.
Before Europe gets lumped in as one country, founding a company in Netherlands and Sweden, speaking from personal experience, is a breeze.
Although Sweden is a bit strange in the fact that banks have as much equal say as the government authority does in you starting a company, and if they don't want you as a customer, they can simply deny the right for your company to start!
Germany, France and Spain are some of the biggest offenders here.
Some years ago a case became quite famous in Spain. Someone wanted to turn a winery into a eco-tourism boutique hotel with a winery tour and experience. Should be simple in theory, in practice they were waiting for authorization to open for more than 4 years.
I’ve been involved with startups and small businesses for more than a decade, and I haven’t still heard of any of them doing things 100% by the book, because it’s just impossible.
People just start and hope the taxman doesn’t come.
> Someone wanted to turn a winery into a eco-tourism boutique hotel with a winery tour and experience.
Because a agricultural business and a hotel business are two different things, and Spain has, rightfully so, their thumb on the spread of tourism, because it affects local communities negatively.
Otherwise investors could just come in, buy a random agriculture business and then turn it into luxury hotels/lodging.
> I’ve been involved with startups and small businesses for more than a decade, and I haven’t still heard of any of them doing things 100% by the book, because it’s just impossible.
Because entrepreneurs are notoriously bad thinking further than their own interests. It always, "just" something they want to do.
Zoning rules and regulations have their purpose. Are some of those in some places idiotic? Yes. Do most of them still have their reason? Also yes.
Otherwise we can stop protesting datacenters and the trump family building a eco-luxury resort in a nature reserve.
Rules exist for a reason, it shouldn't take 4 years to get an answer on how to proceed in one direction or another. In NYC for example you often need to hire a "permit expediter" just to get a yes/ no/ maybe answer on your apartment renovation within a year. These bureaucracies are often literally impenetrable without professional help.
I've also done it both in Sweden and the Netherlands. Sweden is a breeze if you have BankID, sure (and as you said, if the bank likes you). The Netherlands wasn't exactly a breeze — I had to book a face-to-face appointment with KVK and all the slots in Amsterdam were taken, so I took the train about an hour away.
I don't dislike that they at least want to see you in real life once tbh. I love ease of registration like anyone else, but with tax avoidance and all that, idk. Feels right to me to have at least seen yourself once.
Sometimes criminals do put pressure on people to register companies in their name and show up to these meetings. Whether that's addicts, people with mental disabilities, or young people looking for a quick buck, the fraud mechanism is the same.
However, that does put the company in their name. On paper, they have full control over it. That's a risk to the criminals trying to use the company as a financial asset for laundering money.
That is refreshing to hear. Unfortunately I can't get out because of exit tax, an unrealized capital gains tax for the privilege of leaving the country. That is way worse than what I mention in this post and will get its own post soon.
You phrase this as if it’s absurd. Why should it be possible to offshore your future capital gains without paying an exit tax? You live in a country with a tax system that assumes people pay into it.
Unrealized capital gains taxes generally are a bit absurd, but I can see how the state would feel forced to do it if you're leaving. Seems like there should be some way to get a registered agent or something to keep the old company legally "in Germany" while you leave, but idk
Your question is more well formed if you challenge the premise that the tax you owe should scale linearly with the value of your assets. Obviously a business benefits from things the state provides, and the business should pay it's share to cover those costs. Maybe, honestly, even a little extra.
The challenge is if someone makes a software company, and a team of 20 workers on computers create a €10B business, does the state have a fair claim to €5B of it when the company at most with the most generous possible estimate (and then double it for good measure) used €50M of state services?
> does the state have a fair claim to €5B of it when the company at most with the most generous possible estimate (and then double it for good measure) used €50M of state services?
Yes, it does. Quite simply because that's the law, and it's morally right (in principle) because if your business fails then you don't get a bill for 50 million. If "winners" only paid their exact share then these services wouldn't exist.
I explicitly stated (twice) they would (and should) pay more then their exact share. The real cost would likely be in the neighborhood of $500k too (20 SWEs traveling to work doesn't incur much cost, plus the 21/population cost of mainstay services (police, fire, government misc/infra)), never mind the workers are paying taxes on their income too.
So $50m would cover their true societal cost (I'll multiply it by 10 for you, call it $5m) 10x over.
Its extremely difficult to build a clearly logical structure where a company that made a wildly successful product needs to hand half the value to the government. It's very easy to do if we hand wave with ambiguous terms like "right thing to do" and "morally obligated".
The exit tax doesn't apply to "gains", it applies to the "value of your company" which is calculated in a way that often means you will owe thousands or even millions in money you don't have, and at no time had.
Same in Poland. Almost 100% things regarding companies or personal things you can do online. Self employment company can be set even via bank app. Ltd a bit longer online (unless you need a custom ltd agreement).
But I understand the admin has gone up significantly. Though I presume AI is pretty good at generating the boiler plate bureaucratic work (privacy policy, anti slavery statements, etc).
That won't get you a VAT ID, which is the key thing he says he needs to be able to bill people outside of Germany. It is significantly cheaper than 9k EUR and faster than 6 months to get in the UK, however.
For a small company with 0 assets and one owner which has ceased trading, I believe you can just abandon it, stop filing and wait for it to be wound up - but check this!
> Although Sweden is a bit strange in the fact that banks have as much equal say as the government authority does in you starting a company, and if they don't want you as a customer, they can simply deny the right for your company to start!
Wait, how does that work? Are you saying that if the bank doesn't like me, instead of just denying me a loan, they can convince other banks not to loan to me as well?
It's not about a loan. You have to put ~2,000 EUR in your company account in order to start it, and they might refuse opening an account for you. They're not going to talk with other banks, but if they have a good reason to think working with you is going to be difficult, chances are other banks will think so as well.
That's actually not the only option. You can also transfer property (apportegendom) to the company, such as vehicles, machines, patents/copyright/trademarks, real estate or pretty much anything of value, to use as your share capital.
You just have to specify it when registering the company, and have an accountant certify the value.
But obviously, it's more annoying and you have to keep track of depreciation.
They can't convince others, so I shopped around until I found a willing bank. This is due to introduced KYC requirements and the harsh penalties associated with them - so banks are preferring to err on the side of caution.
I would say that depends of the company's legal form. If you have an "AG" or "GmbH" you get double taxed anyway, one time the company and than again your salary. So if you have an Estonian equevilant of a GmbH/AG your company will get taxed by Estonia and your salary by Germany. The Estonian E-Residency Website at least confirms my assumption but in case of Germany I could be very well wrong of course...
I think you misunderstood double taxation .
You probably understood it as taxation on corporate and personal level.
But in this context it means taxation in two jurisdiction (Estonia,Germany)
> So if you have an Estonian equevilant of a GmbH/AG your company will get taxed by Estonia and your salary by Germany
Estonian CIT is 0%. If you pay dividends (which is not required), or if you pay director’s salary (optional if you’re a one-man company without a ton of admin), those will be taxed in Estonia. If you only pay yourself for your actual services – no taxes in Estonia.
Germany might tax your Estonian company if they determine the company is a German resident. Check with your accountant.
If you do business in Germany you are evading taxes just by the fact of doing business. Everything and anything you make belongs to the government. It is an unfortunate loophole in the law that temporarily permits you to steal some of your profit back from the government where it rightfully belongs.
Yeah, this is sarcasm, but not really. The practical reality is that it simply makes no sense to incorporate in Germany. For example, the OP missed six months of opportunity just to please the bureaucracy and it's not even the end of it.
While I won't dispute that 6 months is outrageous, OP has not spent them to "please the bureaucracy", they spent them to escape personal liability should the company go bankrupt. The rest of the post is bemoaning the fact the German government won't let them also permanently reduce the company liability below 25k.
It is how Russia become what it is: we all be said «If you don't like new law/regulation, go to your beloved USA, you are not a patriot and must be punished».
I'm sorry, but Germany is democratic country, and citizen of the country can choose by definition.
Leave your motherland because your government is crazy in one way or another? It is nonsense.
In reality, sometimes people need to do it (because it becomes too dangerous to stay), but it should not be this way. In any country.
This will most likely result in Permanent establishment (PE) in Germany (e.g due to fixed place of business).
That means Germany will tax the company anything which is attributable to the German guy.
No, it’s generally a pretty terrible idea. Germany applies taxes based on the place where a company is managed. If you live in Germany and remotely manage your Estonian company then you’re expected to pay your corporate and other company taxes in Germany. The overhead of managing the international situation is more complicated than opening a company in Germany to be honest
A lot of the entrepreneurs I meet become tax & social insurance fraudsters as soon as I mention this, because they think they can setup a company somewhere but live in Spain, without paying or registering companies here.
If I set up a US llc as a Belgian while residing in Belgium, Belgian tax authorities will claim the center of control is in Belgium and claim it is a Belgian company.
Of course not. They'll just claim your llc needs to pay local corporate income taxe, VAT, pay local social security, dividend withholding tax, ... on top of whatever needs to happen to keep US authorities happy.
Getting a little bit more annoying year-on-year for maintenance with stuff like identity checks and software requirements for eg tax information, but still trivial to initially create
Yeah the "making tax digital" thing sucks, but there are lots of little companies that will do a simple filing for you. I hate the theory, but at least in practice it does work okay.
To be fair, it's also much easier to start a company in Germany if you choose a simpler legal form. It's probably still easier in the Netherlands or Sweden, but the authors pain is at least partially self-inflicted.
Legally, the banks in Sweden have no right to deny anybody as a customer. This is explicit in the law as a requirement for the bank to be covered by government depositors insurance.
In practice banks will deny anybody to open an account, for no reason at all, because they are above the law in Sweden. The country has for a long time been owned by a few powerful banker families.
Edit: Down voters might first want to look at Wikipedia for the Wallenberg family. This is as much part of Swedish culture as IKEA or meatballs.
I challenge anybody to find a country in modern history which is more owned and controlled by bankers than Sweden.
The classic European trick: it's one strong union when you want to use counting stats or independence from America , but you can't lump in the duchy 3km away as the same when you want to pick and choose the metrics that make you look good.
I don't think it's that different from pointing out that registering and/or operating a company in e.g. Delaware or Texas is a very different experience from doing so in New York.
Germany is one of the worst countries when it comes to bureaucracy nothing is fast here if you go the legal path and stay within the law (which is mostly for small people big players have different ways) and as you see everything costs a lot so if you are founding a pure online business do yourself a favor and incorporate somewhere else and if you still live in Germany look into licensing or subcontracting yourself to your company in another country it's way more flexible and you probably have Easier access to grants etc.
Another part is taxation the tax office takes your money really fast but returns can be another slog where the tax office denies legal claims again and again untill you get a lawyer etc. and it generates costs again needlessly because it's really dependent on who works on your tax records and there mood apparently.
My experience with German colleagues is not efficiency; but they do have a remarkable ability (in my field) to read a 400 page regulator rulebook and overlay it on a 200 page design document and pinpoint the rulebook edge cases not covered by the design...
> I have yet to find the mythical efficiency everyone was talking about.
Comes down to a misrepresentation of history. Germans were never known to be efficient, they were known to be precise with everything, including bureaucracy. This happens to be handy with machinery, but not much else.
> Really I think that they just landed on some really successful marketing.
It depends. For some machinery the complexity is inherent, this makes German machines very good at what they do. But this approach does not tend to scale well, which is part of the reason the German economy tends to be fairly specialized with „hidden champion“ SMEs.
Made in Germany has (had?) a very positive connotation to it, but for historic reasons.
It’s from >50y ago, then became a meme detached from reality. And for some reasons people are still repeating it even if they know literally nothing about the country
Germans a rule based and were really precise which came in handy like 50 years ago. The modern German is not flexible enough for the modern job market. German companies are also not flexible enough to compete. Germany goes downhill for a reason.
Don't incorporate somewhere else it will only lead to disaster.
The company will end up being German tax resident anyways due to management and control being in Germany as you live in Germany .
Then you have to be compliant in 2 jurisdictions (file forms/balance sheets in both countries etc..) and worst case you could become subject to double taxation (if there is no agreement).
What should the US LLC do ?
It will end up being treated like a GMBH in Germany (keyword : Typenvergleich ) and you will have to do all the bureaucracy in the us + Germany and end up paying the same taxes
The point I thought was a plus was that you'd be paying German taxes without all the German bureaucracy? Because there's definitely no bureaucracy for a Wyoming LLC except for a couple of IRS forms annually.
Do not know Germany's specific tax code, but in most EU countries should a control fire up it would result in tax evasion (not even tax avoidance), as in this case Germany can easily demonstrate the center of control is in fact in Germany.
Especially as you will have to file tax forms and disclosures for your salary.
You guys might want to take a consultation with a proper accountant/tax advisor for these setups.
I do not know an EU or Asian country that doesn’t have a similar paperwork misery; I had a company in DE and in many others; you won’t survive in Spain as SL if you are small and follow the rules either. So literally no one does. No different in DE. We never got fined or even reprimanded. Largest fine in DE we got was for charging the wrong VAT for some items and that was not really that bad compared to all the tax breaks we got.
In Romania it's so bad that there are companies who will handle everything for you, even if technically the chamber of commerce has a digital interface as well. Everything is handled online and you get digitally signed papers in a reasonable amount of time.
This is probably the solution, an EU-wide company that has local offshoots and can handle the bureaucracy for a fee.
As far as I know, incorporating a BV in the Netherlands can be done in 1-2 weeks, with a lot of less pain. Many services are integrated and available online.
100% agreed! Reality is, many german businesses are just flying under the radar, as they simply dont want or cannot deal with all the tax crazyness and bureaucracy.
As someone living in Germany, I would be very surprised if someone legit manages to bribe their way to skipping a step somewhere. At an institutional level, perhaps it's more surprising if it never ever happens anywhere at all; but at an individual level, your particular case hitting a bribeable person and you knowing of it seems like worse odds than seeing a shooting star during a solar eclipse. Maybe if you are close family, or close enough plus a sob story, the person might have the ability to handle your case first; that sounds like something the computer system would allow in order to avoid getting stuck on a case they can't currently work on (for whatever reason) at the head of the queue. They're probably not alone though so it might not help much
Yes , but cfc rules are mostly targeted against passive income and exclude active companies.
They wouldn't matter in that case anyway as he would shift the tax residency to Germany by managing & controlling the company from Germany.
Not to defend German bureaucracy but if you are serious and want results this is not how you do it.
If you want a GmbH quickly there are specialized lawyers that maintain a pool of freshly founded GmbH's for you to buy. Everything is set up
for you to start. If you don't like certain things like the company name, you can always change it later.
That being said, I know plenty of people who founded their GmbH themselves and it went smoothly. It's not that it can't be done, it's more that OP chose an overly complicated and untypical scheme and was surprised about the complications.
> If you want a GmbH quickly there are specialized lawyers that maintain a pool of freshly founded GmbH's for you to buy.
The fact that this absurd situation exists is a huge proof that the bureaucracy has gotten out of hand and that Germany is unfriendly to starting new businesses.
> The fact that this absurd situation exists is a huge proof that the bureaucracy has gotten out of hand and that Germany is unfriendly to starting new businesses.
While this is somewhat true, this is not an indication. You can start a business tomorrow for a fee of 30€. Even a normal UG is somewhat quick to set up and less expensive. Just because you insist on some non standardized company setup is not a good indication for an economy
Well, German bureaucracy is out of hand but selling freshly founded (or sometimes deliberately aged) companies to speed up and ease the founding process is neither absurd nor uncommon. I think the business of selling shelf companies exists to some degree everywhere.
I makes a lot of sense too. This is a one-time fee for something you gain nothing from and you learn nothing useful from.
That's your problem right there. If you live in Berlin, take the 2 hours and go to Hamburg or Leipzig before doing anything that needs a working bureaucracy.
I'm not 100% sure, but I believe there was an issue with the "place of effective management" or perhaps the company address not being in your federal state.
You probably would've needed to get an address there somehow, yes. There's services that do that for you, the non-shady ones being provided by lawyers and notaries.
[ed.: a tiny office in Leipzig is pretty cheap too, but you'd need to ensure mail doesn't pile up there unchecked.]
Unfortunately I'm not joking about this entire thing. Berlin's underfunded, overstressed bureaucracy is to be avoided like the plague.
[ed.2: to be clear, it'll still not be great. Just less bad.]
You need to demonstrate real substance (such as actually managing/working from there e.g in your case Leipzig ) .
If you can't prove real substance they will just shift it back to berlin and you could be also held liable for tax evasion (if there is a lower gewerbehebel )
It's perfectly fine if they - or you - shift it back to Berlin… after you're done with all the initial setup.
But also, yes, this is one of the reasons you can hire lawyer's offices to do this, they know how to spin it such that they're regarded as administrating the company in their location (which is arguably true at that point).
And just to note, there's the concept of "field offices" (Betriebsstätte) which would need to be set up. That does still involve Berlin bureaucracy, but only for a Gewerbeanmeldung.
(Really: ask a lawyer. I hope nobody is taking legal advice from a HN thread.)
> It doesn't sound easy nor cheap to buy a company and change the company name.
Again this is very straightforward and routine in the UK: https://paramountformations.com/product-category/off-the-she... ; a similar experience to buying a domain and spinning up a website on it. In organizations like investment banks they will have shells ready to go in the way you would have kubernetes pods.
I don't think domestic invoices should be reissued once the VAT ID arrives.
So, the story is really that it takes a couple of weeks for a freshly founded company to be ready to invoice customers outside of Germany, which I agree, is a sad state.
> If you want a GmbH quickly there are specialized lawyers that maintain a pool of freshly founded GmbH's for you to buy.
That. It's possible to go even simpler if no limited liability is needed.
Just Gewerbeanmeldung costs maybe 30€ and takes less than a month normally. Large cities even have online forms for this.
Also the reporting duties are much simplified. ChatGPT and some accounting software are very helpful. Although a tax consultant and probably a liability insurance are recommended to avoid bad surprises.
Yes, my suspicion is that OP went to a lawyer and said: "I want to minimize my risk as much as possible, what do I do?"
And of course, lawyers being lawyers, answered you need to wear both a belt and suspenders. This is the answer you'd expect from a lawyer. It is your responsibility as a founder to do the risk assessment. The fact that almost no one wears both a belt and suspenders might have been a hint.
They studied AI and are building an AI company. I doubt the idea for the business structure come from a lawyer, to be honest. Especially such an overcomplicated setup with so many real-world issues that they're running into right now.
> Which leaves the only real question. Why 25,000 at all? It is my company and my risk. If I want to start with nothing, that is my call, not a toll the state collects before it will let me try.
But it was his call. As the author has already pointed out, he could have started a sole proprietorship, but he did not want to take on that risk. The 25'000 is because it's not his risk if he starts a GmbH, it's the GmbH's risk.
Also, the 25'000 are not a toll, it's the company's Stammkapital. The GmbH owns that money. And afaik, in Germany you only have to pay in half of the 25k.
Yes, can confirm. You can start a GmbH with exactly half of it (12.500€). And the money does NOT need to stay locked on the bank account. You can spend it for company purposes (but NOT for founder wages).
Yes, afaik you can pay out founder wages with Stammkapital.
However, it has to be actual wages, i.e., the founder has to do work in return for a salary, and the salary has to be reasonable. You can't just have the GmbH pay you back the money you put into the company. There are also other limitations (https://dejure.org/gesetze/GmbHG/30.html), but that's the main one.
The difference is shareholder (=Gesellschafter) and ceo (=Geschäftführer). They may be the same person. So paying wages for the work as Geschäftsführer is fine (reasonable amount, taxes, etc), paying out money for being a Gesellschafter is not.
I can't verify if the author's attempts are even real tbh. Sounds like they were creating problems for themselves just to see how much it would cost to get sort them out. For a GmbH you also want to get an accountant and just delegate the whole process to people who can guide you before you hurt yourself.
Yeah, this reads to me like "I made some weird decisions, and now I'm upset they resulted in a weird situation." My feeling is that starting a GmbH is relatively simple, quick, and cheap, so it's not worth trying to engineer some workaround to problems that most likely didn't exist in the first place.
The authors claim that he spent "9,600 euros to start a company" is misleading. Since he wants to reduce his liabiliy and therefore the risk of his customers as much as possible, he opted for a complex solution that involved founding two joined companies.
In addition, he counted 2,000 € of shared capital as an expense, which it isn't. He did not opt for a "cheap" UG which requires no up-front capital, because of its bad reputation.
He also includes a bill for accounting software of 426.97 € into his calculation. This has nothing to do with founding costs, but are operational expenses.
As the author states that he set up the company through a law firm, I wonder which of the figures includes the cost of this service. To be fair, this should be listed separately, as such costs can vary widely or be omitted entirely if the company is incorporated solely through a notary.
Also the information about the minimum deposit when founding a GmbH is incomplete. He states: "A GmbH wants 25,000 euros sitting in a bank account before it is allowed to exist." Fact is that you need only deposit half of it upfront into the GmbH; you only have to deposit the rest of the money if the company is in trouble. The company can also immediately lend the deposit back to the founder at market rates. If the company’s articles of association permit it to hold shares in other companies, the company may also use the contributions to purchase shares or similar financial investments. His law firm should actually have advised him on this matter.
The main differences between a standard GmbH and a GmbH & Co KG lie in their somewhat different tax arrangements.
So all in all, the author paid 7,227.74 € to found a rather complex company structure. Judging by his reasoning, presumably for the wrong reasons.
When I found a GmbH in 2019 without the help of a law firm, it cost me about 2,000 euros (if I recall it correctly).
