If you want to choose the right legal structure, you should consider liability, taxation, administrative burden, and your specific business plan. Choosing a legal structure is one of the most important decisions when starting a business in Germany. In this article, we compare the most important legal structures for founders and show which business structure is best suited to which startup plan.
This article is intended to provide general information and has been carefully researched. It is not a substitute for individual legal, tax, or social security advice. Legal regulations and administrative procedures are subject to change. The legal provisions and decisions of the competent authorities applicable in each individual case are authoritative. As of August 2026.
An Overview of Legal Structures: The Comparison Table
| Legal form | Minimum Capital | Liability | Typical Taxation | Accounting |
|---|---|---|---|---|
| Sole proprietorship | None | Personal and unlimited | Income tax; for businesses, trade tax if applicable | Often the simplified accounting method (EÜR); depending on the circumstances, double-entry bookkeeping may also be used |
| GbR | None | Generally, personally and jointly and severally | Income tax for shareholders; trade tax, if applicable, for businesses | frequently EÜR |
| PartG | None | Generally personal; special rules for professional errors | Income Tax for Spouses | frequently EÜR |
| OHG | None | Generally personal and unlimited | Income tax for shareholders; plus business tax | double-entry bookkeeping |
| KG | None | General partner: unlimited liability; limited partner: limited liability | Income tax for shareholders; plus business tax | double-entry bookkeeping |
| UG (limited liability) | starting at 1 € | Generally limited to the company’s assets | Corporate Income Tax and Trade Tax | double-entry bookkeeping |
| GmbH | 25,000 € | generally limited to the company’s assets | Corporate Income Tax and Trade Tax | double-entry bookkeeping |
| AG | 50,000 € | Generally limited to the company’s assets | Corporate Income Tax and Trade Tax | double-entry bookkeeping |
Important: The table provides a simplified overview. When it comes to taxation and accounting in particular, factors such as the nature of the business, the size of the company, registration in the commercial register, and other requirements may play a role. For example, a sole proprietorship is not automatically entitled to use the income-surplus method on a permanent basis.
Legal Structures in Detail
Sole proprietorship
Characteristics: A sole proprietorship is operated by a single individual. In principle, there is no legal separation between the business’s assets and the owner’s personal assets with regard to liability.
Liability: The owner is generally personally and fully liable with his or her business and personal assets.
Taxes: Profits are taxed as part of personal income tax. If the activity constitutes a business, trade tax may also apply. Freelance work, on the other hand, is generally not subject to trade tax.
Who it’s for: A sole proprietorship is often a good fit for solo entrepreneurs, self-employed individuals, and freelancers who want to start their business with minimal organizational effort and do not need limited liability.
Starting a Business: Whether a business registration is required depends on the type of activity. Business owners must register their business with the Trade Licensing Office. Freelancers generally do not need to register their business and must report their activities to the tax office. In both cases, registration for tax purposes is required.
Capital Requirements: There is no statutory minimum capital requirement.
Bookkeeping and Requirements: The requirements for bookkeeping and profit determination depend, among other things, on whether there is a legal obligation to maintain commercial books. For many smaller sole proprietorships and self-employed individuals, a cash basis accounting system (EÜR) is an option.
GbR (civil law partnership)
Characteristics: A GbR is formed when at least two persons join together to pursue a common purpose. Since the reform of partnership law effective January 1, 2024, the GbR, as a legal entity, has been expressly regulated in the German Civil Code.
Liability: The partners in a GbR with legal capacity are generally personally and jointly and severally liable for the partnership’s obligations.
Taxes: Profits are generally attributed to the individual shareholders and are subject to income tax at their level. In the case of a GbR engaged in commercial activities, trade tax may also be payable at the partnership level.
Who it’s for: The GbR is often a good fit for startup teams, small businesses, and groups of freelancers who want to start a business together and don’t need a corporation.
Incorporation: In principle, a company can be incorporated without any specific formalities. However, a written articles of incorporation is highly recommended in order to establish binding provisions regarding, for example, profit distribution, decision-making authority, and the withdrawal of individual shareholders.
Corporate Registry: Since 2024, a GbR can be registered in the Corporate Registry and will then bear the designation “registered civil law partnership” or “eGbR”. There is no general requirement for registration. However, prior registration may be necessary for certain registry-related procedures.
Capital Requirements: There is no statutory minimum capital requirement.
