Capital Sustenance

I heard that from friends that they funded their GmbH with only 12.5 k€. They all insisted that it was legal and cheaper than what other lawyers told them. Can this be?

Yes, this can be. However, they only know a half truth. Both are correct: The minimum capital is 25 k€. You can start your company with 12.5 k€. When you fund the company only with half of the statutory capital you are still running a risk of personal liability until the company has received full funds. That is the difference!

That’s cool. I don’t have to fully fund the company and get away with half. Neat! Um, can this be?

Nice idea. Legally you will not get away with half. Practically, nobody checks if the company has been funded with the second 12.5 k€ – with one exception: the bankruptcy manager. When a company goes bust, the first thing the bankruptcy manager does is to check if the founders paid the capital stock in full. If not, he will collect – without any time limitation.

I fully funded the company. May I not use that capital stock? You know it is so much money; it’s a crying shame to have so much money just lying around for nothing.

Sure you can use the money! When founding the company, law expects that you fund the company with starting capital. During day-to-day business, the main thing is that you do not lead the company towards bankruptcy and do not return money to the shareholders. Keep reading. There is more to know!

What do you mean shareholders are not to be reimbursed for the capital? It’s their money anyhow.

Sorry, but you got it all wrong! The founding shareholders gave up their personal money for the benefit of the GmbH. The GmbH itself is a new and different legal entity having its own rights and duties. As you founded a GmbH, it was like marrying your spouse. The spouse has – next to its own identity – also and especially its own wallet!

Okay. How much may I spend?

Generally, you have to make sure that the stock capital is always available – either in cash or in kind. The shareholders may not receive dividends or a salary if this endangers the stock (§30 I 1 GmbHG).
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Well my shareholders insisted that they get a loan from the company and accept their personal guarantee. That sounds reasonable, will I, as the managing director, have an issue with this concept?

Not really. The law (§30 I 2 GmbHG) now explicitly permits that the shareholders receive funds back if they are secured by an adequate collateral. Such adequate collateral can be the personal guarantee of the shareholder or something valuable. Make sure you get an adequate security or you might be held personally liable.

My shareholder came up with the idea that I might waive his repayment of the granted loan. I don’t know. I don’t like the idea so much. What do you think?

That is a good idea to listen to your stomach. This is absolutely prohibited (§30 I 3 GmbHG). The money belongs to the company and you may not just push it down a shareholder’s throat.

Increase in Capital

My corporation is standing a bit meager among our competitors; I guess I would like the GmbH to look more prosperous. How do I increase the capital stock? Just put more money into the account?

Not really. There are two ways to raise the share capital:

  1. per capital contribution
  2. from company funds.

The first alternative brings new, fresh money into the company, while the second only transfers reserves.

Neat! And how do I actually raise the statutory funds? Aren’t there any formalities attached to it or do I just write a “one-liner” to court instructing it?

Nope. You may not effectively personally communicate with the court. You must visit a notary because the Act on GmbHs demands that public form be observed when you change the “law” of your company: articles of association. But that is the second formality. In other words, this answer puts the cart before the horse. You already mentioned the first formality: a shareholders resolution. However, the law also provides a possibility that the CEO may raise the capital (§55a GmbHG, “sog. genehmigtes Kapital”, so-called approved capital). The last formal step will be that the shareholders formally take over the new capital. Once these formalities have been taken care of to the consent of the notary, he will apply to the commercial registry to let the changes come into effect. The changes come into effect when they have been published in the Federal Gazette. To wrap it all up: first comes the board resolution, then the visit at the notary or both simultaneously and after this has been entered into the Commercial Registry the company officially has the higher capital.