The notary system is pure scam and should be abolished. They literally just read your documents, stamp, sign. It’s expansive, outdated and doesn’t bring any value
For information: GmbH & Co. KG is one of the most complicated forms an company can be founded, the same goes if the inner company is an UG.
Many things have to be done twice.
The only good thing is that an investor or an owner are not liable with their private money.
> The only good thing is that an investor or an owner are not liable with their private money.
That’s incredibly important. More than a footnote. I would consider any other form to be non-viable if it doesn’t have such protections.
For comparison, starting an LLC in the United States is a trivial operation. I can’t even remember how long it took me to set mine up because it was a trivial event. Maybe a couple hours, mostly research? I also have to fill out an online form and pay a few dollars every year to renew the LLC.
Setting up a plain UG or GmbH gives the same advantage of not being liable with your private money, and is also a comparatively trivial process. Especially if you are the sole owner. Still slow compared to the US or UK, but not half a year slow
Starting out a company as a UG & Co KG is a tax optimization move, not a liability issue
> Starting out a company as a UG & Co KG is a tax optimization move, not a liability issue
Thanks for the clarification. However I’m still surprised that tax optimization is also considered a footnote in these conversations.
In the countries I’m familiar with (mostly the US, minor second-hand experience with friends in some other countries as they started their businesses) starting a limited liability business venture that has the tax structure of a business isn’t considered a heroic effort. Starting the business is basically the least of your concerns. Almost a formality.
When I first started my company I half assed it. The LLC was quick and the EIN took two weeks. I accidentally signed a contract with my name instead of the company and elected to be a sole proprietorship. These are all the worst ways tax-wise to do this.
By Nov that year I decided to look into the tax implications and they were unpleasant so I wrote the IRS asking to be considered an S corp from the beginning of the year and they sent me a letter saying it was so. I ran payroll in Dec to catch up.
When doing taxes likewise I added a cover letter explaining the mistake about which entity was to receive the money and then assigned the income to the S corp on the return and worked everything through and corrected it in the right way.
The return took months to process and I had a mistake in the taxes that I was fined for a couple thousand which was reasonable but they accepted all these natural errors that I fixed up.
That sequence of encounters with the US government blew my mind. The much maligned IRS was eminently reasonable.
You can get the same in Germany with the much simpler GmbH or UG. GmbH & Co. KG is much more complex and mostly used to save some taxes in some scenarios.
(However I absolutely agree that all of this is much too complicated and slow here in Germany)
The notary adds about a week to the process (2-3 hours of your time, plus the time to wait for the appointment), and about $1000 (depends on how much money you put in the company). And for "standard" setups you can skip the lawyer and simply use the templates and "free" legal advice from the notary (free as in "included in the notary fee you have to pay anyways")
Yes, it's more involved than an online form. But in the grand scheme of things, a notary is neither a huge expense (the tax advisor will likely cost you more) nor a big time sink
I did a GmbH with "Musterprotokolle" so virtually no lawyer fees and quick and easy to set up.
And a GmbH is limited liability. It's in the name. Gesellschaft mit beschränkter Haftung. GmbH.
The Geschäftsführer is liable for certain (avoidable) things in either case.
The difference is that that the Co KG can be taxed like a "Personengesellschaft". So you wanted to optimize taxes, which leads to a more complicated structure.
You are certainly allowed to choose such a more complicated setup if you think it's better for you. But then don't moan about it being complicated. It was your choice.
> But then don't moan about it being complicated. It was your choice.
I don’t understand why you’re deriding someone for explaining why establishing a common business structure is slow and complicated.
The fact that a less advantageous business structure is available faster, but with significant tradeoffs, does not diminish the problems with this business structure.
I am pointing out that his claims are, in fact, not true.
It is not this complicated to set up a limited liability company in Germany. It is this complicated to set up his choice of a two company setup. Which is, I repeat, his choice and much rarer than a GmbH, at around a 5-10% ratio. Because it is more complicated, not just to set up, but also to run. You have two companies, so two sets of books, two sets of audited returns etc.
Which is why most companies are not GmbH & Co KG. They are plain GmbH. A GmbH & Co KG is a much more complex setup and known to be a much more complex setup. Which he knowingly chose.
And his claim that this is somehow necessary for limited liability, which would be a legitimate "significant tradeoff" is simply not true at all. That's what the GmbH is for.
Now maybe he was badly advised by his lawyer, but then complain about the bad advice. Not about the consequences of choices you made.
GmbH & Co KG are not that common, in fact the overwhelming majorities are GmbH, UG or AG (public corporation). The only benefit you can get out of this shell structure is that you don‘t have to disclose investors publicly
It is one of the most complicated forms. A GmbH alone is good enough in 99.99% of cases, and its usually done really quick.
Also, if you believe in your product there usually isn't a reason to go for a GmbH this early. You can send invoices a lot earlier with just a eK or GbR. Its not an issue to adhere with your private money if your product isn't causing damages.
> Its not an issue to adhere with your private money if your product isn't causing damages.
Might happen really easily though. E.g. you install some package which has been compromised, infecting your software product and suddenly all your customer's systems are cryptolocked and you are on the hock for millions of €€€.
Or your db crashes in new and creative ways and your backups don't work for some reason and now your customer lost an expensive contract because critical data that was in your db is gone.
Of course, you can try to foresee every eventuality, but you will indubitably overlook something and probably never make it to market.
So basically you go for the legal stuff only really big companies use (instead of changing once its necessary) because you dont believe in your own product and dont want to be held liable, got it.
If you just want limited liability, you'd go with a simple UG (takes a week and costs 600€, but if you do it right it takes 2-3h and costs 300€).
If you additionally want to avoid being taxed when you sell stock, the entire company, or transfer it to another country, you'd create two UGs, one as the primary company, the other as a holding. That takes 2-3h for both and costs typically around 800€, but can be had for as little as 400-500€.
This is what previous German YCombinator startups have gone with and recommended in the past.
Going one step further, because a UG is so easy to start, banks will refuse to loan you money in the first year, so you can only raise money by selling shares. If you want to avoid that, you can start a GmbH with an UG as holding instead. This will take a month and requires you to sign over at least 12500€ of assets to the GmbH.
Now, what if you want all of that, but you also want a shell corporation to hide the owners and investors? Then you'd start a GmbH & Co KG, where you set up a limited liability corporation, a shell corporation with multiple special classes of stock, and potentially additional holdings. This is what OP went with.
Depends. Given OP built yet another AI tool, yea, I want to hold them liable in case something goes wrong (not that I'd buy these tools in the first place).
He wanted to go all out and maximise "company form". Same as optimizing your website for hundred of thousands of visitors even if you have only like one hundred visitors...
OP wanted to set up a nested copmany structure. Instead of Person -> LLC it goes Person -> Limited Partnership --> LLC. The in between company is only for tax-efficiency and has nothing to do with limited liability.
You get one chance at getting your company form right. Any other new chance costs a ton of money in restructuring. Software is malleable, companies are less so.
Going from the scheduled notary appointment to having the first company registered comes out to 17 days in the timeline. 24 days if you add the time for getting the notary appointment. From experience, getting your tax id will take another four weeks or so, depending on your local tax authority. OP is still in that four week window, starting from the point where the paperwork was filed. So about 2 months total of processes you can't speed up.
But notably in OP's case, most of the time is actually spent with the lawyer and tax advisor, no the bureaucracy itself. The more complicated company structure (Ug & Co KG is basically one company (an UG) owning another (a KG), giving a very similar structure to an UG at a slight tax advantage), doesn't help, but it's really not where the majority of the time here is lost (it probably does account for about half of the money though)
Imagine 3 young Italians that would like to work together in a startup. Let's consider only the first year, imagine a B2B SaaS, they are incorporating but they'll work on the product and approach possible customers.
Zero revenue.
Well, if you followed the law, you probably would spend something between 23'000€ and 25'000€ in total. WITH NO REVENUE. This is because even if you work for free for your company, you still have to pay taxes for INPS, our pension system.
And if someone invests in your company, you can't live out of nothing and would like to pay a founder even the minimum salary, YOU HAVE TO PAY INPS AGAIN.
This is crazy, our country is a joke.
EDIT: Adding a bit more of scary context and nice sprites.
None of the common financial advisor you find in Italy have ever heard of funding ways or contract terms that are really well known globally.
Do you want to include drag along and tag along clauses in your company statute? You have to talk with really expert lawyers and notaries in Milan that will bill you thousands of € for something that in Delaware is a pretty much standard single line of text.
That sucks, my fellow Italian. I haven't looked into our country since I live abroad for a long time, but I'm also paying health insurance here which is not cheap at all, and haven't added it to the post since it's not necessarily a company spend.
You have to savour the lack of self-awareness in this one.
> Founder chooses the most complex legal structure that's readily-available... and is surprised that this complexity comes with laywer and notary fees.
> Founder decides to incorporate a company with the name of a popular brand of kitchen rolls... and is surprised that it's too generic.
> After "weeks of correspondence" (and, I suppose, extensive research), founder decides to incorporate a company that's named the same as a Swedish online marketing company instead. Very distinctive. No risk of confusion, ever.
For anyone else confused who didn't read the article at first: these aren't actually quotes from the article, afaict this is 4chan style bullet points (green text)
The author went with an UG nested in a KG as the legal structure. That's two legal entities. It's a neat workaround to avoid corporate taxes (the KG acts as a pass-through vehicle, for taxes and for liability), and avoid personal liability (which passes through the KG but stops at the UG).
In comparison, AG and GmbH also shield their owners from liability, but require capital deposits and are subject to corporate taxes.
Going with a UG-in-a-KG is an exercise in eating your cake and having it too. It's a cool legal structure that works around some of the limitations of its building blocks. It shouldn't come as a surprise that the people who can build the neat hack for you are going to want to get paid in order to do that.
I looked into GmbH (german) , BV (dutch) , and OU (estonian) . GmbH seems very unpleasant. BV and OU are easier to obtain. But BV requires your primary place of business to be the Netherlands, which isn't always practical when you're trying to extend your activities internationally. OU is supposed to be better for international operations, but -because it's a single country initiative- creates new and interesting tax problems.
At this time, the whole system seems to revolve around geographic location. As long as you stay put you're sort of fine, but if you move around within the EU, the law doesn't stay stable around you. This is impractical.
> But BV requires your primary place of business to be the Netherlands, which isn't always practical when you're trying to extend your activities internationally
You bill from the Netherlands and I think this is the only thing required. Uber in Europe charges your cards from Uber BV for example. And I think Uber is pretty international.
Especially as a solo entrepreneur, your llc would have to have substance in the Netherlands. Otherwise, it risks getting requalified as a country-where-you-reside llc.
Why would you otherwise voluntarily subject yourself to the extreme complexity of countries like Belgium or Germany if you could just set up a simple Bulgarian or Estonian llc?
As far as I'm aware , EU inc would be an opt in initiative meaning that it likely wont change anything in Germany. DE has a a very powerful notary lobby that will oppose this at all costs.
I read that as the founder being able to opt into choosing EU Inc, not that only some EU member countries would offer it.
edit: it's a regulation, not a directive, so it will be directly available in all countries, without each country creating its own laws to implement it. But it'll take until 2028 or so until it's actually be available.
I grew up in Germany and Austria and did my first startups there, then went to New Zealand and built startups there and currently live in Portugal and built startups there. Europe is broken beyond believe. I moved everything back to New Zealand because the bureaucracy, the level of compliance, the insane inefficient here is killing me. if the EU is serious about wanting to build a meaningful startup scene then it has to listen to EUinc, drop its completely unfounded arrogance and learn from others. So looking forward to leaving again. I highly recommend founders in the EU to found in a sane county, if inside EU is a hard requirement, look at Estonia and Lithuania, skip the rest.
My country, Angola, implemented online incorporation recently. They're very proud of it, but oh boy, do they need to burn it and salt the earth it stands on. It's harder and takes longer to incorporate online than brave the long lines at the government agency. I can incorporate IRL in 1 day. It took 2.5 months to do it online. Ultimately I gave up and told them to cancel the whole thing. And then it got incorporated the next business day. Maybe I'll also post about that experience.
Well, he used a popular trick to use LG and Co KG as two seperate entities, usually in the combination GmbH & Co KG. Which is in my eyes unethical and complicated, but tax instructors favor that scheme to limit liabilities. Selbst Schuld. In my own companies I never spent more than I had, and never feared liabilities taking away my personal income. Never needed a lawyer, notar or such leachers. Everything can easily be googled. Could write invoices after two weeks. It needs much longer to get an internet connection.
Germans are crazy taking you to court, but it's not as risky as in the US.
"To some clients, 'UG' reads as 'not serious.'" -> more of a sales isssue
Consulting or dev work doesn't need deep capital. we're insured for X if Y happens. A UG is fine. The "not serious" label only sticks because founders keep caving to it.
Let the client adapt to your setup, not the reverse. If their compliance department doesn't get it, that's a gap to close, evry time you stand your ground, you normalize the UG for the next founder.
Been there too. Paying thousands of € for a notary just to read some text you wrote out loud to you is absurd.
The cherry on top is the exit tax:
> And no, I could not just leave instead. My first company, Freshflow, is valuable enough that walking out of Germany would trigger a massive six-figure exit tax, on gains I have not even realised, purely for the privilege of leaving.
This is ostensibly there to prevent large-scale tax fraud but has ridiculously low thresholds that make life difficult for anybody who is shareholder of even a small company.
Maybe I am missing the point, but what is the alternative? You found a company in Germany, dont realize your gains, therefore dont pay taxes, then leave the country, realize your gains, and still dont pay taxes? Why should Germany or any other country allow this?
The issue is liquidity. The tax comes due as soon as you leave, but you might not be able to liquidate your shares quickly enough to be able to pay those taxes. Depending on how your company gets valued these can be eye-watering numbers.
This is something you can solve with enough time, but if I get a job offer where I'm supposed to start in 2 months? Very inconvenient. (There are some ways to spread this out have this tax burden spread out over time, but it still represents significant friction)
You own a company so valuable that the tax on selling it shares puts you in serious trouble, but you still need to a start "a job"? A Job that requires you to change your nationality/tax residency to a non EU-state?
Edit: Maybe I should give an example:
Lets say you build up a company, your shares are worth ~100k, while you payed yourself a living salary of ~2k so you could pay rent and buy groceries but not much more, especially no savings.
Now you get on offer to work in the US for 180k/a, you sigh "finally" and just want to move, but the German wants 30k Taxes on your unrealized ~100k capital gain before your leave - Is this the kind of situation you are referring to?
Pretty much. I just have a symbolic 5% stake in the company and working there has certainly not made me rich. I'm still early in my career so I don't have a ton of savings. It wouldn't cause "serious trouble" but paying tens of thousands in taxes on top of the cost and hassle involved in moving overseas is still a significant burden and certainly a case of the regulation missing its mark.
As long as Germany and other countries allow foreign companies to do business with their subjects, then foreign companies will be at advantage to domestic companies because of the exit tax.
If they want to be strict about it, they should only allow German companies to do business with German subjects. Then there wouldn't be an advantage to foreign companies.
German here. And this is just the standardized SETUP! Wait until you have an edge case or a complicated tax situation, or - dare you - you want to work from a different country.
Germany feels like the government tries to make everything as hard and complicated as possible, to block ANY steps forward. It feels like organized sabotage to me.
for all the people posting founding in Ireland or Estonia (or England!!) etc. The local bureaucracies will spend infinite resources on nailing anyone down on the place of business being != to where the registration is. That is coercing one way or another to incorporate with the full overhead locally after all and most importantly that taxes are not happening in Ireland but to feed the local administration.
I am an electrician. Got my certification done with Handwerkskammer, went to the city hall, registered my company and filled online form rejecting the option with VAT number since all my clients are in greater Munich area. Same path could be chosen with VAT number. Ranting about choosing most complex business form and having no money for a consultant is not adequate in my eyes. Btw I am always liable as electrician (since it is dangerous) and can’t hide behind limited liability company in Germany.
When you choose that you need double layer of limited liability. Maybe having a consultant is extremely good idea. To understand exactly what you need to do at both layers. And maybe in such setup some slow down should be fully expected. As one layer is acting for the other in your stead...
To me things taking longer and being more complicated sounds entirely reasonable and natural in such setup...
And you really don't have to. I just went to one a single meeting, signed a single piece of paper, paid 60€ (probably still <100€ these days) and was done with it. But as GP already alluded to: I didn't choose the structure that is very well known to be the complicated one.
> Btw I am always liable as electrician (since it is dangerous) and can’t hide behind limited liability company in Germany.
Under some circumstances you can be held liable through a GmbH, but not generally speaking.
> rejecting the option with VAT number
Means you are planning to run a small business (making less than minimum wage on a yearly basis), also you are opting out of Vorsteuerabzug. Anyone that wants to live off their business needs VAT. And that is given by Bundeszentralamt für Steuern and the wait times are often excruciating.
But his clients aren't all the the greater Munich area so how is that even similar? Surely having a complex form is the issue as this is what fits his needs. Why does the form need to be complicated?
The last paragraph is very important to the story. His setup is essentially a shell company which add complexity. Setting up a UG is very easy, needs little capital and is especially created for one-person-companies. Additionally he is able to send invoices, just not internationally. I have a feeling setting up this corporate structure and registering it internationally would also not be done instantly in other countries.
The €25k working capital requirement seems a little prescriptive to me (in the US there is nothing like that for non-finance industries, although some businesses need bonds which pay clients/customers if you fail to perform), but it's also the case that most businesses are going to need more than 25k in working capital once they're beyond the startup phase, and outside of tech you typically have working capital requirements that grow with increasing revenue, meaning your accounting profits can be growing but you can still run out of cash since you spend it before you can collect it.
> The €25k working capital requirement seems a little prescriptive to me
It also hasn't been raised since 1981 when it was set at 50.000 DM. Which would provide a real trust to customers and suppliers working with a GmbH. This would mean 65.000€ accounting for inflation.
And trust is key in having a smooth running economy.
We outsourced it for 2.5k (extra) and it was still painful, took almost 2 months and worst of all wasted so much time and focus.
The worst was sitting at the notary, and getting read out loud by her what we were about to sign (also paying for that).
If you think about starting a company, spend some time to think through what it would mean for you to be a Delaware C Corp or an Estoinian one. It will increase your chances of success as you can focus on what matters.
> If you think about starting a company, spend some time to think through what it would mean for you to be a Delaware C Corp or an Estoinian one. It will increase your chances of success as you can focus on what matters.
Moving to Estonia or - even bigger hurdles- the US is not without its distractions either....
I seriously don't know what you people are doing. I've set up companies in Germany, the US, Brazil and Mexico.
The US was BY FAR, the most enjoyable experience. Won't say anything else. It was a breeze! But Germany wasn't as bad as people make it sometimes. Just don't go with a super complicated, overengineered setup and you are up and running almost instantly. Better won't mention Brazil, though.
If you have the resources, get some QUALIFIED lawyer/notary on board and it'll all be super chill and quick. And if you're just getting started, just do a sole proprietorship as you get started (and you can start working pretty much on the same day), and have the GmbH setup process run on the side.
I ran multiple businesses in Germany and it's possible to set up an UG way cheaper and way faster via Musterprotokoll. You can do the majority of filings yourself. There's tutorials (fuer-gruender.de is great). If you get a lawyer and tax advisor for every step, it's also expensive on other countries. And doing company accounts is also work elsewhere. Not saying that it couldn't be way better in Germany, but this blog post is more a rant than anything else.
I founded a UG with 2 friends. 7.500 capital, 2.500 each. From that money, we paid the notary. We drafted with chatgpt on our own and presented it to an attorney for review, ~300€. Notary ~1.200€. All in all, we are 1.5 years in, we still have ~3.000 left from that 7.500 capital. Obviously you're doing something wrong
German system supports wealthy individuals who are planning to stay in Germany long-term, but is horrendous for anyone without cash in the bank willing just to try something out.
> My first company, Freshflow, is valuable enough that walking out of Germany would trigger a massive six-figure exit tax, on gains I have not even realised, purely for the privilege of leaving.
Without this "exit tax", every founder of a successful business would have a huge incentive to leave and to realize the gains elsewhere. It's not a tax for the privilige of leaving, but for the privilege of building a company. I can see only three alternatives to this:
- Abolish the capital gains tax entirely.
- Make defering it impossible. Force people to pay immidiately. No "exit tax", but people have to pay for unrealized gains.
- Tax people when they realize their gains in a foreign country.
It should be possible to move within Europe, then when the liquidity event happens tax me from the countries where I've lived, proportionally to the time I've lived there.
If you want to move out of Europe, you get the exit tax as before.
A fourth alternative is to leave, and a fifth is to not start a company at all.
Now you understand why the USA deploys 3-4x the amount of VC capital compared to the EU. And prior to the current administration, entrepreneurs mostly wanted to get to the US.
Are you aware that the US charges an exit tax if you choose to renounce your citizenship? And if you do not renounce it, they will tax you no matter where you live in the world?
Yep, and it’s still worth it for a multitude of reasons. Business formation is easy in the US, and taxes are generally lower than other places. Current administration not withstanding, most people don’t want to leave once they get to the US.
> And no, I could not just leave instead. My first company, Freshflow, is valuable enough that walking out of Germany would trigger a massive six-figure exit tax
Something is wrong here if you will be liable for at least a hundred grand of exit but balk over 25k to start a new company.
