A Company's Initial Capital

This page is all about money and company when you are about to or are opening a company in Germany.

It is about:

  1. Takeover in Cash
  2. Takeover in Kind
  3. Financial Details relating only to a UG

Takeover your Readymade Company with Cash

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Can the funds for the company be used immediately or is it gone forever?

You can use the money elsewhere after the company is financially equipped, but this must be carefully structured! The initial capital is now no longer your money; it now belongs to your company. It is comparatively like giving money to your brother. You can easily use the funds for the daily needs of the company. If you want to avoid personal liability, it is not allowed to return the capital to the shareholder.

Do I have to have a German bank account?

No, this is not actually necessary - all that is important is an IBAN. This is true from the perspective of German company law. Payments to German offices are always cashless. However, there might be problems with direct debits. Depending on the founder's nationality, it may be more or less easy to open an account in Germany.

For which nationalities is it normallydifficult to open a business account?

Typically, nationals from countries known for shadow economies will have problems living abroad and wanting to open an account. Unfortunately, American nationals also fall into this "difficult" nationalities category. However, if such person has a European or an electronic residence title for Germany, our banking partner Qonto will accept this setup. It is also permissible to have a nominee director or a proxy director alone or next to foreigners living abroad.

American citizens have a problem opening a business checking account in Germany? You've got to be kidding me! In the States, we've been told all the time how great the U.S. is.

Yes, sad as it may sound, this is true. However, this has nothing to do with past presidents, but refers to FATCA; a law that has been in effect for some time.

Why do you have to collect the fees from the authorities when buying remotely? This makes your offer seem very expensive!

Quite simple! We want to support you and speed up the process. Payments within Germany arrive faster. We will also control the correctness of the fees and enforce the correct ones with the authorities if necessary. One detail less you have to worry about. Especially the notary will be happy to know that his payment is secured. He will then be all the more ready to prepare the purchase from us. Otherwise, both the notary and the commercial register will each expect payment first before anything is implemented.

I want to have a GmbH and I find out that I can also pay half of the share capital. That's great! When do I have to pay in the remaining capital?

You may never have to pay it! There are only three situations when this money is required:

  1. when the other shareholders demand it,
  2. when the bankruptcy trustee reaches out his hand,
  3. when there are insufficient funds for the company's liquidation.

As a shareholding director, does my company have to give me an employment contract immediately? After all, we have not yet turned over any money as a young company. I still have savings and can live well on that for the next while.

If the tax office asks you this, there is nothing wrong with it. The authority just wants to know "if" or "if not". There is no obligation that you have to employ yourself at all. When you give yourself an employment contract is an economic question that you should consult with your tax advisor.

What is the difference between capital stock vs. capital contribution? The notary spoke so fast that I only understood half of it.

"Capital stock" and "capital contribution" are easily confused or equated. The difference is quite simple: the "share capital" includes the total liability capital of a company, whereas "capital contribution" means the share of an individual shareholder in a GmbH or UG. At the time of formation, each shareholder can also take over one or more shares. Each share has a nominal amount, which expresses the value of that share in the company. In such a case, the sum of the nominal amounts of all shares of a shareholder is his capital contribution. If you add up all the capital contributions of the individual shareholders, you get the share capital. Is quite logical, is not it?

Funding a Company with Things

I don't have that much spare cash to finance the setup but I have many valuable items. Can't I deposit the capital contribution with stuff instead of cash? That would really make my life easier!

Yes, you can. From a purely legal point of view, it's not a problem. But it might be expensive! Funding in kind is only possible if you determine this in the articles of association. This thing must be described quite precisely. The items being contributed must be evaluated by an auditor. You can contribute following things into a company:

  • Real Estate,
  • Vehicles,
  • Machinery,
  • Interests in other companies,
  • Rights of use,
  • Licensing rights.

The Articles of Association state that a "hidden contribution in kind" only has a fulfillment effect if, from an economic point of view and on the basis of an agreement made in connection with the assumption of the monetary contribution, it is to be valued in whole or in part as a hidden contribution in kind if it meets the requirements of the value imputation pursuant to §19 IV GmbHG. Aha. What is that supposed to tell me, please?

It is ultimately about the fact that the company should really receive the capital really for free disposal. The legislator wants to prevent that a worthless object, the monetary contribution to be bypassed.

What do I care about this obligation? What are the consequences if I don't raise the capital properly?

If shareholders and managing directors violate cash and non-cash regulations, they face fines and imprisonment under §82 GmbHG. "Concealed contributions in kind" and "paying money back and forth" are typical liability traps.

Paying money back and forth? Why not just have the corporation lend me the money back?

