A legal form creates the legal framework for entrepreneurial activity. The choice of legal form influences tax and accounting obligations, liability or the external appearance including the company name. Furthermore, the type of legal form determines the formalities involved in setting up a company, as well as the way in which investors and banks assess the company. The regulations for the individual legal forms of companies result from the BGB, the HGB or the GmbHG.

Equivalent to the term legal form is the term Unternehmensform (company form). Legal forms for the establishment in a team are also called Gesellschafterformen (shareholder forms), because here the team founders unite as partners.

Basically, a distinction is made between legal forms for Einzelunternehmer (sole proprietors), Personengesellschaften (partnership businesses) and Kapitalgesellschaften (corporations).

A sole proprietor is anyone who establishes and runs a business alone. If two or more founders want to establish a company, they can choose between a partnership business and a corporation. The main difference is the limitation of liability of the corporation to the company assets. The formation of a corporation is complex and involves a high formal outlay. Partnership businesses are comparatively easy to form and manage. However, the partners are exposed to a high entrepreneurial risk due to personal and unlimited liability.

Sole proprietors can be: 👤

1. Freiberufler (freelancer)
2. Kleingewerbetreibender (small trader)
3. Eingetragene Kaufleute e.k. (registered tradesmen)

Partnership businesses can be: 👥

• Gesellschaft Bürgerlichen Rechts – GbR (civil law partnership)
• Offene Handelsgesellschaft – OHG (general commercial partnership)
• Kommanditgesellschaft – KG (limited partnership)
• Partnergesellschaft – PartG (partnership company)

Corporations can be: 🏭

• Gesellschaft mit beschränkter Haftung – GmbH (limited liability company)
• Unternehmergesellschaft, haftungsbeschränkt – UG (provisional private limited company)
• Aktiengesellschaft – AG (public limited company)
• Kommanditgesellschaft auf Aktien – KGaA (partnership limited by shares)

A new legal form among corporations is the Societas Europea – SE, a stock corporation under European law.

For further advice on which legal form to choose and the advantages and disadvantages of each of them use the free access to our community to check out our exclusive online classes! 🔍