So for a UG it's a Kommanditeinlage. But it doesn't change the fact that you can spend this money for business purposes. You just can't wire it back to yourself or pay it to yourself as a wage. Feel free to buy office furniture or company devices with it.
It's a common misunderstanding that this money needs to be reserved somewhere for liability purposes. That's not correct. You can spend it, both in a GmbH as well as in a UG. Look it up youself (e.g. https://www.anwalt.de/rechtstipps/stammkapital-muss-ich-das-...)
"My German clients I could bill today. But a domestic invoice now would have to be reissued the moment the VAT ID arrives"
Not a good idea... Companies will have to re-enter their VAT reports in previous taxation periods. It will trigger even more hassle an pushback form payers...
While EU is big and welcoming family, nobody wants to deal with non-resident bank accounts and tax liabilities :)
it is very funny that most of the (presumably germans) in the comments are saying "it's not that bad and it's fine because you chose a complicated LLC structure"
My understanding what is described is Limited Liability corporation hold inside Limited partnership. Not either of those alone. This setup allows some tax games. But also clearly is also much more complicated to setup as first you would need the limited partnership...
It's probably only funny because the commenting germans are aware that there is a much simpler "UG" (without the &co KG), which is pretty much a LLC, which you can open on your own, a bit faster, much cheaper. But apparently OP didn't do that for tax reasons (in a normal UG, if you want to pay yourself, you gotta pay income tax and all the other stuff)
If an american comes and says they founded a public company (with stocks and all), and complained about the fuzz involved, you would also tell them that it's their own fault, right?
That said, maybe the US/Delaware LLC has this component as well, I'm not a lawyer :D
UG is almost always a bad idea. Just go with the GmbH from the start. UGs need to convert to GmbHs over time anyway, it is just added bureaucracy. Your tax accountant alone will cost 3.500-5.000€ in the first year, so you need the money anyway. Starting a UG with 2.000€ in capital is stupid idea, you risk going bankrupt early on. Rembmer, delayed filing for insolvency (Insolvenzverschleppung) is a criminal ofense in Germany and you are risking that to.
Looks like he got hot milked by “advisors” who insisted in an overly complicated setup. Setting up a UG is fast and easy as long as you stick to the standard and you don’t need advisors or lawyers.
This is what happens with complex organizations. People develop expertise in navigating the organization, feel pride in that expertise, and then snottily mock those who struggle. Even though they didn’t create it, don’t really like it, and have no stake in it.
But it is all arbitrary bureaucracy with little value beyond its own internal logic. Still gets fanboys somehow.
Say that to Tempo! It's like hoover or ipad, a word people use in place of the real product name, and no matter which brand the product is actually made by (a no-brand piece of paper is still referred to as Tempo)
It they're allowed to trade as Tempo in Germany, why isn't a company allowed to be called Plenty?
I agree it would be nicer if you couldn't hijack a normal word in the hopes it does well enough that people know of it and are constantly reminded of the brand, or that related searches have to consider putting this among the results, but in terms of a level playing field idk
Important note: The cost / delay he's talking about isn't registering a company; it's getting a VAT number. I've done both in the UK, and while getting a VAT number is significantly cheaper than 9k EUR and significantly faster than 6 months, it's not nearly as quick or cheap as simply registering the company, which is what many commenters (and even the author in TFA) are comparing it to.
I recently helped my friend (3rd country national) to open a new business in Czech Republic.
It took 3 months from registration to sending her first invoice. The longest wait was on the bank account: a very few places are willing to open company account if you don't have an EU residency. Without the bank account, she couldn't deposit founding capital (základní kapitál) which is required to complete the registration. It's even funnier cause the minimum amount to deposit is 1 CZK (5 cents).
Total cost to start business was under $8,000. The most expensive were legal services: writing down all contracts and customer agreements was around ~$5,000.
I feel like this is such an untapped market for getting digitilized. I was thinking to actually sit and vibe code it at some point but can't imagine doing this alone.
I gave up on trying to set up an company in Germany. Founding is the 1st side of the coin, but the other side of the coin are the complexities of closing your company (which takes at least a year as well) and exit tax (you might get taxed 6-7 figures when moving abroad even if you don't really make reasonable money).
My friend bought an apartment. In February. Still in processing at the Amt (bureau). It's nightmare fuel. They are sending physical letters, and are hand-matching payments from banks. Apparently, they couldn't match a 53 EUR transfer last week, so a ~400k EUR payment is stalling.
The issue is, the people holding the stamps (and believe me, they ARE stamps, with ink and all) are in charge, and are VERY reluctant to give up that comfy job. Zero accountability, too, since once you are a government employee, it's incredibly hard to get fired. So they stall the process, forever, without any reprecussions.
I am all for having and caring about process and dealing with everyone equally. That's why I live in Germany and not in Eastern Europe where often some money under the table is the only oil in the machine. No such oil in the German machine, thankfully. But it's infuriatingly slow, because bureaucrats are in control and will never willing give up that control.
I don’t know the specifics but the OP chose a complicated setup. Why not just use a GmbH which is the equivalent to an Inc in the US? The capital requirement is 12500 in the bank not 25000 as stated. There are online services that run the whole process for you similar to Stripe Atlas.
Even setting up a UG (with 1 euro stating capital) is very easy but you have to upgrade to a GmbH once you receive investment (investors usually demand it).
For the whole process there are standard forms. You only need to pay lawyers if you want to personalize your setup.
Maybe OP was just not advised well which is surprising given the amount of information available online (startup guides for Germany)
Maybe not a relevant experience then, as most people in this forum look for startup advice and take on external investment.
You can totally setup a Inc or LLC equivalent pretty fast in Germany as long as you stick to the standard. What he is setting up is basically an LLC owning an Inc.
This. Is founded (and liquidated) my GmbH with only 12.500€ deposited to the business bank account. Note this is not a cost, it just moves to the corporate account and can be used to pay expenses (notary, lawyers, hardware etc.). The remaining 12.500 are a permanent loan that the proprietory needs to cover on in case there is a liquidity shortage or liability suit etc. In my case I never paid the remaining 12.500€, and in liquidation process it balances out to zero.
But if you think founding a german company is difficult, wait until have you do an ordered liquidation (not bankruptcy) - that is madness on its own.
Mh, seems to me about ranting as some things went wrong.
With all due respect, founding a company shouldn’t be that easy; otherwise investors wouldn’t give you money for it. “UG” reads as “not serious” – no, that was in the past. Times have changed.
I’m not here to defend a big country that clearly has to do better, of course.
To me the most annoying thing about the UG is that your company name needs to include "UG (haftungsbeschränkt)", no abbreviations allowed. So unaesthetic...
I think most red tapes and bureaucracies have loop holes. For example, a different, simpler type of business type, then conversion to the actual desired type. At least, this has been my experience in a few countries I worked in.
Sometimes it will cost more up front, but if the end result is significantly faster, maybe it is worth it.
I am sorry he has to go through this just to start a business.
As others commented already - the author does not seem to understand principal idea behind running a business - a company is not something "yours", because you can just simply sell your shares or be moved out from the company by other partners.
Company is a state's legal entity given to designated people to manage (the forming person/partners) and profit from doing it successfully. If those people fail they have to follow strict rules (liquidation) or they will be sued personally for misconduct. That entity gives much more possibilities because it is limited liability - part of which is held by the state, and part by the running founders.
If you want something yours, you go with the sole proprietorship.
I had already people wanting to work with me before even starting the company. Couldn't send them invoices. Most importantly: didn't speed up the process!
it seems absurd that they would reject a plain and simple name? i imagined company names would be available on first come, first serve basis. why is that not the case?
I've setup my own company in Poland in 2015, by submitting a web form, 30 minutes later I could issue a fully VAT compliant invoice. This was not an incorporation however - that was a sole proprietorship, but I could still hire people full time, issue invoices etc.
You can do the same in Germany. Costs 29 Euros with an online form. Once the sole proprietorship is setup you apply for your tax id and done. The whole process took 2 weeks in my city. Legally you can even start invoicing as soon as you registered your business.
The problem with OP is that he chose an overly complicated structure. Probably got milked by lawyers and advisors.
the real problems with administration dome starts after founding in many but not all European countries.
There is light at the end of the tunnel as an EU Inc. is proposed.
However the bureaucrats in probable but all countries will try to water it down to pointless to keep or extend their responsibility territory and duties.
Wait until you want to convert the UG to a GmbH and realize that it's not simple or cheap at all.
It's not enough to have had properly filed tax returns every year, have a large enough profit-collection-line item in your books (25k EUR+) and then fill out a form.
No, if you want to use the profit your UG was required to accrue to raise your capital stock to 25k and rename it to a GmbH you need to get your annual accounts audited.
Or alternatively, you can pay in the difference between your current capital stock (e.g. 2k) and the 25k minimum for the UG and then rename the company and "just" have to pay for the notary, publishing to public records, court, ...
As much as I would like to agree with you about how non-digitized and rotten and crooked the whole notary etc system is - as someone who has incorporated and invested in dozens of German companies (UGs, GmbHs, and GmbH & Co. KGs), I’d seriously reconsider the UG & Co. KG structure for a one-person software business.
The tax explanation in the post is oversimplified.
Examples: With a KG, if the business earns €100k, that profit is attributed directly to you and taxed as personal income, whether you distribute it or not. At higher income levels, that’s roughly 45% including solidarity surcharge (and potentially church tax).
With a UG or GmbH, the company pays Körperschaftssteuer plus Gewerbesteuer, typically around 30% combined (depending on where its incorporated). On €100k profit, about €70k remains inside the company. If you later distribute it, you’ll pay capital gains tax based on the Halbeinkünfteverfahren on the distribution - which is 25% + Soli, bringing the total tax burden to roughly the same level as the KG.
The key difference is that with a UG/GmbH you can leave profits inside the company. That money can be reinvested into the business, other startups, ETFs, stocks, etc. - most often with only 1,5% effective tax while the money is working for you. You defer the second layer of taxation until you actually take the money out.
Also, you can pay yourself a salary. Whatever portion you pay out as salary is taxed personally just as it would be in the KG structure - but this time its company expenses, so no double taxation here either.
A few other points:
* A GmbH no longer requires €25k - its only 12,5k€ - and its also not to be locked away forever. The money can be used for legitimate business expenses immediately after incorporation.
* A decent tax advisor can usually get a VAT ID much faster than described in the article.
* A UG is widely accepted in the startup ecosystem. I’ve never seen customers reject an otherwise attractive startup because it started life as a UG. For investors, it's routine.
* Converting a UG into a GmbH later is routine, if you want to start small. If you have the 12,5k€ money, do a GmbH to save administrative hassle.
* A UG & Co. KG creates significantly more administration: two entities, two annual accounts, additional bookkeeping, additional filings, and additional advisor costs.
Of course there are valid reasons to use a GmbH & Co. KG, especially for complicated co-investment arrangements, but from what you wrote, that's not the case here. Therefore, for a solo software founder, I’d question whether the additional complexity buys you anything meaningful.
Bonus tip: You MIGHT want to consider owning your share in the Software UG not directly but through another UG, paolino UG or so. When you foresee to sell your business for significant money later, then you'll have exactly the same advantage, the money can stay in the company for reinvestment and you don't have to give up 50% of your capital gains in the moment you sign the sellers agreement. You CAN't do this easily later.
Not legal or tax advice. Just my personal experience.
Start a limited liability company in Latvia or Estonia. It will take you 1 business day, you can do it remotely, and, because of EU laws, you can do business everywhere in EU. Basically nothing you can do with Gmbh that you cannot do with Latvian or Estonian equivalent
The tax office can decide that the company is, in fact, a German company if the founder lives and operates in Germany. Now the company paperwork has to be done in two countries. I don't know what the tax implications are.
Applies to all EU countries btw, you can't just choose a different jurisdiction for your new company risk-free.
The tax office WILL 100% decide you have to pay corporate taxes in Germany - and it does not need to decide that in the first place, you will have to report it proactively on your own to the tax office and file for taxes.
Europe will suffocate under the weight of its own bureaucracy. The sad thing is that it is not new to me, I've heard so many stories like this one. This is the kind of friction that makes founders incorporate elsewhere.
Also, a founder spending months coordinating lawyers banks and tax advisors is not talking to customers or building the product. The opportunity cost here is huge.
Anyway, you are pretty close. One more push, don’t give up. :)
Germany is not EU though. Very different bureaucracy in different EU countries. Up to a point, EU doesn't add a single bit of bureaucracy to the stack. Only once you reach a certain limit you will have to enroll in an international VAT system, which is not too bad.
EDIT: Just re-read your message. I thought it said EU. But the point stands, Germany is not Europe either.
In many other european countries, the story doesn't change much - with some exceptions. The irony is that the EU is now discussing EU Inc. a law to let startups incorporate online within 48 hours, for at most €100, under a single optional corporate framework across Europe.
That is exactly the right direction. But for now it is just a proposal
When these threads show up it is always funny that Germans are shocked anyone expects anything else and everyone is shocked at Germany.
Luckily with how the current German economy is doing this is a problem that will solve itself. It's like the last half a dozen German governments look at the Morgenthau Plan plan and thought it was an amazing idea they must implement.
I really didn’t have the feeling that Germans are shocked about some of these inefficiencies at all. Typically they’re just a result of long processes thus difficult to change. I do agree that Germany and the EU as a whole should not make this process so cumbersome. It shouldn’t be easier to found a US foreign LLC from abroad than a company in one’s country or residence. The proposed EU LLC might solve some of those issues if it comes to fruition.
Regarding the economy though, Germany is still the third richest country on earth. I think this talking point about their huge regression is mostly FUD.
OP mentioned in the post that they can't move outside of Germany as it would trigger the exit tax (which would probably cost them significantly more).
This is going against multiple EU principles, but it was only introduced in 2022 and so far, there are no judgments on its enforceability as far as I'm aware.
Similar story in the UK\u2014registered a company online in about 24 hours and had a business bank account within the week. The gap between the best and worst EU jurisdictions for this is staggering.
This does bring its own share of problems. 1000s of companies are registered in the UK with literally no checks. No address checking so people just pick a random address to register from the phone book!
When it comes to tax issues etc. it turns out the company registration is meaningless. The sweet spot has to be somewhere in the middle. Starting a company shouldn't be something you expect to do in a day but it also shouldn't require you to sell a kidney or fill in pointless forms.
> When it comes to tax issues etc. it turns out the company registration is meaningless.
Taxes have nothing to do with the physical location of the company. You go after the owners, and I'm pretty sure you can't open a company in the UK anonymously.
There is an identity and address checks now in the UK.
Even banks are required to validate now, had my bank asking me to validate details even when i have my business for 6 years, same company, same address, and same bank account.
I founded my Estonian company within 3 days, that includes when the court rejected the name because a similar name already existed. Everything was online.
You only need a contact person and a legal address, which is only €100-200/yr. You don't need a local director, physical office or similar, and you don't need to live there.
I was waiting for 3 months for my VAT ID to arrive. Then I just called my finanzamt and told them why I have no vat ID. I think they just forgot, finanzamt said over the phone that "they opened a ticket" and 2 weeks later exactly as promised in the beginning it was in my post.
There's so many things that are plain wrong in the European ancient and bureaucratic commercial and corporate law.
It's insane that giving stock options (core to attract talent) or raising capital for equity is so difficult across Europe.
And don't get me started on how difficult it is to fire people that just don't work and only pretend to, spreading doing jackshit across the company.
Europe has the talent and even the capital, but the incentives are just not here, neither to attract talent nor serious investments.
The continent is old and politicians keep trying to band aid the system, consistently claim regional-national policies over common European rules, they will claim Europe makes it difficult to do business, just to reinvent their own commercial, import/export rules, tax rules non stop.
I don't want to say it's a disaster, but we really need some party that looks at commercial, trade and corporate law across Europe.
The saddest thing is that bureaucracy will stay, grow and flourish until the point of breakdown, when the system is not able to pay bureaucrats their salaries.
Or maybe even until they can't physically get to work (read with accent: "that I need to do even if I don't get paid")
At least on this specific issue, the EU is trying to simplify things by introducing "EU Inc" as a new corporate form. But it'll take several years more to arrive.
The EU is a single market, just form an entity in the quickest and easiest state to form it, open a bank account, payment processor and you’re off to the races, as long as you can accept Euros directly people are fine?
Who are these people that care
“Oh you don’t have a GmBH, oh your share capital is so low ohhh ho ho ho ho”
"Standard" German people have an deeply ingrained, culturally inflicted belief that administration is inherently a good thing, and that the more of it there is of it, the better the system functions.
Worse, when you try to gently and constructively engage them on the topic, their mind is so deeply dyed with the idea, that they either simply don't understand what you're talking about or when they do, refuse to engage because they find you so weird, it's a waste of time to discuss with you.
"Was nicht dokumentiert ist, ist nicht passiert". Yeah, right, except that "Alles erstickt im Papierkram" and nothing ever fucking happens.
I wonder what's the reason. Poland used to have horrible bureaucracy. You could argue this was due to lack of funds, or communist baggage. Yet, over the last decade digital administration has become a norm, rather than exception.
Germany doesn't have such excuses, yet there it is.
Yes. Unless you have hundreds of thousands of dollars that you can invest in the company that has not even been created, you would not be able to get a visa and your company would not be able to exist.
Unless you are a startup with large investors, that route is closed.
Yes. Can't just emigrate. No substance in the US meaning your llc would be liable for tax as if it were an llc in the country where you reside. You'd basicly double the liabilities and administration for no good reason.
Its always the caste lobbying for regulations "for the good of all" that break countries apart. My country's (Argentina) largest political party lives on by heavy corporativism, otherwise they would have been booted a long time ago.
> Which leaves the only real question. Why 25,000 at all? It is my company and my risk. If I want to start with nothing, that is my call, not a toll the state collects before it will let me try. And the cheap door has a price of its own: to some clients, “UG” reads as “not serious,” and they would rather deal with a GmbH. The structure built to let me in quietly marks me for using it.
The 25,000 is there to make sure you can cover some liability. If you really wanted "your company and your risk", you could have used the "simplest setup", where you are liable with your own money, but if you think about it that way, it doesn't sound so appealing, does it? So of course the UG which does not (yet) have 25,000 in the bank sounds less serious than the GmbH that has 25,000 in the bank. A company that starts with nothing wouldn't be a GmbH (limited liability company), it would be a GoH (company without liability), and there's a good reason why those don't exist...
> A company that starts with nothing wouldn't be a GmbH (limited liability company), it would be a GoH (company without liability), and there's a good reason why those don't exist...
Those do exist in other countries. An LLC in the USA does not generally need to have a certain amount of assets. Such a company is more or less without liability until it has some assets; the worst case for its owners when it comes to a routine business debt is shutting down the company. Exceptions are possible in case of serious misconduct of course.
Of course a company like that will find it difficult to borrow money, but it's not rare for its last bills to go unpaid when it goes out of business.
Whether those should exist or not doesn't have a clear answer. Culturally, Germans tend to be pretty uncomfortable with "sometimes shit happens and debts go unpaid", while Americans tend to find a moderate rate of that sort of thing tolerable, especially if it makes starting a new business viable for a greater fraction of the population.
Not quite. In the US this condition is handled at the back end. Running a corporation or LLC without sufficient capitalization can be grounds for piercing the liability shield in a lawsuit.
> Running a corporation or LLC without sufficient capitalization can be grounds for piercing the liability shield in a lawsuit.
Which is exactly how it should be handled, IMO: Deal with the abuse situations directly.
Forcing new companies to capitalize with an arbitrary amount of money at time of founding penalizes small players who want to start a company. It's also not a hurdle at all for large players who want to commit large frauds.
Is the gmbh pierce proof? Because then I like the situation where if you start with $25,000 under no circumstance can they get past the liability shield.
Usually, yes. There are a few exceptions, such as serious misconduct, tax fraud and not declaring insolvency when necessary. But as long as you're following the law, you're fine.
I have the impression the situations where that actually happens are at least arguably serious misconduct, and usually targeted at someone with significant assets.
A construction company that pockets ten million dollars and doesn't build anything probably can't shield its owner this way, but a single-developer software consultancy that pockets ten thousand dollars and delivers buggy code can.
In theory it’s based on whether the owner of the company intended to run it under capitalized in an effort to shirk liability.
But the larger point still stands: Limited liability was granted “on the front end” without the entity needing to demonstrate a minimum amount of capital. You’re only pointing out that in the U.S. that it’s possible that “on the back end” the owners of the entity might become personally liable.
Thats cause the software and computing industry early on, disclaimed all liability.
"Computers are hard, yo!". It devalues the profession.
And I thought no liability was bad enough... But no. Now its LLMs and " for entertainment purposes only". I take it management and leadership also read that, and don't give one fuck.
The ability to build reliable software has existed for a long time. Commercial airlines make heavy use of it, and serious failures are vanishingly rare.
The problem is building software to those standards of reliability is expensive and slow. Consumer software never justifies it. Business software rarely does. If you want me to accept liability for the consequences of bugs in code I write, I'm giving you a schedule five times as long and a price twenty times as high.
While extreme cases are the easiest to imagine, in real life the plaintiff almost always argues to pierce the veil and the defendant always argues the opposite, and both sides earnestly believe that they are right.
And in real life piercing the veil is extremely exceptional
Yeah but the veil doesn’t get pierced that’s super rare, which is more important than everyone’s emotional state.
I set up an LLC in the US for about $500 and pay Delaware a few hundred each year in fees. As it turned out, it was probably an unnecessary exercise and I probably won't renew in a couple years. But it wasn't a big deal.