A back-and-forth payment exists if, before the contribution is made, it is agreed with the shareholder that the company will make a (counter)payment to the shareholder. A typical example: The shareholder receives a loan from the GmbH in a timely manner. Pursuant to §19 V GmbHG, the shareholder is only released from his obligation to make a contribution if the company has a full (!) repayment claim against the shareholder. A repayment claim only exists if this loan is due at any time or can mature by termination without notice. If this is lacking, the shareholder still owes his contribution.

When and how is a contribution in kind to be made by the company?

If contributions in kind are to be made, there are two special features: The contribution in kind must always be made in full. The value of the contribution in kind must be proven in a non-cash incorporation report. This is what makes the formation expensive, because auditors have to be commissioned with the valuation.

 

Financial Details relating only to a UG

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Okay, I understand with the UG I am allowed to set up the reserve must. What am I allowed to do with it anyway?

The reserve may only be used for

  1. the capital increase from company funds,
  2. the compensation of a net loss for the year, insofar as it is not covered by a profit carried forward from the previous year,
  3. the offsetting of a loss carried forward from the previous year, insofar as it is not covered by a net profit for the year.

How much should I pay in capital for my UG? Is a single euro really enough? After all, that's not enough to survive!

To admit, that is indeed not enough meet any ends for the existence of a company. Unfortunately, the answer is somewhat complex. The law requires at least one euro - so §5a GmbHG and logically up to € 24,999. However, from € 12,500 a UG no longer makes sense, because then you have the money for a GmbH.

notary has downright refused to found my UG with one Euro share capital. I feel that this is an impertinence. What can I do about it?

The notary will certainly, have argued with the following advice. You should bring in as a founder enough money as a contribution, so that the company can generate sales in a certain period itself and is therefore self-supporting. Insufficient share capital can always entail a risk of insolvency. Consider therefore: A managing director is in principle obligated to file for insolvency in time – i.e. when the company is overdebted and a rescue not evident.
There is some truth in this. However with a business startup, I consider this argumentation as incorrect by fact and sense. According to this logic, someone who starts as a freelancer would have to do so only with a permanent client. Otherwise, he could also have to file for insolvency. Why is it then permissible to start up from unemployment?
If you do not get on with the notary, then you are welcome to complain to the Chamber of Notaries in the state of your notary. That is your right.

Can I form a UG with a contribution in kind?

Sorry, that is excluded by law (§5a II 2 GmbHG)! No, an exception is also not possible.

Can the money for capitalizing the company be used or is it gone for good?

Yes, the money can be used after funding the company but this needs to be structured carefully. The capital for your company has left you for good and is now with your company – like giving it to your sister. You can use the funds for everyday needs of the company. It's not permissible to simply return it to the shareholder if you want avoid personal liability.

Why do you to collect and cover the fees of the authorities during remote takeover? This makes your offer seem so very expensive.

Simple! We want to take care of you and expedite the proceedings. Payments inside Germany arrive faster. We will argue with the authorities if the fees are incorrect – without charging you. One less detail for you to worry about. Especially the notary will be pleased to learn that his payment is secured and will jump to serve you quickly. Otherwise, both notary and Commercial Registry will each expect payment first before implementing anything.

I just realized for opening my GmbH, I can also pay only half of the funding capital. That's awesome! But tell me, when do I have to pay the rest?

It can happen that you never have to pay the rest! You know, there are only three situations when that money will be demanded:

  1. when the shareholders call it in,
  2. when the bankruptcy manager stretches out his hand,
  3. when winding up the company, and insufficient funds exist.

Does my start-up company have to give me a contract of employment immediately as shareholding director? We have not yet converted any money. I still have savings and can therefore be well prepared for the near future.

If the tax office asks you such question, this is not harmful at all. The authority just wants to know "whether" or "whether not". There is no obligation that you have to be employed at all. At what time you should give yourself an employment contract is an economic question, for which you should connect with your tax consultant.

How much should I pay in share capital for my UG? Is a single Euro really enough? That will not last the first day.

Admittedly, this is not enough for the existence of a company. Unfortunately, the answer is somewhat complex. The law requires at least one Euro - according to §5a GmbHG and logically up to € 24,999.
As a founder, you should contribute enough money so the company can generate sales and be self-supporting within a certain period of time. An insufficient protection due to not enough share capital always carries a danger of insolvency in itself. Therefore, keep in mind: A managing director is generally obligated to file for insolvency in a timely manner in the event of illiquidity.

How do I pay the initial capital into the company's account? Is a notary needed and/or via the escrow your account needed?

In Germany, this act is very straightforward! The founder transfers the money from his bank account to the company's bank account. Really, that is all there is to it.