Delaware is expensive and you must have had a very specific reason to build your LLC there, rather than for example in Wyoming - such that to raise capital, build a corporation, etc. Now if you want to shut it down in a couple of years, it's not exactly clear what you had in mind.
We have an UG for that. A GmbH is simply the wrong legal form for that sort of thing. You can create an UG with a single Euro on the bank account (and then immediately go bankrupt once you need to pay the notary).
No we don't. UG is still a GmbH bureaucratic monster which a bit less start capital. You still need to follow all taxation rules like GmbH, which costs you few more thousands per year (Bilanzeirung, Steuerberater, Abschluss, ...) just to be legaly compliant.
American LLC taxation is as simple as or even simpler than Anlage EÜR. And you don't need a tax advisor to do it.
A UG and and a GmbH is legal-wise exactly the same.
OP’s point is that you don’t need money in the bank to open an LLC like you would in Germany.
> sometimes shit happens and debts go unpaid
What’s wild is that this is pre-debt. The banks will have their own risk math for you so it’ll be a completely separate set of hoops before you get to be in debt as a company. Most will not even talk to you if you have 0€ in the business account. I don’t feel like a company with no assets or income can do that much damage to their societies.
Also as a small company in the EU I have to have liability insurance for the company for any major clients so the insurance company also will make you jump through further hoops.
> I don’t feel like a company with no assets or income can do that much damage to their societies.
Keep in mind that those companies will almost always own some debit to their employees when they blow up.
IMO, $25k is a ridiculous amount of capital to require from a company before they can operate. But capital requirements are good, and they should be proportional to employment, not company existence.
There are ways to go into debt without dealing with banks. Any time you use something and are charged afterwards, it's a debt (which you could fail to pay by being broke by the time the invoice arrives). Common example - rent/lease. Or gas/electricity.
Those vendors can always require payment in advance, or a guarantor.
For a new business with $0 the individual running it will be the guarantor on those.
The problem here is that 25k€ is too little for some types of businesses (say, a bridge architect), and way too much for others (say, selling spice mixes online).
I don't get the "seriousness" memes in Germany, which sound more about gatekeeping than anything else. Why not require 1M€? This is serious! More serious! Meanwhile, they have companies likes Wirecard that went under in a day after it discovered a "hole" of 2 billion (magic!).
Why not just allow people to create a Gmbh with 2k€, and then publicise the amount of share capital so clients can make their mind? It's how it's done in France for instance, allows some flexibility (I know, a swear word in Germany), and sounds less like a social punition (something Germans love).
The hack anyway is to create an Estonian e-company, with almost no maintenance/creation costs. Germans are the largest funder demographic for this reason.
> The 25,000 is there to make sure you can cover some liability
I would suggest that this idea of a GmbH does not actually work the way you think it does. Maybe it once did, but not any more. For instance:
Much of the regulatory structures in Europe work this way, they assume that both good and bad guys will play by the same rules.Spoiler: the bad guys don't care about the rules!
I don't know what that example is supposed to prove? Everyone in a business relation with one of these companies can make claims against them. The problem with Wirecard is rather that the 25k of each of them aren't going to make up for the massive damage caused by Marsalek. Then again, I don't think we should structure our systems to expect the blackest of swans that guy was.
The 25k are intended to ensure liability coverage for very small and young companies, not giant corporate networks with billions in backing (well, theoretically anyway... hah)
Im pretty sure those wirecard companies all had the mandatory money in the account. They just did more damage than that.
Ok, so what is the point of the money?
High initial capital requirements have repeatedly proven to be more detrimental than beneficial (https://mariusring.github.io/web/BacherFagerengRingWold_Sele...). Germany is an outlier in wanting to keep the barriers high.
Running a business in Germany is for a closed inner circle. The apparatus is not meant for broke college students turning their weekend project into a company.
In Germany getting 25k as a working adult is hard, because before taxes and social security that's 50k you need to earn. Thats more then an average person earns in a year before taxes, so they'll likely be saving for 5-10 years if they want to start one.
Now wherever that's an issue with the 25k admission fee OR with the fact that wages have stagnated for about 25 years in Germany, consequently mostly wiping out the middle class ... That's debatable.
> In Germany getting 25k as a working adult is hard
German median household wealth is 4x that.
You mean median household net worth.
This estimate includes things like a car, a partially paid off house and other assets.
Most of that wealth cannot easily be converted to cash which you'd need to start a company.
Also that's median. Germany is a country with a median age of 45. So yeah, someone who likely worked for 20+ years will likely have saved around 100k, I don't think you realize how that's an argument in favor of what I just stated...
Why not?
Depends on your product and expectations of your customers.
B2C: I don't care what company structure you are.
The authors inability to understand this really makes wonder how much of the rest of their story is essentially self-inflicted.
They are jealous of the US system where you can create an LLC in one hour for $200, and by the next day be doing business with all your personal assets isolated.
The US system is built to support entrepreneurship while the EU system broadly is to support the consumer and employee. The US will never be able to match the EU's consumer and employee protections and the EU will never be able to match the US's ease of doing business, because to have one you have to fundamentally give in on the other.
Depending on who you ask, one system is wildly better than the other, but at the end of they day they are just different systems with different tradeoffs.
> The US system is built to support entrepreneurship while the EU system broadly is to support the consumer and employee
I disagree: the EU system broadly is there to support _the incumbants_
"Regulatory capture" is the less kind way to put it.
The US system is biased this way, as well.
In a healthy market economy, entrepreneurs are meant to support the consumer, and they do so partly by competing with one another for talent, which requires supporting the employee. We could argue ad nauseam about the health of the US's market economy, but ultimately is has resulted in unignorably higher wages than in Europe, even at the lower end of the economic ladder.
This probably also has a lot to do with it's much tighter market integration than the EU, although they seem to be finally addressing that issue with the 28th regime.
A popular theory of Europe's historic economic outperformance relative to the rest of the world, leading up to the industrial revolution, relies on competitive market theory: constant warfare spurring innovation, as well as relatively free movement of the best and brightest to seek greener pastures elsewhere on the continent. These days, the most ambitious Europeans tend to move to America to raise money and find talent, and it seems many EU countries are finally waking up to the fact that they need to do better to support entrepreneurship.
I would posit that many EU citizens are still living with the idea of their historic economic outperformance even though it has not been true for many years.
I think this is a false dichotomy. Consumer return policies, customer service, etc. tend to be much better in the US than in the EU.
I would characterize it rather that the US is pro-business and pro-consumer, but somewhat anti-average worker.
Is that so? In Germany for example, you have a legal right to return anything you purchased via a remote means of communication - so e.g., the internet, or a phone call - free of charge, within two weeks, and it must be simple to do so; if a vendor tries to obfuscate how to cancel a purchase contract, you can simply write them an email.
What happens after 2 weeks?
yeah most US companies have return policies of 30 days or more, no questions asked.
The word "most" is doing a lot here. Europe guarantees consumer rights by law, while the US relies on companies adopting the practices voluntarily. Most do, but larger companies more universally than smaller, and it's by no means universal.
It's the reality for the vast majority of larger companies. Quibbling with word choice is really not a good argument.
We are talking of entrepreneurship and new companies, what small business are required to do for returns/refunds in the US is definitely not ahead of Europe for consumer protection.
It's not word choice, you are just making the wrong argument.
Try canceling your NYT subscription.
The same exists in the EU, French Le Monde (NYT local equivalent) required you for a long time to send a registered letter costing 7€ and a trip to the post office to cancel your subscription.
most large companies, maybe, but small-to-medium-sized businesses can and will tell you to take a hike. there are no consumer protections in the US regarding returns beyond the goodwill of the company
One of the major reasons US consumers shop with megacorp over small business is because of the no hassle returns.
Exactly my point. In Germany I can order from the smallest of webshops without even reading their return policy, because I am guaranteed favourable terms by law.
This isn't without downsides though: As somebody with a niche technical hobby, it is hard for me to order from many suppliers because they understandably don't want to deal with consumer protection laws and thus exclude B2C transactions outright ("Verkauf nur an Gewerbetreibende").
I would be fine with waiving my right to returns but this is not possible on purpose, so my only options are to shop somewhere else (often not possible) or found a company (not possible because it would be Liebhaberei - "Running a company without intent to make profits").
In the US, if the remote merchant doesn't accept a return (or is non responsive), a credit card chargeback would be in order.
The customer almost always wins those. And the merchant always has to pay a fee for the chargeback, even when they win, so they're incentivized to avoid them.
The merchant agreement isn't as effective as a well enforced law, but it's pretty close.
So the person that wants to sell that ultra-unique item that isn't produced by mega-corp, and the person that wants to buy that ultra-unique item despite unfavorable return policies never gets their needs met.
That’s not true. From mandatory refunds when selling online, to capped credit card fees, to longer warranties, the EU is clearly better for consumer rights. Some US businesses have realized that openly screwing your customers isn’t good business practice, but they’re somewhat of the exception I hear (and a lot of those companies offer the same policies, or better, in the EU, e.g. Costco)
Apple is another good example. Their base warranty is two years in the EU versus one year in the US, and there’s additional protection on top in many EU countries that extends it to the expected life of the product, in some cases as long as 5-6 years.
And again, all of these are backed up by the law, not just a policy that the company can revoke or decide not to enforce.
And all of Apple's products are much more expensive in the EU. In Austria, a MacBook Air starts at EUR1199, and the same device starts at USD1099. At today's exchange rate, that European device costs USD1360, or nearly 20% more.
We can argue about the consumer friendliness of the regulations in the EU but they also add demonstrably to the cost of tech products (and likely other categories).
It seems to me that if there is some sort of law or regulation that can be passed, then that policy will be better in the EU. If the better service is a result of competition, then it will likely be better in the US.
In general though, culturally, the US is much more "the customer is always right", whereas in the EU, it's considered a hassle to cater to customers that much. This mentality translates across the economy as a whole.
At least that's in my experience of being American and living in the EU for the last 10 years.
I have never received cash compensation for a delayed flight in the US, but I have in the EU. In my opinion, in the EU if the business screws up it’s their problem: in the US it is the customers, unless you shop somewhere large enough to voluntarily cover their mistakes. Which is, indeed, one reason that anybody can run a business with nothing in the US.
> Consumer return policies, customer service, etc. tend to be much better in the US than in the EU.
Maybe the ones voluntarily offered by companies, but not the legal ones.
Not sure if that matters much. Only the actual end result does.
The better policies given by US companies is also likely driven by competition, so by definition they wouldn't be something that a government regulation could accomplish (other than to incentivize more competition.)
It does because for one you can go to court. If a company stops playing nice because they think you’re defrauding them if you tell them your package went missing during transit, company niceness doesn’t get you anything. (That’s a random example btw, I don’t know how this is handled legally in the US. The point is that there are situations where you actually want the law on your side).
You don’t have to go to court even - there is usually a regulatory body that will enforce these for you. This is the whole reason why there is an image of America as sue-happy: they have chosen a regulatory system of “so sue them” instead of a functioning consumer protection system (or any authority with the ability to enforce the ADA, for example).
Suing people and companies is a national pastime in America. I really don't think the EU has an advantage there...
This is the result of the US embracing capitalism more than Germany. The market has set minimum expectations, but outliers with other benefits can have an opportunity to thrive until they have an opportunity to meet those minimum expectations.
Although, this is rapidly changing. Places like California are putting in similar regulatory barriers and excessive minimum taxation.
Except every two weeks when he gets a bigger paycheck than most senior UK government positions
Even when the UK was in the EU, you could create a limited liability company (LTD) for something like 200 pounds or less, no capital needed. So it's not true at all that setting up a business at a low cost is somehow against EU legislation.
25k requirement doesn’t protect anyone, just prevents regular contractors from easily registering limited liability company.
> the EU system
The issue in question is a Germanic system, not an EU one. Outside of Germany, Austria, Luxembourg, most EU countries are far more sensible with capitalization requirements.
A lot of places in Europe are around the same.
In Finland forming a non listed stock company is 240€ in fees without any requirement for capital/assets.
I think Estonia is even cheaper.
Worth noting is that there was 2500 € capital requirement until 1st of July 2019 and it was reduced to 0 €.
Public limited liability company (Oyj) still has 80 000€ capital requirement.
State fee is 265 € now in Estonia. But the tax system is cool [1] and admin is a breeze (if your passport colour is right and you can get e-residency – not a problem for any EU/EEA citizen, obviously).
[1]: https://news.ycombinator.com/item?id=48660856
Here in Portugal the legal requirement is 1€ for an LLC (lda) and it took me a few hundred euros in fees only, all in morning to take care of everything.
Same in the uk, well it’s “same day” costing about $200. The normal approach is 24 hours and costs about $130
There are not quite as easy, but still ways easier types to choose from in Germany, OP just decided to go for one of the very complex ones.
Not if you want both limited liability and the ability to take your hard won profits out of the company
UK's system is very similar too, as is Estonia's.
I have founded a UG and upgraded to a GmbH before.
It had got us "more credibility" with our clients, and 12,500EUR less in each other's bank accounts.
Thanks for your insults.
I get that this gives you less liquidity personally, but (a) you're only required to pay in half, i.e., 6,250 EUR each, and (b) this money isn't gone, and you don't lose the ability to recover it should you decide to liquidate the company later. As others have pointed out, you can use that money to pay costs associated with the founding (e.g., the notary) and also expenses required to maintain the company (IHK dues, bookkeeping, etc.).
Don’t let the insults get to you.
But yeah, obviously, the more capital you pay in, the more “credible” your company looks. The whole concept of limited liability means that if your company capital is X €, the creditors can only get the X € (unless you do something stupid, see https://en.wikipedia.org/wiki/Piercing_the_corporate_veil).
The fact that the minimum capital amount is so high in Germany is bonkers to me.
The minimum capital amount is 1€, that's the entire point of the UG, to encourage entrepreneurship.
The intended path for the upgrade from UG to GmbH is that once the UG makes a profit, this should be used to save up the 25k€ and convert to a GmbH once it's reached.
> I have founded a UG and upgraded to a GmbH before.
So why not to the same here, instead of going with this more complicated setup?
Because they want the credibility with clients, but for free.
HN commenters are acid, but from one author to another don't let them get to you because they'll shun you for losing your temper even if it's totally justified.
The author can surely understand it. And this system is what is keeping Germany and many European countries from propelling their economies forward by reducing market dynamism. Its not a coincidence that China, US and many other countries, which have more dynamic markets and large GDP growth let you set up a company in a day.
Registering a private limited liability company in the Netherlands costs around 400 euros. If you can file all of the taxes and other legally required paperwork yourself, you can be set up in a week or two. You will be a salaried employee of your own company, though, with a minimal salary you will need to rake in.
The combination of "no personal risk whatsoever, minimal funds/risk coverage, maximal profit extraction" doesn't lend itself well to places with basic regulations.
Capital investments in Europe are definitely not as easy to obtain as in the US for various economic, cultural, and historic reasons, which all led to some pretty weird laws here and there, but the extra week it takes to set up a business isn't the cause.
The reason this all took so long and was so expensive is simple. As the author states:
> I wanted real limited liability
They wanted two different companies with different setups to get out of having to save up the funds or find investors while also paying the least amount of tax possible. They set up a two-company system with all the risk in one and all the earnings in the other. It's like one of those tax dodging schemes the multinationals like, except within a single country. That comes with overhead.
Funnily enough, they then end with:
> Which leaves the only real question. Why 25,000 at all? It is my company and my risk.
Weird to think it would be their own risk if they spend so much time, money, and effort setting up a system that explicitly removes all the risk from them.
All of this feels like it was based on a business plan generated by some over-eager AI that tried to optimize to tick as many boxes as possible, ignoring the real-world consequences of those choices.
> If you can file all of the taxes and other legally required paperwork yourself, you can be set up in a week or two.
Is realistic in the Netherlands to try and fulfill all formal paperwork requirements?
In my native Belgian city, outsourcing that be from ~3k€ excluding VAT/year for the very simplest CIT liable structure. That's excluding 409.3€ corporate social security contribution and 148€ provincial tax. That makes for about 300€ ex. VAT before you can start to earn anything at all. Unless you can fulfill all accounting yourself.
No he doesn't. You can register a Kleingewerbe at the Gewerbeamt online ([1] for NRW) and start right away. You can create an UG (literally supposed to fill the gap between a GmbH and a Kleingewerbe) within 2 weeks depending on the notary. And those 2 weeks come from the fact that the notary has better stuff to do than a UG registration and therefore probably doesn't make time specifically for you.
If you want to start a business and you don't need to pay for an office or whatever (because you can actually use those 25k for something), you can literally start over night. If you need a proper company that limits your liability, you can literally start in 2 weeks.
[1] https://service.wirtschaft.nrw/unternehmensgruendung/gewerbe...
In america, we have liability insurance. Is this not a thing in germany?
It is, I guess it's depending what you wish to achieve. I'm a independent software consultant based in Germany (no employees etc, also not selling any SaaS or anything) and I've got a liability insurance to cover any mess ups.
I just did a quick check:
The 25.000€ hasn't been raised since the early 1980s. (50.000 DM back then) So to have the same liability today, you would have to put down 65.000€.
So it has gotten increasingly cheaper to start a GmbH in Germany.
This is not an argument that founders should seed 25k EUR to cover liability, it's an argument that GmbH bank account amounts should be visible publicly. If I want to put in a catering order, the catering business does not need 25k EUR to cover liability. If I want to build a data center, 25k EUR is not nearly enough.
> GmbH bank account amounts should be visible publicly
Not sure about Germany, but e.g. in Estonia it’s essentially public info (albeit unaudited, usually), as part of the annual report. The company has to maintain at least the declared capital amount in their bank accounts (or other assets), but the amount can be pretty much any number, so the business owner can decide what sum makes sense in their case.
25k € is way too much for most small businesses, yeah.
(IANAL)
All GmbH are mandated to publish their financial statements in Germany. Its on Bundesanzeiger a government website which of course takes a fee again…
It's also available in the Handelsregister, which is available for free.
The trust in a company should still be left to the criteria of suppliers, customer, etc. Not the random number that a bureaucrat pulled out of his arse.
You call €25k liability? I just decided I won't work with a company that can't cover €25M in liability. Should the state force you to block that in your bank account just in case you want to work with me?
It's because some understanding was lost somewhere between the article and OP.
The €25k are not a liability insurance or anything like that. It's a starting capital to make sure that the company can honor its bills. Liability is covered via separate insurances.
This is why insurance exists!
When I co-founded a company in the UK in 1995 there were two £1 shares - one for each founder. Mind you it was an off the shelf company - but the process couldn't really be much simpler back then - and its probably a lot simpler now.
For a limited company in the UK, you need a number of pieces of legal paperwork which I think you can technically write yourself but may prefer a solicitor to draft them correctly for you, and then you pay £100 to register the company, and you (and any other directors, shareholders or guarantors) capitalise the company yourself.
You are now limited in liability for what the company does, to no more than the capital you put into it.
You then have to supply yearly accounts, may have to register for corporation tax, VAT, register as an employer for paying national insurance, you'll probably need business insurance, etc.
https://www.gov.uk/set-up-limited-company
You don't need to use a lawyer to draw up the docs unless you have special requirements: you can use the proforma memorandum (it's auto-filled if you apply online) and adopt the model articles of association.
- https://assets.publishing.service.gov.uk/media/5a7da236e5274...
- https://www.gov.uk/guidance/model-articles-of-association-fo...
If you buy and off the shelf company then you don't need any of that - they supply a pile of stuff (e.g. articles of association) and you don't need a solicitor to be involved.
Edit: And these days you don't even need two people - used to be that you needed two directors or director and company secretary.
You can open an Estonian company with 0.01 € capital. It will look ridiculous in the registry, and you will still be liable for the remaining 2499.99 € personally anyway, but it is possible. I’ve seen a couple 100 € companies, which is more reasonable I guess.
You can also declare that you’ve paid the capital in, without any proof required for small amounts (up to 50k € IIRC). If you lie about it, I suppose you’ll be personally liable for everything, so definitely not worth risking it. Just put in like 500 €, set it aside on the business account, and don’t touch it.
(IANAL)
Then it’s not an LLC, though. Personal assets exposed.
Up to 2500 €.
You could put in 2500 € in capital – then your personal exposure will be zero. In practice, I don’t think it’s a meaningful difference, you will just have to keep the whole 2500 € on the company balance by the end of each FY. (Unless you wanna deal with non-monetary contributions!)
If you put in 500 €, you’re liable for 2000 € personally, but you don’t have to keep them for your annual report. (It also means your company looks a bit riskier, since you might not have the 2000 € personally, so you might have trouble getting credit or whatever, but otherwise I don’t think it’s a big deal.)
---
Edit: to the author: you should really look into Estonia (or any other sane jurisdiction mentioned elsewhere in the thread). You can still set up a KG (or a sole proprietorship), then put an Estonian OÜ in front of it. Costs something like 300 €, can be done online (you’ll probably need an e-residency card, an Estonian e-signature thing for foreigners, which is another ~150 €). Annual reports are fairly easy if you keep your books properly. And you’ll need an address in Estonea which is also like 125 €/yr. No additional taxes most likely (but check with a real accountant).
Substance in Estonia is usually required. A rented address does not suffice for that.
Still a limited-liability company. "You might be personally liable for up to €2,499.99" is not anything like the same as "your personal assets are exposed to all company debts".
That sounds a bit like the UK concept of a Company Limited by Guarantee - which is used by a lot of charities.
Edit: I'm not a lawyer either!
Yeah I don't really understand the part about not being able to invoice either. IANAL but it's the other way around - you need a VAT number to invoice clients in Germany (and the EU), not outside of it. VAT is exempt for clients outside of the EEA.
Also: I've always used a ZZP structure (one man company - Dutch version) for mine, not a BV (LLC), because there's a thing called Professional Liability Insurance. But maybe it's different in Germany? I can't imagine that doesn't exist there though.
Not incorporating would be very fiscally suboptimal here (.be) for anything tech related. Your marginal tax+ social security contributions rate would be ~66% starting from 50k€ gross...
Isn't that what insurance is for? So you don't need to stash away a bunch of idle capital incase something goes wrong.
You are right, of course, but in most jurisdictions the limit is lower than 25k EUR (e.g. in PL it's 5k PLN ~ 1.2k EUR; I believe in the UK it's even less), and you can trivially look up the capital of any business in the business registry online --> you can decide if you are dealing with a multi-million behemoth or a mom-and-pop shop.
Used to be 16k in the Netherlands and now is barely anything. 1.20euro is common with 120 shares at 1ct nominal.
Unless it's c-corporate which require 25k usd. Money don't have to sit in bank account, you can buy a laptop etc.
In Germany the 25k Euro also does not need to sit in the account, after you reach it.
The 25kEUR requirement has been lowered a few years ago to €12,5k as required paid-in capital.
And you can start a company with €1. The format is UG. You have to keep 25%(?) of the profit until you reach 25k and convert into GmbH.
And reading the article, he does found a UG! This isn’t even about GmbH!
> The 25,000 is there to make sure you can cover some liability.
Is this actually true?
Can't the company just loan out the 25k immediately?
Yes. The 25k capital doesn't have to be cash, but can be in claims or asset value as well.
This could have been resolved by listing how much capital company has set aside for liabilities. If someone sees company only has 1 EUR, then they can assess their own risk accordingly before engaging.
There is no need for a company to be able to cover liabilities. It's a stupid rule.
> A company that starts with nothing wouldn't be a GmbH (limited liability company), it would be a GoH (company without liability), and there's a good reason why those don't exist...
What's the good reason? In the UK I can started a Ltd with £1 of share capital, about £100 of fees, and filling out a form online. I will be shielded from personal liability if it goes tits up unless I've broken the law, knowingly traded insolvent, or otherwise been an idiot.
The wider thread appears to be Germans commenting that it's unthinkable that such a thing could exist, and thus it's all the author's fault.
> In the UK I can started a Ltd with £1 of share capital, about £100 of fees, and filling out a form online. I will be shielded from personal liability if it goes tits up unless I've broken the law, knowingly traded insolvent, or otherwise been an idiot
That's what Germany calls an "UG". Which is what OP actually ends up doing.
UG forces you to retain profit to hit a capitalisation target. An Ltd is a real company, and my £1 company has an identical legal status to one with hundreds of millions of pounds of assets.
what you probably mean is an OHG, an Offene Handelsgesellschaft It is one of the simplest form a group of people can found. All members are liable with their personal assets if the OHG files for bankruptcy or is unable to meet its obligations.
There’s a lot of confusion here:
- There is no double taxation if you just pay yourself a salary (since it’s a normal business expense). If you want to take money out of the company flexibly, a GmbH is the wrong structure.
- I’ve never heard of anybody doing an UG/GmbH + KG to get started. This is highly unusual. Most people either do just a simple UG or maybe they set up a holding structure with two separate GmbH / UG entities.
- Related to the above: if you go with a simple, standard structure you will incur minimal legal fees. You don’t need a lawyer, you just directly task a notary and tell them you want a standard setup.
- If you don’t want the complexity of a limited liability company, the standard way to reduce liability risk is to get liability insurance. Many, many people do this instead of having a GmbH.
The valid criticism is the a) lack of digital processes and b) sequential processing of steps that could happen in parallel. For example, I sped up my own GmbH process by driving to the register court and paying in cash on-site. For whatever reason that’s much faster and saves about a week.
> The standard way to reduce liability risk is to get liability insurance
Exactly! That's what I do in the Netherlands. It's also common to cover this contractually too - you can negotiate where liability falls for many cases.
Getting a limited liability company for a one-person operation is just overkill.
You don’t think the barrier to entry is a valid criticism?
Like he said the GmbH is just the wrong legal form of his company. You can register a Kleingewerbe online over night and an UG within 2 weeks and that waiting period is only 2 weeks because it's such a simple and cheap process that notaries won't make time for you and they are busy people so you just take the next free slot they have in their calendar. So if you are lucky you can get an appointment the next day.
My wife works for a notary and most of the time people are really pushing to get an appointment but then fail to register a bank account on time so they have to wait a couple of weeks anyway without anybodies fault but their own.
Also this is not some secret knowledge. Like, these are not some tricks you learn over time this is something you could technically just ask a tax consultant or a notary. In fact the notary even likes it if you do that because if you try to be clever on your own you are most likely going to cause them more work. Like, you can literally go to a notary and say "this is my business. What should I do?" and they are either going to just do an UG with you or sent you to a tax consultant just to be sure.
Like, we have notaries because and they are as expensive as they are because they are supposed to consult you in legal matters and they are required for so many things so that you don't accidentally mess something up that is complicated.
Going to a notary really makes this so easy. You just sit there, dude's gonna read his legalese text and then sums it up in 2 sentences for you. Didn't get something? Ask questions. That's why you are there. That's their job.
It's really only difficult if you need a lil something for the AppStore for a side hustle and then try to get a GmbH straight away without ever consulting anybody that is literally only there to consult you and make it easier for you.
There is valid criticism to the barriers to entry that do exist.
The problems the post describes are not that. They are barriers that the author created himself by selecting a complex corporate setup.
> Which leaves the only real question. Why 25,000 at all? It is my company and my risk. If I want to start with nothing, that is my call, not a toll the state collects before it will let me try.
> And the cheap door has a price of its own: to some clients, “UG” reads as “not serious,” and they would rather deal with a GmbH
The post itself explains exactly why the first complaint is a fallacy and the second one is true:
> The simplest setup is a sole proprietorship [...] also makes me personally liable for everything. A client sues? They are not suing a company. They are suing me. My savings, my apartment, my name.
> So I wanted real limited liability, which means a company.
The liabilities of a limited-liability company aren't your risk.
The people who stand to lose out if your company folds are not you but your customers, creditors and anyone else with a claim to more than the company can repay.
The more capital it has, the less likely it is to collapse while having more liabilities than assets.
Yeah, I found that part odd too.
Also, you can found a GmbH and only pay in 50% of the €25k. My understanding is that you're still personally liable for the rest, but it lowers the hurdle to founding a GmbH at least somewhat.
If a company collapses while having more liabilities than assets then that's fine. No one is being forced to extend any credit to them.
It will make it harder for "worthy" companies to get loans and credit.
That system is silly.
I can open a company, work for a year, acrue debt, acrue tax debt, close it.
Nothing will happen. Company "estate" will be sold to cover the debt, which can also be nothing.
No, if you don't handle this correctly you become personally liable
Yeah, he has no clue and complains about having no clue.
He wants a company but not put down any assets, but still limited liability, he has to get a UG. But obviously customers don't want to deal with that because there are no assets in case they pay 5.000€ and the company goes belly up.
Customers deal with GmbH, because they know they have at least a little bit of value in assets. So if I buy from you for 5.000€ I know that should be covered by your assets.
The guy is an idiot and has been misconsulted by the law firm and has been pulled over the table by said law firm.
That's not how it works in most other countries and it seems fine?
I've run a tech business on three continents, and nothing comes close to the Kafkaesque labyrinth of the German world.
Everything is unbelievably complicated and over-engineered, and every layer is immune to change. Every rule was rational when it was added, and now everyone has a financial stake in continued complexity. The German notary is the highest-paid notary in the world, and the highest-earning professional in the country.
That said, I think a lot of the frustration comes from a mismatch of expectations. Germany wasn't designed for randos to start companies and thrust change on society. All the bureaucracy is a filter, and what it filters out is change itself.
You were never supposed to incorporate a company. You were supposed to get a job at Volkswagen.
Can't agree with you more.
and just read these awful comments defending this nonsense and shifting the blame. so much arrogance its nauseating
Germans will say they're not very patriotic, but really the way German patriotism manifests is a resistance to outside criticism paired with a stubborn insistence that things ought not change.
I haven’t seen it manifest any differently elsewhere?
Before Europe gets lumped in as one country, founding a company in Netherlands and Sweden, speaking from personal experience, is a breeze.
Although Sweden is a bit strange in the fact that banks have as much equal say as the government authority does in you starting a company, and if they don't want you as a customer, they can simply deny the right for your company to start!
Germany, France and Spain are some of the biggest offenders here.
Some years ago a case became quite famous in Spain. Someone wanted to turn a winery into a eco-tourism boutique hotel with a winery tour and experience. Should be simple in theory, in practice they were waiting for authorization to open for more than 4 years.
I’ve been involved with startups and small businesses for more than a decade, and I haven’t still heard of any of them doing things 100% by the book, because it’s just impossible.
People just start and hope the taxman doesn’t come.
> Someone wanted to turn a winery into a eco-tourism boutique hotel with a winery tour and experience.
Because a agricultural business and a hotel business are two different things, and Spain has, rightfully so, their thumb on the spread of tourism, because it affects local communities negatively.
Otherwise investors could just come in, buy a random agriculture business and then turn it into luxury hotels/lodging.
> I’ve been involved with startups and small businesses for more than a decade, and I haven’t still heard of any of them doing things 100% by the book, because it’s just impossible.
Because entrepreneurs are notoriously bad thinking further than their own interests. It always, "just" something they want to do.
Zoning rules and regulations have their purpose. Are some of those in some places idiotic? Yes. Do most of them still have their reason? Also yes.
Otherwise we can stop protesting datacenters and the trump family building a eco-luxury resort in a nature reserve.
Rules exist for a reason, it shouldn't take 4 years to get an answer on how to proceed in one direction or another. In NYC for example you often need to hire a "permit expediter" just to get a yes/ no/ maybe answer on your apartment renovation within a year. These bureaucracies are often literally impenetrable without professional help.
I’m guessing they did receive an answer earlier than four years, but they wanted it to be Yes.
I cannot believe there are people defending this.
I've also done it both in Sweden and the Netherlands. Sweden is a breeze if you have BankID, sure (and as you said, if the bank likes you). The Netherlands wasn't exactly a breeze — I had to book a face-to-face appointment with KVK and all the slots in Amsterdam were taken, so I took the train about an hour away.
I don't dislike that they at least want to see you in real life once tbh. I love ease of registration like anyone else, but with tax avoidance and all that, idk. Feels right to me to have at least seen yourself once.
But is it really you?
Well, they ask for proof such as a valid passport or id card.
that's an interesting question
how much would it cost to pay someone "1 hour away by train" to go into that office for you?
Sometimes criminals do put pressure on people to register companies in their name and show up to these meetings. Whether that's addicts, people with mental disabilities, or young people looking for a quick buck, the fraud mechanism is the same.
However, that does put the company in their name. On paper, they have full control over it. That's a risk to the criminals trying to use the company as a financial asset for laundering money.
With a fake ID? That becomes pretty expensive
Unsure how long ago this was, but I recently registered with KvK and didn't have to show up at all, just pay 80-ish euros.
The face to face meeting is not a thing any more. There are some exceptions but they can often be done online if at all.
I've done it in 2018 and just needed to go to a notary to wet sign something (not KvK)
That is refreshing to hear. Unfortunately I can't get out because of exit tax, an unrealized capital gains tax for the privilege of leaving the country. That is way worse than what I mention in this post and will get its own post soon.
You can delay it until the disposal of your shares , if you move within the Eu
You phrase this as if it’s absurd. Why should it be possible to offshore your future capital gains without paying an exit tax? You live in a country with a tax system that assumes people pay into it.
Unrealized capital gains taxes generally are a bit absurd, but I can see how the state would feel forced to do it if you're leaving. Seems like there should be some way to get a registered agent or something to keep the old company legally "in Germany" while you leave, but idk
You can avoid being taxed on unrealized gains by realizing them first ;)
Why should it be possible to keep this person from buying food and housing with their labor?
The whole premise is nonsense to begin with.
If that’s what they wanted to do, they would have to realize those gains. The state is doing the opposite of preventing this.
Your question is more well formed if you challenge the premise that the tax you owe should scale linearly with the value of your assets. Obviously a business benefits from things the state provides, and the business should pay it's share to cover those costs. Maybe, honestly, even a little extra.
The challenge is if someone makes a software company, and a team of 20 workers on computers create a €10B business, does the state have a fair claim to €5B of it when the company at most with the most generous possible estimate (and then double it for good measure) used €50M of state services?
> does the state have a fair claim to €5B of it when the company at most with the most generous possible estimate (and then double it for good measure) used €50M of state services?
Yes, it does. Quite simply because that's the law, and it's morally right (in principle) because if your business fails then you don't get a bill for 50 million. If "winners" only paid their exact share then these services wouldn't exist.
I explicitly stated (twice) they would (and should) pay more then their exact share. The real cost would likely be in the neighborhood of $500k too (20 SWEs traveling to work doesn't incur much cost, plus the 21/population cost of mainstay services (police, fire, government misc/infra)), never mind the workers are paying taxes on their income too.
So $50m would cover their true societal cost (I'll multiply it by 10 for you, call it $5m) 10x over.
Its extremely difficult to build a clearly logical structure where a company that made a wildly successful product needs to hand half the value to the government. It's very easy to do if we hand wave with ambiguous terms like "right thing to do" and "morally obligated".
The premise of taxes?
Is it different from the tax you would face if you just realize your gains?
Most unrealized gains are a notional value, the realizable gains are often much smaller. The act of realization can cause a crash in value.
The exit tax doesn't apply to "gains", it applies to the "value of your company" which is calculated in a way that often means you will owe thousands or even millions in money you don't have, and at no time had.
Yes - the value of your company is the gain. It is the money you would have if you sold the whole thing.
Sounds indeed pretty terrible…
Same in Poland. Almost 100% things regarding companies or personal things you can do online. Self employment company can be set even via bank app. Ltd a bit longer online (unless you need a custom ltd agreement).
Can confirm. JDG registration took like a couple of days and I didn't need to get my ass off my chair.
In the UK it used to be one form and a fee of £25 or something like that. I think, nowadays, that's probably just done online as well.
But I understand the admin has gone up significantly. Though I presume AI is pretty good at generating the boiler plate bureaucratic work (privacy policy, anti slavery statements, etc).
You don't need that stuff for setting up a company, I've only come across those if we are going through due diligence with a (B2B) client.
That won't get you a VAT ID, which is the key thing he says he needs to be able to bill people outside of Germany. It is significantly cheaper than 9k EUR and faster than 6 months to get in the UK, however.
It is free to become VAT registered and only takes a few days for the VAT number to be assigned and posted to you.
Do you really need a VAT ID though? There is the “reverse charge” mechanism, which IIRC you can use until you sell a lot in any given country. (IANAL)
Yep, it is straight-forward.
The hard part, I heard, was closing a UK company!
For a small company with 0 assets and one owner which has ceased trading, I believe you can just abandon it, stop filing and wait for it to be wound up - but check this!
It's honestly not hard either. Certainly doesn't require any face-to-face interaction or anything.
> Although Sweden is a bit strange in the fact that banks have as much equal say as the government authority does in you starting a company, and if they don't want you as a customer, they can simply deny the right for your company to start!
Wait, how does that work? Are you saying that if the bank doesn't like me, instead of just denying me a loan, they can convince other banks not to loan to me as well?
It's not about a loan. You have to put ~2,000 EUR in your company account in order to start it, and they might refuse opening an account for you. They're not going to talk with other banks, but if they have a good reason to think working with you is going to be difficult, chances are other banks will think so as well.
That's actually not the only option. You can also transfer property (apportegendom) to the company, such as vehicles, machines, patents/copyright/trademarks, real estate or pretty much anything of value, to use as your share capital.
You just have to specify it when registering the company, and have an accountant certify the value.
But obviously, it's more annoying and you have to keep track of depreciation.
They can't convince others, so I shopped around until I found a willing bank. This is due to introduced KYC requirements and the harsh penalties associated with them - so banks are preferring to err on the side of caution.
Same story goes for opening a personal account.
it sounds more like they can choose not to work with you just like in America, but maybe the reasons are allowed to be more spurious
In Germany it might be easier to open a company remotely via Estonia
This is pretty bad advice as your company will be dual resident with Germany having the right to tax .
That means you pay German taxes + double amount of compliance ( because you have to file everything in Germany+ Estonia ).
That way, AFAIK, the German government will determine that the "place of effective management" is Germany, and tax you also there.
Double taxation is not better.
DE & EE should have a double taxation agreement.
https://www.fin.ee/en/double-taxation-agreements
I would say that depends of the company's legal form. If you have an "AG" or "GmbH" you get double taxed anyway, one time the company and than again your salary. So if you have an Estonian equevilant of a GmbH/AG your company will get taxed by Estonia and your salary by Germany. The Estonian E-Residency Website at least confirms my assumption but in case of Germany I could be very well wrong of course...
https://www.e-resident.gov.ee/understanding-cross-border-tax...
You don't get double taxed, you get taxed on your salary and your company gets taxed on whatever profit remains after paying salaries.
I think you misunderstood double taxation . You probably understood it as taxation on corporate and personal level. But in this context it means taxation in two jurisdiction (Estonia,Germany)
> So if you have an Estonian equevilant of a GmbH/AG your company will get taxed by Estonia and your salary by Germany
Estonian CIT is 0%. If you pay dividends (which is not required), or if you pay director’s salary (optional if you’re a one-man company without a ton of admin), those will be taxed in Estonia. If you only pay yourself for your actual services – no taxes in Estonia.
Germany might tax your Estonian company if they determine the company is a German resident. Check with your accountant.
(IANAL)
Have multiple friends who have done an Estonian OÜ despite being primarily German. No issues on this tax side.
If they are still a German tax resident , they are committing tax evasion . § 1 Abs. 1 KStG
It doesn't really matter.
If you do business in Germany you are evading taxes just by the fact of doing business. Everything and anything you make belongs to the government. It is an unfortunate loophole in the law that temporarily permits you to steal some of your profit back from the government where it rightfully belongs.
Yeah, this is sarcasm, but not really. The practical reality is that it simply makes no sense to incorporate in Germany. For example, the OP missed six months of opportunity just to please the bureaucracy and it's not even the end of it.
While I won't dispute that 6 months is outrageous, OP has not spent them to "please the bureaucracy", they spent them to escape personal liability should the company go bankrupt. The rest of the post is bemoaning the fact the German government won't let them also permanently reduce the company liability below 25k.
> OP missed six months of opportunity
OP missed six months of opportunities because he is an idiot, that has been scammed by a tax consultancy that is interested in his money.
He should have setup a UG, start the business and invest into building a GmbH.
If you don't like the laws/rules then just leave Germany . There is no justification for tax evasion .
It is how Russia become what it is: we all be said «If you don't like new law/regulation, go to your beloved USA, you are not a patriot and must be punished».
I'm sorry, but Germany is democratic country, and citizen of the country can choose by definition.
Leave your motherland because your government is crazy in one way or another? It is nonsense.
In reality, sometimes people need to do it (because it becomes too dangerous to stay), but it should not be this way. In any country.
What if there were multiple (2+) founders of a company, and some lived in Estonia? I think in one case they had a Croatian co-founder as well.
This will most likely result in Permanent establishment (PE) in Germany (e.g due to fixed place of business). That means Germany will tax the company anything which is attributable to the German guy.
No, it’s generally a pretty terrible idea. Germany applies taxes based on the place where a company is managed. If you live in Germany and remotely manage your Estonian company then you’re expected to pay your corporate and other company taxes in Germany. The overhead of managing the international situation is more complicated than opening a company in Germany to be honest
You should Google "Place of effective management"
A lot of the entrepreneurs I meet become tax & social insurance fraudsters as soon as I mention this, because they think they can setup a company somewhere but live in Spain, without paying or registering companies here.
Once had a call with a Netherlands founder (i am european too), and told me "Declare your company in Delaware, everything will be much easier"
That could work _if_ your company has actual substance in the US. Otherwise you just expose yourself to much bigger problems.
Such as?
If I set up a US llc as a Belgian while residing in Belgium, Belgian tax authorities will claim the center of control is in Belgium and claim it is a Belgian company.
will they do the registration for you too?
Of course not. They'll just claim your llc needs to pay local corporate income taxe, VAT, pay local social security, dividend withholding tax, ... on top of whatever needs to happen to keep US authorities happy.
like?
I paid someone 100 euros for a title, i said hi, and I send quarterly 0 euro issues. That's all the effort I need to do in The Netherlands
Yeah it’s also very easy to do in the UK.
Getting a little bit more annoying year-on-year for maintenance with stuff like identity checks and software requirements for eg tax information, but still trivial to initially create
Yeah the "making tax digital" thing sucks, but there are lots of little companies that will do a simple filing for you. I hate the theory, but at least in practice it does work okay.
To be fair, it's also much easier to start a company in Germany if you choose a simpler legal form. It's probably still easier in the Netherlands or Sweden, but the authors pain is at least partially self-inflicted.
Legally, the banks in Sweden have no right to deny anybody as a customer. This is explicit in the law as a requirement for the bank to be covered by government depositors insurance.
In practice banks will deny anybody to open an account, for no reason at all, because they are above the law in Sweden. The country has for a long time been owned by a few powerful banker families.
Edit: Down voters might first want to look at Wikipedia for the Wallenberg family. This is as much part of Swedish culture as IKEA or meatballs.
I challenge anybody to find a country in modern history which is more owned and controlled by bankers than Sweden.
Don't you have an equivalent of Økokrim? They seem to be pretty ruthless in Norway.
Same in Belgium. Easy peasy. Took no time at all.
>Before Europe gets lumped in as one country
The classic European trick: it's one strong union when you want to use counting stats or independence from America , but you can't lump in the duchy 3km away as the same when you want to pick and choose the metrics that make you look good.
I don't think it's that different from pointing out that registering and/or operating a company in e.g. Delaware or Texas is a very different experience from doing so in New York.
It didn't actually click for me until this post that there was an actual US State called Delaware. I just thought it was a type of company.
Sure, a Delaware Corporation, like a Long Island Iced Tea.
Long Island Iced Tea, famous for its blockchain technology.
No. No. You’re thinking of Arizona Iced Tea, which is a New York corporation.
Arizona Iced Tea at least nominally includes ‘tea’
I thought tea was for the British?
Kind of a tangent, but as someone who's done both, registering in Delaware versus New York is actually basically the same process.
For one thing, it’s a geographic location and not automatically the same as the EU
The duchy 3km away is impenetrable fortress where the trace between money coming in and going out magically disappears.
Germany is one of the worst countries when it comes to bureaucracy nothing is fast here if you go the legal path and stay within the law (which is mostly for small people big players have different ways) and as you see everything costs a lot so if you are founding a pure online business do yourself a favor and incorporate somewhere else and if you still live in Germany look into licensing or subcontracting yourself to your company in another country it's way more flexible and you probably have Easier access to grants etc.
Another part is taxation the tax office takes your money really fast but returns can be another slog where the tax office denies legal claims again and again untill you get a lawyer etc. and it generates costs again needlessly because it's really dependent on who works on your tax records and there mood apparently.
I have yet to find the mythical efficiency everyone was talking about.
Trains, Berlin Brandenburg Airport, this.
It's rules and adherence to rules, more than efficiency, that I've found in my experience.
My experience with German colleagues is not efficiency; but they do have a remarkable ability (in my field) to read a 400 page regulator rulebook and overlay it on a 200 page design document and pinpoint the rulebook edge cases not covered by the design...
> I have yet to find the mythical efficiency everyone was talking about.
Comes down to a misrepresentation of history. Germans were never known to be efficient, they were known to be precise with everything, including bureaucracy. This happens to be handy with machinery, but not much else.
...but their machinery (or cars and motorcycles at least) are needlessly complex and unbelievably frustrating to work on.
Really I think that they just landed on some really successful marketing.
> Really I think that they just landed on some really successful marketing.
It depends. For some machinery the complexity is inherent, this makes German machines very good at what they do. But this approach does not tend to scale well, which is part of the reason the German economy tends to be fairly specialized with „hidden champion“ SMEs.
Made in Germany has (had?) a very positive connotation to it, but for historic reasons.
Japanese engineers seem to have figured out the "inherent complexity".
The efficiency is a thing of the past, an mainly when dealing with manufacturing, which we were really good at.
The world got faster, but german industries and politics never got the memo.
Another recent example : https://www.telegraph.co.uk/world-news/2026/06/10/germanys-h...
They laid 600+km of cables wrong ultimately delaying the project by 6 years.
There is no efficiency to be found.
It's a "cover your ass" mentality that resists any changes.
It's a mistake to think Germany is efficient, I don't know where they got that stereotype.
Germans are thorough, not efficient.
It’s from >50y ago, then became a meme detached from reality. And for some reasons people are still repeating it even if they know literally nothing about the country
Germans a rule based and were really precise which came in handy like 50 years ago. The modern German is not flexible enough for the modern job market. German companies are also not flexible enough to compete. Germany goes downhill for a reason.
Don't incorporate somewhere else it will only lead to disaster. The company will end up being German tax resident anyways due to management and control being in Germany as you live in Germany .
Then you have to be compliant in 2 jurisdictions (file forms/balance sheets in both countries etc..) and worst case you could become subject to double taxation (if there is no agreement).
The optimal solution is just to leave Germany .
> The optimal solution is just to leave Germany
Just go to one of them Baltic states. They actually have a functioning electronic ids and other necessary infrastructure.
There’s no reason to live in Germany if you’re working with international clients.
Malta and Cyprus offer much better quality of life and also significantly less taxes .
Also Polands IP Box(5% tax rate) regime can be very interesting to software engineers right across the border.
Can't you just incorporate a Wyoming LLC (zero corporate tax + federal tax because you're non-resident in the US) then just open a Wise account?
Wyoming LLC gives passthrough taxation, and because you're in Germany, you'll be subject to German corporate and personal taxes alone, I presume?
Edit: changed from just personal tax to personal+corporate
What should the US LLC do ? It will end up being treated like a GMBH in Germany (keyword : Typenvergleich ) and you will have to do all the bureaucracy in the us + Germany and end up paying the same taxes
The point I thought was a plus was that you'd be paying German taxes without all the German bureaucracy? Because there's definitely no bureaucracy for a Wyoming LLC except for a couple of IRS forms annually.
Unfortunately it doesn't work like that. You are just adding us bureaucracy+ dual accounting (euro/USD) to German bureaucracy where nothing changes .
from what I know this is very much possible, you can also use tax treaties to transfer taxation to Germany.
e.g. Irish Ltd that is a resident in Germany
you won't have to bother with the naming problems etc. either
Do not know Germany's specific tax code, but in most EU countries should a control fire up it would result in tax evasion (not even tax avoidance), as in this case Germany can easily demonstrate the center of control is in fact in Germany.
Especially as you will have to file tax forms and disclosures for your salary.
You guys might want to take a consultation with a proper accountant/tax advisor for these setups.
Finanzamt may well decide this is a German company in the cunning disguise of a cowboy hat, and charge it German corporate tax
Bookmarking for my personal posterity.
I do not know an EU or Asian country that doesn’t have a similar paperwork misery; I had a company in DE and in many others; you won’t survive in Spain as SL if you are small and follow the rules either. So literally no one does. No different in DE. We never got fined or even reprimanded. Largest fine in DE we got was for charging the wrong VAT for some items and that was not really that bad compared to all the tax breaks we got.
In Romania it's so bad that there are companies who will handle everything for you, even if technically the chamber of commerce has a digital interface as well. Everything is handled online and you get digitally signed papers in a reasonable amount of time.
This is probably the solution, an EU-wide company that has local offshoots and can handle the bureaucracy for a fee.
When there is an industry offering workarounds-as-a-service, then it is time for legal reform.
As far as I know, incorporating a BV in the Netherlands can be done in 1-2 weeks, with a lot of less pain. Many services are integrated and available online.
Estonia makes it very easy.
100% agreed! Reality is, many german businesses are just flying under the radar, as they simply dont want or cannot deal with all the tax crazyness and bureaucracy.
> nothing is fast here if you go the legal path and stay within the law
> and as you see everything costs a lot
this sounds like a system primed for corruption
if you can pay half the needed amount to do everything 5 times as fast, would you not do it?
But you can't. It's not like you can bribe the bureaucrat working on your form, and there is no regular fast pass.
> It's not like you can bribe the bureaucrat working on your form
are you trying to say "bureaucrat can't speed up" or are you doubting someone physically can't give someone else some cash?
As someone living in Germany, I would be very surprised if someone legit manages to bribe their way to skipping a step somewhere. At an institutional level, perhaps it's more surprising if it never ever happens anywhere at all; but at an individual level, your particular case hitting a bribeable person and you knowing of it seems like worse odds than seeing a shooting star during a solar eclipse. Maybe if you are close family, or close enough plus a sob story, the person might have the ability to handle your case first; that sounds like something the computer system would allow in order to avoid getting stuck on a case they can't currently work on (for whatever reason) at the head of the queue. They're probably not alone though so it might not help much
The third option is “they could speed up but won’t do it for a bribe”.
It's the scientific slash managerial state brought to you by Anglo-German leftist thinkers of the 19th century. Enjoy utopia.
Doesn't Germany have Controled Foreign Company rules?
Yes , but cfc rules are mostly targeted against passive income and exclude active companies. They wouldn't matter in that case anyway as he would shift the tax residency to Germany by managing & controlling the company from Germany.
Not to defend German bureaucracy but if you are serious and want results this is not how you do it.
If you want a GmbH quickly there are specialized lawyers that maintain a pool of freshly founded GmbH's for you to buy. Everything is set up for you to start. If you don't like certain things like the company name, you can always change it later.
That being said, I know plenty of people who founded their GmbH themselves and it went smoothly. It's not that it can't be done, it's more that OP chose an overly complicated and untypical scheme and was surprised about the complications.
> If you want a GmbH quickly there are specialized lawyers that maintain a pool of freshly founded GmbH's for you to buy.
The fact that this absurd situation exists is a huge proof that the bureaucracy has gotten out of hand and that Germany is unfriendly to starting new businesses.
> The fact that this absurd situation exists is a huge proof that the bureaucracy has gotten out of hand and that Germany is unfriendly to starting new businesses.
While this is somewhat true, this is not an indication. You can start a business tomorrow for a fee of 30€. Even a normal UG is somewhat quick to set up and less expensive. Just because you insist on some non standardized company setup is not a good indication for an economy
There's weirder things in existence like SPAC https://en.wikipedia.org/wiki/Special-purpose_acquisition_co...
Well, German bureaucracy is out of hand but selling freshly founded (or sometimes deliberately aged) companies to speed up and ease the founding process is neither absurd nor uncommon. I think the business of selling shelf companies exists to some degree everywhere.
I makes a lot of sense too. This is a one-time fee for something you gain nothing from and you learn nothing useful from.
> there are specialized lawyers that maintain a pool of freshly founded GmbH's for you to buy
It doesn't sound easy nor cheap to buy a company and change the company name.
UG & Co. KG has a couple of advantages and while it did add some money and time to the table, it doesn't change the story.
Notaries in the US are the price of a dinner. Many people have waited up to 6 months to receive their VAT ID from Berlin.
> from Berlin
That's your problem right there. If you live in Berlin, take the 2 hours and go to Hamburg or Leipzig before doing anything that needs a working bureaucracy.
I'm not 100% sure, but I believe there was an issue with the "place of effective management" or perhaps the company address not being in your federal state.
You probably would've needed to get an address there somehow, yes. There's services that do that for you, the non-shady ones being provided by lawyers and notaries.
[ed.: a tiny office in Leipzig is pretty cheap too, but you'd need to ensure mail doesn't pile up there unchecked.]
Unfortunately I'm not joking about this entire thing. Berlin's underfunded, overstressed bureaucracy is to be avoided like the plague.
[ed.2: to be clear, it'll still not be great. Just less bad.]
You need to demonstrate real substance (such as actually managing/working from there e.g in your case Leipzig ) . If you can't prove real substance they will just shift it back to berlin and you could be also held liable for tax evasion (if there is a lower gewerbehebel )
It's perfectly fine if they - or you - shift it back to Berlin… after you're done with all the initial setup.
But also, yes, this is one of the reasons you can hire lawyer's offices to do this, they know how to spin it such that they're regarded as administrating the company in their location (which is arguably true at that point).
And just to note, there's the concept of "field offices" (Betriebsstätte) which would need to be set up. That does still involve Berlin bureaucracy, but only for a Gewerbeanmeldung.
(Really: ask a lawyer. I hope nobody is taking legal advice from a HN thread.)
> It doesn't sound easy nor cheap to buy a company and change the company name.
Again this is very straightforward and routine in the UK: https://paramountformations.com/product-category/off-the-she... ; a similar experience to buying a domain and spinning up a website on it. In organizations like investment banks they will have shells ready to go in the way you would have kubernetes pods.
I don't think domestic invoices should be reissued once the VAT ID arrives.
So, the story is really that it takes a couple of weeks for a freshly founded company to be ready to invoice customers outside of Germany, which I agree, is a sad state.
They never said cheap, they said quickly.
> If you want a GmbH quickly there are specialized lawyers that maintain a pool of freshly founded GmbH's for you to buy.
That. It's possible to go even simpler if no limited liability is needed.
Just Gewerbeanmeldung costs maybe 30€ and takes less than a month normally. Large cities even have online forms for this.
Also the reporting duties are much simplified. ChatGPT and some accounting software are very helpful. Although a tax consultant and probably a liability insurance are recommended to avoid bad surprises.
Especially the combination of UG & Co KG. Never heard that one!
Yes, my suspicion is that OP went to a lawyer and said: "I want to minimize my risk as much as possible, what do I do?"
And of course, lawyers being lawyers, answered you need to wear both a belt and suspenders. This is the answer you'd expect from a lawyer. It is your responsibility as a founder to do the risk assessment. The fact that almost no one wears both a belt and suspenders might have been a hint.
> went to a lawyer
They studied AI and are building an AI company. I doubt the idea for the business structure come from a lawyer, to be honest. Especially such an overcomplicated setup with so many real-world issues that they're running into right now.
I incorporated a GmbH with Musterprotokolle and it still look me longer than OP.
> Which leaves the only real question. Why 25,000 at all? It is my company and my risk. If I want to start with nothing, that is my call, not a toll the state collects before it will let me try.
But it was his call. As the author has already pointed out, he could have started a sole proprietorship, but he did not want to take on that risk. The 25'000 is because it's not his risk if he starts a GmbH, it's the GmbH's risk.
Also, the 25'000 are not a toll, it's the company's Stammkapital. The GmbH owns that money. And afaik, in Germany you only have to pay in half of the 25k.
Yes, can confirm. You can start a GmbH with exactly half of it (12.500€). And the money does NOT need to stay locked on the bank account. You can spend it for company purposes (but NOT for founder wages).
Founder wage is a company purpose, else it wouldn't be allowed. Its not your personal money anymore once deposited into the companies account.
Yes, afaik you can pay out founder wages with Stammkapital.
However, it has to be actual wages, i.e., the founder has to do work in return for a salary, and the salary has to be reasonable. You can't just have the GmbH pay you back the money you put into the company. There are also other limitations (https://dejure.org/gesetze/GmbHG/30.html), but that's the main one.
The difference is shareholder (=Gesellschafter) and ceo (=Geschäftführer). They may be the same person. So paying wages for the work as Geschäftsführer is fine (reasonable amount, taxes, etc), paying out money for being a Gesellschafter is not.
I can't verify if the author's attempts are even real tbh. Sounds like they were creating problems for themselves just to see how much it would cost to get sort them out. For a GmbH you also want to get an accountant and just delegate the whole process to people who can guide you before you hurt yourself.
Yeah, this reads to me like "I made some weird decisions, and now I'm upset they resulted in a weird situation." My feeling is that starting a GmbH is relatively simple, quick, and cheap, so it's not worth trying to engineer some workaround to problems that most likely didn't exist in the first place.
Don't start a company in Germany. There are many better european countries
The authors claim that he spent "9,600 euros to start a company" is misleading. Since he wants to reduce his liabiliy and therefore the risk of his customers as much as possible, he opted for a complex solution that involved founding two joined companies.
In addition, he counted 2,000 € of shared capital as an expense, which it isn't. He did not opt for a "cheap" UG which requires no up-front capital, because of its bad reputation.
He also includes a bill for accounting software of 426.97 € into his calculation. This has nothing to do with founding costs, but are operational expenses.
As the author states that he set up the company through a law firm, I wonder which of the figures includes the cost of this service. To be fair, this should be listed separately, as such costs can vary widely or be omitted entirely if the company is incorporated solely through a notary.
Also the information about the minimum deposit when founding a GmbH is incomplete. He states: "A GmbH wants 25,000 euros sitting in a bank account before it is allowed to exist." Fact is that you need only deposit half of it upfront into the GmbH; you only have to deposit the rest of the money if the company is in trouble. The company can also immediately lend the deposit back to the founder at market rates. If the company’s articles of association permit it to hold shares in other companies, the company may also use the contributions to purchase shares or similar financial investments. His law firm should actually have advised him on this matter.
The main differences between a standard GmbH and a GmbH & Co KG lie in their somewhat different tax arrangements.
So all in all, the author paid 7,227.74 € to found a rather complex company structure. Judging by his reasoning, presumably for the wrong reasons.
When I found a GmbH in 2019 without the help of a law firm, it cost me about 2,000 euros (if I recall it correctly).
I also had the impression that either we didn't get the full story or his law firm didn't really advise him very well.
Do you understand why the notary fees are €1,575.24? That's astonishingly high for (I presume) a couple hours of work at most.
The notary system is pure scam and should be abolished. They literally just read your documents, stamp, sign. It’s expansive, outdated and doesn’t bring any value
For information: GmbH & Co. KG is one of the most complicated forms an company can be founded, the same goes if the inner company is an UG. Many things have to be done twice. The only good thing is that an investor or an owner are not liable with their private money.
> The only good thing is that an investor or an owner are not liable with their private money.
That’s incredibly important. More than a footnote. I would consider any other form to be non-viable if it doesn’t have such protections.
For comparison, starting an LLC in the United States is a trivial operation. I can’t even remember how long it took me to set mine up because it was a trivial event. Maybe a couple hours, mostly research? I also have to fill out an online form and pay a few dollars every year to renew the LLC.
Setting up a plain UG or GmbH gives the same advantage of not being liable with your private money, and is also a comparatively trivial process. Especially if you are the sole owner. Still slow compared to the US or UK, but not half a year slow
Starting out a company as a UG & Co KG is a tax optimization move, not a liability issue
> Starting out a company as a UG & Co KG is a tax optimization move, not a liability issue
Thanks for the clarification. However I’m still surprised that tax optimization is also considered a footnote in these conversations.
In the countries I’m familiar with (mostly the US, minor second-hand experience with friends in some other countries as they started their businesses) starting a limited liability business venture that has the tax structure of a business isn’t considered a heroic effort. Starting the business is basically the least of your concerns. Almost a formality.
When I first started my company I half assed it. The LLC was quick and the EIN took two weeks. I accidentally signed a contract with my name instead of the company and elected to be a sole proprietorship. These are all the worst ways tax-wise to do this.
By Nov that year I decided to look into the tax implications and they were unpleasant so I wrote the IRS asking to be considered an S corp from the beginning of the year and they sent me a letter saying it was so. I ran payroll in Dec to catch up.
When doing taxes likewise I added a cover letter explaining the mistake about which entity was to receive the money and then assigned the income to the S corp on the return and worked everything through and corrected it in the right way.
The return took months to process and I had a mistake in the taxes that I was fined for a couple thousand which was reasonable but they accepted all these natural errors that I fixed up.
That sequence of encounters with the US government blew my mind. The much maligned IRS was eminently reasonable.
My interactions with the IRS have always been reasonable and pragmatic. If you make a mistake they try to be accommodating to help you fix it.
Every interaction Ive had with the IRS or California Franchise Tax Board has been very reasonable and efficient.
Maybe the Strike Commander future was a utopia and not dystopia?
The GmbH has the tax structure of a business, as it is a business.
He wanted something more special than that.
Which is possible, but complicated.
You can get the same in Germany with the much simpler GmbH or UG. GmbH & Co. KG is much more complex and mostly used to save some taxes in some scenarios.
(However I absolutely agree that all of this is much too complicated and slow here in Germany)
In Germany you need a notary in the us you don't.
The notary adds about a week to the process (2-3 hours of your time, plus the time to wait for the appointment), and about $1000 (depends on how much money you put in the company). And for "standard" setups you can skip the lawyer and simply use the templates and "free" legal advice from the notary (free as in "included in the notary fee you have to pay anyways")
Yes, it's more involved than an online form. But in the grand scheme of things, a notary is neither a huge expense (the tax advisor will likely cost you more) nor a big time sink
Why do Europeans put up with that notary nonsense? Ideally almost all notary jobs should be destroyed.
> That’s incredibly important. More than a footnote. I would consider any other form to be non-viable if it doesn’t have such protections
That applies to a normal GmbH as well, so does it to an UG. UG & Co. KG is sometimes done for tax reasons, but not liability
It is not complicated, it is in fact quite standard here in Germany.
I explain in the post how the other options are worse.
Yes, what you are doing is complicated.
I did a GmbH with "Musterprotokolle" so virtually no lawyer fees and quick and easy to set up.
And a GmbH is limited liability. It's in the name. Gesellschaft mit beschränkter Haftung. GmbH.
The Geschäftsführer is liable for certain (avoidable) things in either case.
The difference is that that the Co KG can be taxed like a "Personengesellschaft". So you wanted to optimize taxes, which leads to a more complicated structure.
You are certainly allowed to choose such a more complicated setup if you think it's better for you. But then don't moan about it being complicated. It was your choice.
> But then don't moan about it being complicated. It was your choice.
I don’t understand why you’re deriding someone for explaining why establishing a common business structure is slow and complicated.
The fact that a less advantageous business structure is available faster, but with significant tradeoffs, does not diminish the problems with this business structure.
I am pointing out that his claims are, in fact, not true.
It is not this complicated to set up a limited liability company in Germany. It is this complicated to set up his choice of a two company setup. Which is, I repeat, his choice and much rarer than a GmbH, at around a 5-10% ratio. Because it is more complicated, not just to set up, but also to run. You have two companies, so two sets of books, two sets of audited returns etc.
Which is why most companies are not GmbH & Co KG. They are plain GmbH. A GmbH & Co KG is a much more complex setup and known to be a much more complex setup. Which he knowingly chose.
And his claim that this is somehow necessary for limited liability, which would be a legitimate "significant tradeoff" is simply not true at all. That's what the GmbH is for.
Now maybe he was badly advised by his lawyer, but then complain about the bad advice. Not about the consequences of choices you made.
GmbH & Co KG are not that common, in fact the overwhelming majorities are GmbH, UG or AG (public corporation). The only benefit you can get out of this shell structure is that you don‘t have to disclose investors publicly
Well said!
It is one of the most complicated forms. A GmbH alone is good enough in 99.99% of cases, and its usually done really quick.
Also, if you believe in your product there usually isn't a reason to go for a GmbH this early. You can send invoices a lot earlier with just a eK or GbR. Its not an issue to adhere with your private money if your product isn't causing damages.
> Its not an issue to adhere with your private money if your product isn't causing damages.
Might happen really easily though. E.g. you install some package which has been compromised, infecting your software product and suddenly all your customer's systems are cryptolocked and you are on the hock for millions of €€€.
Or your db crashes in new and creative ways and your backups don't work for some reason and now your customer lost an expensive contract because critical data that was in your db is gone.
Of course, you can try to foresee every eventuality, but you will indubitably overlook something and probably never make it to market.
Isn't that what (liability) insurance is for?
(if there's anything Germans like as much as bureaucracy it's insurance)
Every good company in Germany has insurance. General liability insurance
Professional indemnity insurance
Business interruption insurance
Directors and Officers (D&O) insurance
Commercial legal expenses insurance
nowadays Cyber insurance
I think I might have forgotten one or two...
Not in mine. Check the post.
So basically you go for the legal stuff only really big companies use (instead of changing once its necessary) because you dont believe in your own product and dont want to be held liable, got it.
Every sane founder uses a limited liability company (e.g. UG/GmbH). What's a bit unusual is the "& Co. KG" part.
Do people in Germany see limited liability as some kind of crazy thing only a scammer would want?
If you just want limited liability, you'd go with a simple UG (takes a week and costs 600€, but if you do it right it takes 2-3h and costs 300€).
If you additionally want to avoid being taxed when you sell stock, the entire company, or transfer it to another country, you'd create two UGs, one as the primary company, the other as a holding. That takes 2-3h for both and costs typically around 800€, but can be had for as little as 400-500€.
This is what previous German YCombinator startups have gone with and recommended in the past.
Going one step further, because a UG is so easy to start, banks will refuse to loan you money in the first year, so you can only raise money by selling shares. If you want to avoid that, you can start a GmbH with an UG as holding instead. This will take a month and requires you to sign over at least 12500€ of assets to the GmbH.
Now, what if you want all of that, but you also want a shell corporation to hide the owners and investors? Then you'd start a GmbH & Co KG, where you set up a limited liability corporation, a shell corporation with multiple special classes of stock, and potentially additional holdings. This is what OP went with.
Nope.
But the GmbH & Co KG setup the poster wants is not needed for limited liability.
You get that with a plain GmbH (or UG), which is much, much simpler to set up.
Depends. Given OP built yet another AI tool, yea, I want to hold them liable in case something goes wrong (not that I'd buy these tools in the first place).
Useful info, explains a lot. Thanks.
But hey, at least they get to write about their mid company name ("Plenty" - lol) got (rightfully) rejected...
He wanted to go all out and maximise "company form". Same as optimizing your website for hundred of thousands of visitors even if you have only like one hundred visitors...
If the parent comment is correct and this form is necessary for personal financial protection, I wouldn’t consider that “all out”.
That’s the bare minimum consideration for a viable company structure.
OP wanted to set up a nested copmany structure. Instead of Person -> LLC it goes Person -> Limited Partnership --> LLC. The in between company is only for tax-efficiency and has nothing to do with limited liability.
Even then you'd usually go with a Person -> Holding UG -> Startup UG structure. That's a few hours and less than a thousand Euros.
It’s not necessary. They did something completely overkill
It's not.
You get one chance at getting your company form right. Any other new chance costs a ton of money in restructuring. Software is malleable, companies are less so.
I am not familiar with German business entity structures, so this is very interesting.
So, if I started a sole proprietorship, it is not possible to convert it to a full blown, privately held corporation in Germany?
It is obviously possible, the process is probably very similar in effort and expenses to founding it in that form directly.
Going from the scheduled notary appointment to having the first company registered comes out to 17 days in the timeline. 24 days if you add the time for getting the notary appointment. From experience, getting your tax id will take another four weeks or so, depending on your local tax authority. OP is still in that four week window, starting from the point where the paperwork was filed. So about 2 months total of processes you can't speed up.
But notably in OP's case, most of the time is actually spent with the lawyer and tax advisor, no the bureaucracy itself. The more complicated company structure (Ug & Co KG is basically one company (an UG) owning another (a KG), giving a very similar structure to an UG at a slight tax advantage), doesn't help, but it's really not where the majority of the time here is lost (it probably does account for about half of the money though)
Why so little? You are priviledged!
Imagine 3 young Italians that would like to work together in a startup. Let's consider only the first year, imagine a B2B SaaS, they are incorporating but they'll work on the product and approach possible customers. Zero revenue.
Well, if you followed the law, you probably would spend something between 23'000€ and 25'000€ in total. WITH NO REVENUE. This is because even if you work for free for your company, you still have to pay taxes for INPS, our pension system.
And if someone invests in your company, you can't live out of nothing and would like to pay a founder even the minimum salary, YOU HAVE TO PAY INPS AGAIN.
This is crazy, our country is a joke.
EDIT: Adding a bit more of scary context and nice sprites.
None of the common financial advisor you find in Italy have ever heard of funding ways or contract terms that are really well known globally.
Do you want to include drag along and tag along clauses in your company statute? You have to talk with really expert lawyers and notaries in Milan that will bill you thousands of € for something that in Delaware is a pretty much standard single line of text.
That sucks, my fellow Italian. I haven't looked into our country since I live abroad for a long time, but I'm also paying health insurance here which is not cheap at all, and haven't added it to the post since it's not necessarily a company spend.
Cordiali saluti!
Che gli dei ti assistano in terra tedesca <3
Having to pay into the social welfare system you benefit from :O :O :O :O
That's very funny, considering my generation won't have the pension we're paying for.
You have to savour the lack of self-awareness in this one.
> Founder chooses the most complex legal structure that's readily-available... and is surprised that this complexity comes with laywer and notary fees.
> Founder decides to incorporate a company with the name of a popular brand of kitchen rolls... and is surprised that it's too generic.
> After "weeks of correspondence" (and, I suppose, extensive research), founder decides to incorporate a company that's named the same as a Swedish online marketing company instead. Very distinctive. No risk of confusion, ever.
For anyone else confused who didn't read the article at first: these aren't actually quotes from the article, afaict this is 4chan style bullet points (green text)
Is the GmbH the most complex legal structure? What about the AG?
The author went with an UG nested in a KG as the legal structure. That's two legal entities. It's a neat workaround to avoid corporate taxes (the KG acts as a pass-through vehicle, for taxes and for liability), and avoid personal liability (which passes through the KG but stops at the UG).
In comparison, AG and GmbH also shield their owners from liability, but require capital deposits and are subject to corporate taxes.
Going with a UG-in-a-KG is an exercise in eating your cake and having it too. It's a cool legal structure that works around some of the limitations of its building blocks. It shouldn't come as a surprise that the people who can build the neat hack for you are going to want to get paid in order to do that.
No it’s not the most complicated form. They didn’t go for a standard GmbH. A simple GmbH using a template protocol is simpler and cheaper
I looked into GmbH (german) , BV (dutch) , and OU (estonian) . GmbH seems very unpleasant. BV and OU are easier to obtain. But BV requires your primary place of business to be the Netherlands, which isn't always practical when you're trying to extend your activities internationally. OU is supposed to be better for international operations, but -because it's a single country initiative- creates new and interesting tax problems.
At this time, the whole system seems to revolve around geographic location. As long as you stay put you're sort of fine, but if you move around within the EU, the law doesn't stay stable around you. This is impractical.
EU Inc seems to be a new initiative to fix a lot of the patchwork problems, but doesn't seem to be live yet. ( https://commission.europa.eu/topics/business-and-industry/do... )
I'm told that interstate commerce in the US isn't always necessarily easier, mind. Maybe the EU can take some lessons learned.
> But BV requires your primary place of business to be the Netherlands, which isn't always practical when you're trying to extend your activities internationally
You bill from the Netherlands and I think this is the only thing required. Uber in Europe charges your cards from Uber BV for example. And I think Uber is pretty international.
Especially as a solo entrepreneur, your llc would have to have substance in the Netherlands. Otherwise, it risks getting requalified as a country-where-you-reside llc.
Why would you otherwise voluntarily subject yourself to the extreme complexity of countries like Belgium or Germany if you could just set up a simple Bulgarian or Estonian llc?
It can be done, but there's contortions to sort out to fit a square peg in a round hole.
If someone has experience doing it right, I'd absolutely be willing to pay for their time to exchange advice.
As far as I'm aware , EU inc would be an opt in initiative meaning that it likely wont change anything in Germany. DE has a a very powerful notary lobby that will oppose this at all costs.
I read that as the founder being able to opt into choosing EU Inc, not that only some EU member countries would offer it.
edit: it's a regulation, not a directive, so it will be directly available in all countries, without each country creating its own laws to implement it. But it'll take until 2028 or so until it's actually be available.
I grew up in Germany and Austria and did my first startups there, then went to New Zealand and built startups there and currently live in Portugal and built startups there. Europe is broken beyond believe. I moved everything back to New Zealand because the bureaucracy, the level of compliance, the insane inefficient here is killing me. if the EU is serious about wanting to build a meaningful startup scene then it has to listen to EUinc, drop its completely unfounded arrogance and learn from others. So looking forward to leaving again. I highly recommend founders in the EU to found in a sane county, if inside EU is a hard requirement, look at Estonia and Lithuania, skip the rest.
My country, Angola, implemented online incorporation recently. They're very proud of it, but oh boy, do they need to burn it and salt the earth it stands on. It's harder and takes longer to incorporate online than brave the long lines at the government agency. I can incorporate IRL in 1 day. It took 2.5 months to do it online. Ultimately I gave up and told them to cancel the whole thing. And then it got incorporated the next business day. Maybe I'll also post about that experience.
Well, he used a popular trick to use LG and Co KG as two seperate entities, usually in the combination GmbH & Co KG. Which is in my eyes unethical and complicated, but tax instructors favor that scheme to limit liabilities. Selbst Schuld. In my own companies I never spent more than I had, and never feared liabilities taking away my personal income. Never needed a lawyer, notar or such leachers. Everything can easily be googled. Could write invoices after two weeks. It needs much longer to get an internet connection.
Germans are crazy taking you to court, but it's not as risky as in the US.
"To some clients, 'UG' reads as 'not serious.'" -> more of a sales isssue
Consulting or dev work doesn't need deep capital. we're insured for X if Y happens. A UG is fine. The "not serious" label only sticks because founders keep caving to it.
Let the client adapt to your setup, not the reverse. If their compliance department doesn't get it, that's a gap to close, evry time you stand your ground, you normalize the UG for the next founder.
Been there too. Paying thousands of € for a notary just to read some text you wrote out loud to you is absurd.
The cherry on top is the exit tax:
> And no, I could not just leave instead. My first company, Freshflow, is valuable enough that walking out of Germany would trigger a massive six-figure exit tax, on gains I have not even realised, purely for the privilege of leaving.
This is ostensibly there to prevent large-scale tax fraud but has ridiculously low thresholds that make life difficult for anybody who is shareholder of even a small company.
You can delay the exit tax until the sale of the company , if your move is within the EU.
Maybe I am missing the point, but what is the alternative? You found a company in Germany, dont realize your gains, therefore dont pay taxes, then leave the country, realize your gains, and still dont pay taxes? Why should Germany or any other country allow this?
The issue is liquidity. The tax comes due as soon as you leave, but you might not be able to liquidate your shares quickly enough to be able to pay those taxes. Depending on how your company gets valued these can be eye-watering numbers.
This is something you can solve with enough time, but if I get a job offer where I'm supposed to start in 2 months? Very inconvenient. (There are some ways to spread this out have this tax burden spread out over time, but it still represents significant friction)
You own a company so valuable that the tax on selling it shares puts you in serious trouble, but you still need to a start "a job"? A Job that requires you to change your nationality/tax residency to a non EU-state?
Edit: Maybe I should give an example: Lets say you build up a company, your shares are worth ~100k, while you payed yourself a living salary of ~2k so you could pay rent and buy groceries but not much more, especially no savings. Now you get on offer to work in the US for 180k/a, you sigh "finally" and just want to move, but the German wants 30k Taxes on your unrealized ~100k capital gain before your leave - Is this the kind of situation you are referring to?
Pretty much. I just have a symbolic 5% stake in the company and working there has certainly not made me rich. I'm still early in my career so I don't have a ton of savings. It wouldn't cause "serious trouble" but paying tens of thousands in taxes on top of the cost and hassle involved in moving overseas is still a significant burden and certainly a case of the regulation missing its mark.
how about not taxing money you dont have?
As long as Germany and other countries allow foreign companies to do business with their subjects, then foreign companies will be at advantage to domestic companies because of the exit tax.
If they want to be strict about it, they should only allow German companies to do business with German subjects. Then there wouldn't be an advantage to foreign companies.
"The one thing the state exists to let me do, bill them cleanly, is the one thing I still can’t."
I sympathize but I'm not sure that is the sole reason the German state exists.
"one" != "only one"
The quote is not "one", it's "The one".
"The one thing" actually does == "only one"
“The one” != “a”
German here. And this is just the standardized SETUP! Wait until you have an edge case or a complicated tax situation, or - dare you - you want to work from a different country.
Germany feels like the government tries to make everything as hard and complicated as possible, to block ANY steps forward. It feels like organized sabotage to me.
for all the people posting founding in Ireland or Estonia (or England!!) etc. The local bureaucracies will spend infinite resources on nailing anyone down on the place of business being != to where the registration is. That is coercing one way or another to incorporate with the full overhead locally after all and most importantly that taxes are not happening in Ireland but to feed the local administration.
I am an electrician. Got my certification done with Handwerkskammer, went to the city hall, registered my company and filled online form rejecting the option with VAT number since all my clients are in greater Munich area. Same path could be chosen with VAT number. Ranting about choosing most complex business form and having no money for a consultant is not adequate in my eyes. Btw I am always liable as electrician (since it is dangerous) and can’t hide behind limited liability company in Germany.
> Ranting about choosing most complex business form and having no money for a consultant is not adequate in my eyes.
You shouldn't need a consultant to open a company. Should be a form and that's it. Maybe an accountant to certify your books, but that's it.
They are not trying to just open a company, they are trying to create one the more complex nested company setups allowed by German law.
If you're choosing to go with the most complicated way of setting up a company, a consultant probably doesn't hurt.
When you choose that you need double layer of limited liability. Maybe having a consultant is extremely good idea. To understand exactly what you need to do at both layers. And maybe in such setup some slow down should be fully expected. As one layer is acting for the other in your stead...
To me things taking longer and being more complicated sounds entirely reasonable and natural in such setup...
And you really don't have to. I just went to one a single meeting, signed a single piece of paper, paid 60€ (probably still <100€ these days) and was done with it. But as GP already alluded to: I didn't choose the structure that is very well known to be the complicated one.
> Btw I am always liable as electrician (since it is dangerous) and can’t hide behind limited liability company in Germany.
Under some circumstances you can be held liable through a GmbH, but not generally speaking.
> rejecting the option with VAT number
Means you are planning to run a small business (making less than minimum wage on a yearly basis), also you are opting out of Vorsteuerabzug. Anyone that wants to live off their business needs VAT. And that is given by Bundeszentralamt für Steuern and the wait times are often excruciating.
But his clients aren't all the the greater Munich area so how is that even similar? Surely having a complex form is the issue as this is what fits his needs. Why does the form need to be complicated?
The last paragraph is very important to the story. His setup is essentially a shell company which add complexity. Setting up a UG is very easy, needs little capital and is especially created for one-person-companies. Additionally he is able to send invoices, just not internationally. I have a feeling setting up this corporate structure and registering it internationally would also not be done instantly in other countries.
The €25k working capital requirement seems a little prescriptive to me (in the US there is nothing like that for non-finance industries, although some businesses need bonds which pay clients/customers if you fail to perform), but it's also the case that most businesses are going to need more than 25k in working capital once they're beyond the startup phase, and outside of tech you typically have working capital requirements that grow with increasing revenue, meaning your accounting profits can be growing but you can still run out of cash since you spend it before you can collect it.
> The €25k working capital requirement seems a little prescriptive to me
It also hasn't been raised since 1981 when it was set at 50.000 DM. Which would provide a real trust to customers and suppliers working with a GmbH. This would mean 65.000€ accounting for inflation.
And trust is key in having a smooth running economy.
We outsourced it for 2.5k (extra) and it was still painful, took almost 2 months and worst of all wasted so much time and focus.
The worst was sitting at the notary, and getting read out loud by her what we were about to sign (also paying for that).
If you think about starting a company, spend some time to think through what it would mean for you to be a Delaware C Corp or an Estoinian one. It will increase your chances of success as you can focus on what matters.
> If you think about starting a company, spend some time to think through what it would mean for you to be a Delaware C Corp or an Estoinian one. It will increase your chances of success as you can focus on what matters.
Moving to Estonia or - even bigger hurdles- the US is not without its distractions either....
Skill issue?
I seriously don't know what you people are doing. I've set up companies in Germany, the US, Brazil and Mexico.
The US was BY FAR, the most enjoyable experience. Won't say anything else. It was a breeze! But Germany wasn't as bad as people make it sometimes. Just don't go with a super complicated, overengineered setup and you are up and running almost instantly. Better won't mention Brazil, though.
If you have the resources, get some QUALIFIED lawyer/notary on board and it'll all be super chill and quick. And if you're just getting started, just do a sole proprietorship as you get started (and you can start working pretty much on the same day), and have the GmbH setup process run on the side.
Running the business is the hard part!
I ran multiple businesses in Germany and it's possible to set up an UG way cheaper and way faster via Musterprotokoll. You can do the majority of filings yourself. There's tutorials (fuer-gruender.de is great). If you get a lawyer and tax advisor for every step, it's also expensive on other countries. And doing company accounts is also work elsewhere. Not saying that it couldn't be way better in Germany, but this blog post is more a rant than anything else.
I founded a UG with 2 friends. 7.500 capital, 2.500 each. From that money, we paid the notary. We drafted with chatgpt on our own and presented it to an attorney for review, ~300€. Notary ~1.200€. All in all, we are 1.5 years in, we still have ~3.000 left from that 7.500 capital. Obviously you're doing something wrong
He wanted a GmbH
No, he wanted an UG & Co. KG
German system supports wealthy individuals who are planning to stay in Germany long-term, but is horrendous for anyone without cash in the bank willing just to try something out.
> My first company, Freshflow, is valuable enough that walking out of Germany would trigger a massive six-figure exit tax, on gains I have not even realised, purely for the privilege of leaving.
Without this "exit tax", every founder of a successful business would have a huge incentive to leave and to realize the gains elsewhere. It's not a tax for the privilige of leaving, but for the privilege of building a company. I can see only three alternatives to this:
- Abolish the capital gains tax entirely.
- Make defering it impossible. Force people to pay immidiately. No "exit tax", but people have to pay for unrealized gains.
- Tax people when they realize their gains in a foreign country.
It should be possible to move within Europe, then when the liquidity event happens tax me from the countries where I've lived, proportionally to the time I've lived there.
If you want to move out of Europe, you get the exit tax as before.
A fourth alternative is to leave, and a fifth is to not start a company at all.
Now you understand why the USA deploys 3-4x the amount of VC capital compared to the EU. And prior to the current administration, entrepreneurs mostly wanted to get to the US.
Are you aware that the US charges an exit tax if you choose to renounce your citizenship? And if you do not renounce it, they will tax you no matter where you live in the world?
Yep, and it’s still worth it for a multitude of reasons. Business formation is easy in the US, and taxes are generally lower than other places. Current administration not withstanding, most people don’t want to leave once they get to the US.
As far as I understand, the US taxes its citizens whereever they live (the third alternative I mentioned).
There's various exclusions and credits to avoid double taxation.
Man decides to go for the most complicated option, complains about how complicated it was. More news at 5.
> And no, I could not just leave instead. My first company, Freshflow, is valuable enough that walking out of Germany would trigger a massive six-figure exit tax
Something is wrong here if you will be liable for at least a hundred grand of exit but balk over 25k to start a new company.
Not sure what he means with "2000€ share capital", which allegedly is locked.
Typically, you can spend your "Stammkapital" for business purposes (e.g. in a GmbH). It doesn't need to stay in your bank account.
The blog post does not read as written by someone who has understood the whole legal process, maybe that's where your confusion comes from.
The Stammkapital was required for the UG, and it's very much locked since the whole purpose of that is to take liability.
So for a UG it's a Kommanditeinlage. But it doesn't change the fact that you can spend this money for business purposes. You just can't wire it back to yourself or pay it to yourself as a wage. Feel free to buy office furniture or company devices with it.
It's a common misunderstanding that this money needs to be reserved somewhere for liability purposes. That's not correct. You can spend it, both in a GmbH as well as in a UG. Look it up youself (e.g. https://www.anwalt.de/rechtstipps/stammkapital-muss-ich-das-...)
According to the article you linked, it can be used to pay yourself a wage, as long as it's not excessive.
"My German clients I could bill today. But a domestic invoice now would have to be reissued the moment the VAT ID arrives"
Not a good idea... Companies will have to re-enter their VAT reports in previous taxation periods. It will trigger even more hassle an pushback form payers...
While EU is big and welcoming family, nobody wants to deal with non-resident bank accounts and tax liabilities :)
it is very funny that most of the (presumably germans) in the comments are saying "it's not that bad and it's fine because you chose a complicated LLC structure"
My understanding what is described is Limited Liability corporation hold inside Limited partnership. Not either of those alone. This setup allows some tax games. But also clearly is also much more complicated to setup as first you would need the limited partnership...
It's probably only funny because the commenting germans are aware that there is a much simpler "UG" (without the &co KG), which is pretty much a LLC, which you can open on your own, a bit faster, much cheaper. But apparently OP didn't do that for tax reasons (in a normal UG, if you want to pay yourself, you gotta pay income tax and all the other stuff)
If an american comes and says they founded a public company (with stocks and all), and complained about the fuzz involved, you would also tell them that it's their own fault, right?
That said, maybe the US/Delaware LLC has this component as well, I'm not a lawyer :D
UG is almost always a bad idea. Just go with the GmbH from the start. UGs need to convert to GmbHs over time anyway, it is just added bureaucracy. Your tax accountant alone will cost 3.500-5.000€ in the first year, so you need the money anyway. Starting a UG with 2.000€ in capital is stupid idea, you risk going bankrupt early on. Rembmer, delayed filing for insolvency (Insolvenzverschleppung) is a criminal ofense in Germany and you are risking that to.
Looks like he got hot milked by “advisors” who insisted in an overly complicated setup. Setting up a UG is fast and easy as long as you stick to the standard and you don’t need advisors or lawyers.
This is what happens with complex organizations. People develop expertise in navigating the organization, feel pride in that expertise, and then snottily mock those who struggle. Even though they didn’t create it, don’t really like it, and have no stake in it.
But it is all arbitrary bureaucracy with little value beyond its own internal logic. Still gets fanboys somehow.
> “No,” said the lawyer. German company names have to be distinctive, and “Plenty” is a plain English word. Berlin would reject it.
Good.
Say that to Tempo! It's like hoover or ipad, a word people use in place of the real product name, and no matter which brand the product is actually made by (a no-brand piece of paper is still referred to as Tempo)
It they're allowed to trade as Tempo in Germany, why isn't a company allowed to be called Plenty?
I agree it would be nicer if you couldn't hijack a normal word in the hopes it does well enough that people know of it and are constantly reminded of the brand, or that related searches have to consider putting this among the results, but in terms of a level playing field idk
Important note: The cost / delay he's talking about isn't registering a company; it's getting a VAT number. I've done both in the UK, and while getting a VAT number is significantly cheaper than 9k EUR and significantly faster than 6 months, it's not nearly as quick or cheap as simply registering the company, which is what many commenters (and even the author in TFA) are comparing it to.
I recently helped my friend (3rd country national) to open a new business in Czech Republic.
It took 3 months from registration to sending her first invoice. The longest wait was on the bank account: a very few places are willing to open company account if you don't have an EU residency. Without the bank account, she couldn't deposit founding capital (základní kapitál) which is required to complete the registration. It's even funnier cause the minimum amount to deposit is 1 CZK (5 cents).
Total cost to start business was under $8,000. The most expensive were legal services: writing down all contracts and customer agreements was around ~$5,000.
I feel like this is such an untapped market for getting digitilized. I was thinking to actually sit and vibe code it at some point but can't imagine doing this alone.
I gave up on trying to set up an company in Germany. Founding is the 1st side of the coin, but the other side of the coin are the complexities of closing your company (which takes at least a year as well) and exit tax (you might get taxed 6-7 figures when moving abroad even if you don't really make reasonable money).
The biggest issue is to find a tax consultant for your GmbH/UG, especially when you have low revenue (below 1M).
My friend bought an apartment. In February. Still in processing at the Amt (bureau). It's nightmare fuel. They are sending physical letters, and are hand-matching payments from banks. Apparently, they couldn't match a 53 EUR transfer last week, so a ~400k EUR payment is stalling.
The issue is, the people holding the stamps (and believe me, they ARE stamps, with ink and all) are in charge, and are VERY reluctant to give up that comfy job. Zero accountability, too, since once you are a government employee, it's incredibly hard to get fired. So they stall the process, forever, without any reprecussions.
I am all for having and caring about process and dealing with everyone equally. That's why I live in Germany and not in Eastern Europe where often some money under the table is the only oil in the machine. No such oil in the German machine, thankfully. But it's infuriatingly slow, because bureaucrats are in control and will never willing give up that control.
3 to 4 months is standard procedure in Belgium.
I don’t know the specifics but the OP chose a complicated setup. Why not just use a GmbH which is the equivalent to an Inc in the US? The capital requirement is 12500 in the bank not 25000 as stated. There are online services that run the whole process for you similar to Stripe Atlas. Even setting up a UG (with 1 euro stating capital) is very easy but you have to upgrade to a GmbH once you receive investment (investors usually demand it). For the whole process there are standard forms. You only need to pay lawyers if you want to personalize your setup.
Maybe OP was just not advised well which is surprising given the amount of information available online (startup guides for Germany)
They state that in the post, it is a tax-optimisation since it is a single-person company.
Maybe not a relevant experience then, as most people in this forum look for startup advice and take on external investment.
You can totally setup a Inc or LLC equivalent pretty fast in Germany as long as you stick to the standard. What he is setting up is basically an LLC owning an Inc.
This. Is founded (and liquidated) my GmbH with only 12.500€ deposited to the business bank account. Note this is not a cost, it just moves to the corporate account and can be used to pay expenses (notary, lawyers, hardware etc.). The remaining 12.500 are a permanent loan that the proprietory needs to cover on in case there is a liquidity shortage or liability suit etc. In my case I never paid the remaining 12.500€, and in liquidation process it balances out to zero.
But if you think founding a german company is difficult, wait until have you do an ordered liquidation (not bankruptcy) - that is madness on its own.
I guess that’s what happens when you get advised by a lawyer.
idk I founded a UG within a few weeks recently. Yeh it costs me maybe a thousand or so in notary fees but that's it.
A 1000 or so is … “that’s it”?
Mh, seems to me about ranting as some things went wrong. With all due respect, founding a company shouldn’t be that easy; otherwise investors wouldn’t give you money for it. “UG” reads as “not serious” – no, that was in the past. Times have changed.
I’m not here to defend a big country that clearly has to do better, of course.
To me the most annoying thing about the UG is that your company name needs to include "UG (haftungsbeschränkt)", no abbreviations allowed. So unaesthetic...
I think most red tapes and bureaucracies have loop holes. For example, a different, simpler type of business type, then conversion to the actual desired type. At least, this has been my experience in a few countries I worked in. Sometimes it will cost more up front, but if the end result is significantly faster, maybe it is worth it.
I am sorry he has to go through this just to start a business.
Yeah, ease of doing business is always proportional to the amount of money you spend to grease the wheels of bureaucracy, so to speak.
This guy gets it completely wrong. You are allowed to use the 25k, but only for business expense. Not as salary to yourself.
As others commented already - the author does not seem to understand principal idea behind running a business - a company is not something "yours", because you can just simply sell your shares or be moved out from the company by other partners.
Company is a state's legal entity given to designated people to manage (the forming person/partners) and profit from doing it successfully. If those people fail they have to follow strict rules (liquidation) or they will be sued personally for misconduct. That entity gives much more possibilities because it is limited liability - part of which is held by the state, and part by the running founders.
If you want something yours, you go with the sole proprietorship.
You can just buy a ready made GmbH.
This costs about 28k€, 25k€ are deposited in the company.
That is called Vorratsgmbh and takes very little time.
You still have to go to a notary and do paperwork to change the name of the company.
The mantra has always been to only create the company after sending the first invoice.
Edit: oh it's setup like this to cheat on taxes.
I had already people wanting to work with me before even starting the company. Couldn't send them invoices. Most importantly: didn't speed up the process!
You can always send invoices without a company. Your tax office will sort it out retrospectively.
it seems absurd that they would reject a plain and simple name? i imagined company names would be available on first come, first serve basis. why is that not the case?
I've setup my own company in Poland in 2015, by submitting a web form, 30 minutes later I could issue a fully VAT compliant invoice. This was not an incorporation however - that was a sole proprietorship, but I could still hire people full time, issue invoices etc.
You can do the same in Germany. Costs 29 Euros with an online form. Once the sole proprietorship is setup you apply for your tax id and done. The whole process took 2 weeks in my city. Legally you can even start invoicing as soon as you registered your business.
The problem with OP is that he chose an overly complicated structure. Probably got milked by lawyers and advisors.
thanks good to know! I felt something was off here
the real problems with administration dome starts after founding in many but not all European countries.
There is light at the end of the tunnel as an EU Inc. is proposed.
However the bureaucrats in probable but all countries will try to water it down to pointless to keep or extend their responsibility territory and duties.
Wait until you want to convert the UG to a GmbH and realize that it's not simple or cheap at all.
It's not enough to have had properly filed tax returns every year, have a large enough profit-collection-line item in your books (25k EUR+) and then fill out a form.
No, if you want to use the profit your UG was required to accrue to raise your capital stock to 25k and rename it to a GmbH you need to get your annual accounts audited.
Or alternatively, you can pay in the difference between your current capital stock (e.g. 2k) and the 25k minimum for the UG and then rename the company and "just" have to pay for the notary, publishing to public records, court, ...
Yes indeed.
We converted Freshflow into a GmbH and needless to say it was expensive.
Can confirm, starting and running a business in Germany is miserable.
The processes are all non-digital, and have many steps like Notaries for example.
Just a little taste of the European bureaucracy.
The whole reality is much worse.
As much as I would like to agree with you about how non-digitized and rotten and crooked the whole notary etc system is - as someone who has incorporated and invested in dozens of German companies (UGs, GmbHs, and GmbH & Co. KGs), I’d seriously reconsider the UG & Co. KG structure for a one-person software business.
The tax explanation in the post is oversimplified.
Examples: With a KG, if the business earns €100k, that profit is attributed directly to you and taxed as personal income, whether you distribute it or not. At higher income levels, that’s roughly 45% including solidarity surcharge (and potentially church tax).
With a UG or GmbH, the company pays Körperschaftssteuer plus Gewerbesteuer, typically around 30% combined (depending on where its incorporated). On €100k profit, about €70k remains inside the company. If you later distribute it, you’ll pay capital gains tax based on the Halbeinkünfteverfahren on the distribution - which is 25% + Soli, bringing the total tax burden to roughly the same level as the KG.
The key difference is that with a UG/GmbH you can leave profits inside the company. That money can be reinvested into the business, other startups, ETFs, stocks, etc. - most often with only 1,5% effective tax while the money is working for you. You defer the second layer of taxation until you actually take the money out.
Also, you can pay yourself a salary. Whatever portion you pay out as salary is taxed personally just as it would be in the KG structure - but this time its company expenses, so no double taxation here either.
A few other points:
* A GmbH no longer requires €25k - its only 12,5k€ - and its also not to be locked away forever. The money can be used for legitimate business expenses immediately after incorporation.
* A decent tax advisor can usually get a VAT ID much faster than described in the article.
* A UG is widely accepted in the startup ecosystem. I’ve never seen customers reject an otherwise attractive startup because it started life as a UG. For investors, it's routine.
* Converting a UG into a GmbH later is routine, if you want to start small. If you have the 12,5k€ money, do a GmbH to save administrative hassle.
* A UG & Co. KG creates significantly more administration: two entities, two annual accounts, additional bookkeeping, additional filings, and additional advisor costs.
Of course there are valid reasons to use a GmbH & Co. KG, especially for complicated co-investment arrangements, but from what you wrote, that's not the case here. Therefore, for a solo software founder, I’d question whether the additional complexity buys you anything meaningful.
Bonus tip: You MIGHT want to consider owning your share in the Software UG not directly but through another UG, paolino UG or so. When you foresee to sell your business for significant money later, then you'll have exactly the same advantage, the money can stay in the company for reinvestment and you don't have to give up 50% of your capital gains in the moment you sign the sellers agreement. You CAN't do this easily later.
Not legal or tax advice. Just my personal experience.
Outside of some kleptocracies, Germany has long had a reputation as the hardest place to found a firm.
Start a limited liability company in Latvia or Estonia. It will take you 1 business day, you can do it remotely, and, because of EU laws, you can do business everywhere in EU. Basically nothing you can do with Gmbh that you cannot do with Latvian or Estonian equivalent
https://www.vid.gov.lv/en/first-steps-entrepreneurs
The tax office can decide that the company is, in fact, a German company if the founder lives and operates in Germany. Now the company paperwork has to be done in two countries. I don't know what the tax implications are.
Applies to all EU countries btw, you can't just choose a different jurisdiction for your new company risk-free.
The tax office WILL 100% decide you have to pay corporate taxes in Germany - and it does not need to decide that in the first place, you will have to report it proactively on your own to the tax office and file for taxes.
[ outside of Germany ]
(2026)
1.) Yes, it took 3 months to switch the company hq + IRS + Notar etc.
2.) But it really does depend a lot on the city, state etc.
3.) UG is 500 EUR - changing to GmbH is then also quite cheap
Germany is a nightmare of red tape.
Do you really need for the legal process to be completed before invoicing?
In France you can do it as soon as you started the process.
At least for reverse charge you'll need a VAT ID.
Is it as tortuous to open a self-trader account with VAT ID, or is it just to found a company (the German equivalent of an ltd)?
Europe will suffocate under the weight of its own bureaucracy. The sad thing is that it is not new to me, I've heard so many stories like this one. This is the kind of friction that makes founders incorporate elsewhere.
Also, a founder spending months coordinating lawyers banks and tax advisors is not talking to customers or building the product. The opportunity cost here is huge.
Anyway, you are pretty close. One more push, don’t give up. :)
Germany is not EU though. Very different bureaucracy in different EU countries. Up to a point, EU doesn't add a single bit of bureaucracy to the stack. Only once you reach a certain limit you will have to enroll in an international VAT system, which is not too bad.
EDIT: Just re-read your message. I thought it said EU. But the point stands, Germany is not Europe either.
In many other european countries, the story doesn't change much - with some exceptions. The irony is that the EU is now discussing EU Inc. a law to let startups incorporate online within 48 hours, for at most €100, under a single optional corporate framework across Europe.
That is exactly the right direction. But for now it is just a proposal
Ah yes, Germany == Europe.
Do you think that stuffs are different in Italy, Spain or France? Just to cite some others
Yes, it is different in Netherlands, Sweden, Poland.
When these threads show up it is always funny that Germans are shocked anyone expects anything else and everyone is shocked at Germany.
Luckily with how the current German economy is doing this is a problem that will solve itself. It's like the last half a dozen German governments look at the Morgenthau Plan plan and thought it was an amazing idea they must implement.
I really didn’t have the feeling that Germans are shocked about some of these inefficiencies at all. Typically they’re just a result of long processes thus difficult to change. I do agree that Germany and the EU as a whole should not make this process so cumbersome. It shouldn’t be easier to found a US foreign LLC from abroad than a company in one’s country or residence. The proposed EU LLC might solve some of those issues if it comes to fruition.
Regarding the economy though, Germany is still the third richest country on earth. I think this talking point about their huge regression is mostly FUD.
Yeah very relatable unfortunately!
Well, create a company in Ireland. 5 days, €300 and you can send your invoices.
...and move to Ireland.
Fascinating, and useful for those of us considering starting up in DE.
Germany is slow. The simplest possible purchase of an appartment, without any hurdles took me almost half a year.
Created an LLP, We spend around 30k INR, that is roughly 300USD.
It all makes sense when you understand that this is deliberate, to crush the economy and innovation.
You're lucky. After that you will have to run it!
Come to Poland. You can get this done in less than a week
OP mentioned in the post that they can't move outside of Germany as it would trigger the exit tax (which would probably cost them significantly more).
This is going against multiple EU principles, but it was only introduced in 2022 and so far, there are no judgments on its enforceability as far as I'm aware.
Similar story in the UK\u2014registered a company online in about 24 hours and had a business bank account within the week. The gap between the best and worst EU jurisdictions for this is staggering.
This does bring its own share of problems. 1000s of companies are registered in the UK with literally no checks. No address checking so people just pick a random address to register from the phone book!
When it comes to tax issues etc. it turns out the company registration is meaningless. The sweet spot has to be somewhere in the middle. Starting a company shouldn't be something you expect to do in a day but it also shouldn't require you to sell a kidney or fill in pointless forms.
> When it comes to tax issues etc. it turns out the company registration is meaningless.
Taxes have nothing to do with the physical location of the company. You go after the owners, and I'm pretty sure you can't open a company in the UK anonymously.
There is an identity and address checks now in the UK.
Even banks are required to validate now, had my bank asking me to validate details even when i have my business for 6 years, same company, same address, and same bank account.
Yep, and it can get quite tedious.
I founded my Estonian company within 3 days, that includes when the court rejected the name because a similar name already existed. Everything was online.
The real problem becomes substance in Estonia? Residence, local director, office, ...
You only need a contact person and a legal address, which is only €100-200/yr. You don't need a local director, physical office or similar, and you don't need to live there.
I just started an LLC in Oregon and I did it in the evening and got a confirmation by the next morning and an ein next afternoon
I was waiting for 3 months for my VAT ID to arrive. Then I just called my finanzamt and told them why I have no vat ID. I think they just forgot, finanzamt said over the phone that "they opened a ticket" and 2 weeks later exactly as promised in the beginning it was in my post.
Try firma.de
European 28th regime can't come quick enough.
There's so many things that are plain wrong in the European ancient and bureaucratic commercial and corporate law.
It's insane that giving stock options (core to attract talent) or raising capital for equity is so difficult across Europe.
And don't get me started on how difficult it is to fire people that just don't work and only pretend to, spreading doing jackshit across the company.
Europe has the talent and even the capital, but the incentives are just not here, neither to attract talent nor serious investments.
The continent is old and politicians keep trying to band aid the system, consistently claim regional-national policies over common European rules, they will claim Europe makes it difficult to do business, just to reinvent their own commercial, import/export rules, tax rules non stop.
I don't want to say it's a disaster, but we really need some party that looks at commercial, trade and corporate law across Europe.
god bless america. cost me like $90 for a llc. all online.
this sounds like a total nightmare. those germans need to wise up
I have heard it is also more difficult to get married in Germany.
now try closing your company for less than several thousand. lol.
you should consider UK company, enormously better. or sweden. continental EU is mostly backwards.
The saddest thing is that bureaucracy will stay, grow and flourish until the point of breakdown, when the system is not able to pay bureaucrats their salaries.
Or maybe even until they can't physically get to work (read with accent: "that I need to do even if I don't get paid")
At least on this specific issue, the EU is trying to simplify things by introducing "EU Inc" as a new corporate form. But it'll take several years more to arrive.
Wait until you find out about electronic invoicing mandates rolling across Europe.
Yeah, for many clerks the purpose of their lives is only to improve and enhance bureaucracy, and make the applicant's life miserable.
just hop the border and set up a learing center.
The EU is a single market, just form an entity in the quickest and easiest state to form it, open a bank account, payment processor and you’re off to the races, as long as you can accept Euros directly people are fine?
Who are these people that care
“Oh you don’t have a GmBH, oh your share capital is so low ohhh ho ho ho ho”
"Standard" German people have an deeply ingrained, culturally inflicted belief that administration is inherently a good thing, and that the more of it there is of it, the better the system functions.
Worse, when you try to gently and constructively engage them on the topic, their mind is so deeply dyed with the idea, that they either simply don't understand what you're talking about or when they do, refuse to engage because they find you so weird, it's a waste of time to discuss with you.
"Was nicht dokumentiert ist, ist nicht passiert". Yeah, right, except that "Alles erstickt im Papierkram" and nothing ever fucking happens.
The only way to start a company in Germany is Societas Europaea and have lawyer parents. Otherwise don't bother.
How do you create an SE from scratch?
lawyer parents
I wonder what's the reason. Poland used to have horrible bureaucracy. You could argue this was due to lack of funds, or communist baggage. Yet, over the last decade digital administration has become a norm, rather than exception.
Germany doesn't have such excuses, yet there it is.
Honestly why go through all these hoops? Is the Wyoming LLC + Wise account route shut off for most Europeans?
Yes. Unless you have hundreds of thousands of dollars that you can invest in the company that has not even been created, you would not be able to get a visa and your company would not be able to exist.
Unless you are a startup with large investors, that route is closed.
Yes. Can't just emigrate. No substance in the US meaning your llc would be liable for tax as if it were an llc in the country where you reside. You'd basicly double the liabilities and administration for no good reason.
So question is, why are you starting company in Germany, this is EU, start in better country.
Because then the german tax man would presumably demand he pay more than he has available, in exit tax (as explained in the post).
To cite the modern thinkers in Corporate Avenger, «taxes are stealing and I get the feeling that were getting fucked in the ass».
He mentioned German exit tax is keeping him from doing that.
You're discovering the global financial system is primarily for the rich, and not wage slaves like us. Free to those who can afford it
Its always the caste lobbying for regulations "for the good of all" that break countries apart. My country's (Argentina) largest political party lives on by heavy corporativism, otherwise they would have been booted a long time ago.