Accounting and Obligations: The requirements for accounting and profit calculation depend on the specific business activity and the applicable legal provisions. For many smaller GbRs, a cash-basis accounting method is possible. An eGbR is subject to additional registration and transparency requirements.
Limited liability company (GmbH)
Characteristics: A GmbH is an independent legal entity. It can be formed by one or more persons and has its own corporate assets.
Liability: As a general rule, only the company’s assets are liable for the GmbH’s obligations. However, personal liability risks may still arise in certain cases, such as through personal guarantees or breaches of duty by the management.
Taxes: The GmbH is subject, in particular, to corporate income tax and business tax.
Who it is suitable for: The GmbH is particularly suitable for companies where limited liability is important, for growth-oriented startups, and for companies with corresponding capital requirements. It can also be established as a single-member GmbH.
Incorporation: The articles of incorporation must be notarized. Provided that the legal requirements are met, GmbHs can now also be incorporated through an online notarial procedure via video communication.
Capital Requirements: The statutory share capital must be at least 25,000 euros. In the case of a cash incorporation, at least one-quarter of each share subscribed to and, in total, at least half of the statutory minimum share capital must generally be paid in before registration with the commercial register—meaning, in the case of a traditional cash incorporation, at least 12,500 euros.
Accounting and Obligations: A GmbH is subject, among other things, to commercial accounting, balance sheet preparation, and statutory financial reporting. The administrative burden is therefore greater than for many sole proprietorships or GbRs.
Entrepreneurial Company (UG, limited liability)
Characteristics: The Unternehmergesellschaft (UG) is a type of GmbH that can be formed with a significantly lower amount of share capital. For this reason, it is often colloquially referred to as a “mini-GmbH.”
Liability: As with a GmbH, liability generally rests with the company’s assets. However, personal liability risks can also arise in certain cases, such as through personal guarantees or breaches of duty by management.
Taxes: The UG is subject, in particular, to corporate income tax and business tax.
Who it’s for: The UG may be of particular interest to founders who want to establish a limited liability corporation but do not yet have the required share capital for a GmbH.
Incorporation: An UG must also be incorporated by a notary and subsequently entered in the commercial register. Provided the legal requirements are met, it is also possible to incorporate an UG online via video communication with a notary.
Capital Requirements: Legally, a company can be incorporated with as little as 1 euro in share capital. In practice, however, the share capital should be set at a level that allows the company to actually meet its initial obligations.
Statutory Reserve: The UG must allocate one-quarter of its net income for the year, reduced by any loss carried forward, to a statutory reserve. This does not automatically increase the share capital to 25,000 euros. Only when the share capital reaches at least 25,000 euros through a capital increase can the special provisions for the UG be waived.
Accounting and Obligations: With regard to accounting, financial reporting, annual financial statements, and disclosure, the requirements are essentially similar to those for a GmbH. The administrative burden is therefore significantly higher than for many sole proprietorships or GbRs.
General partnership (OHG)
Characteristics: An OHG is a partnership in which at least two individuals join together to operate a business. It has no legally required minimum capital.
Liability: The shareholders are generally personally and fully liable for the company’s obligations.
Taxes: Profits are attributed to the individual shareholders and are generally subject to income tax. In the case of commercial activities, trade tax is also levied at the company level.
Who it is suitable for: The OHG is particularly suitable for companies with several active partners who jointly manage the business and are willing to assume personal liability.
Liberal professions: Since the reform of partnership law, partnerships formed for the joint practice of liberal professions may also be registered as general partnerships (OHG) under certain conditions, provided that the relevant professional regulations permit it.
Incorporation: No minimum statutory capital is required. Articles of association should set forth detailed provisions governing the partnership among the partners. The OHG is entered in the commercial register.
Accounting and Obligations: As a business partnership, the OHG is generally subject to commercial accounting and financial reporting regulations.
Limited partnership (KG)
Characteristics: A KG is a partnership with at least one general partner ( who bears unlimited liability) and at least one limited partner ( who bears limited liability).
Liability: The general partner is generally personally and unlimitedly liable. For limited partners, liability is limited to the liability amount entered in the commercial register, subject to the statutory requirements.
Taxes: Profits are attributed to the shareholders and, as a general rule, are subject to income tax. In the case of commercial activities, trade tax is also levied at the company level.
Who it is suitable for: Among other things, the KG is suitable for companies that wish to bring in investors without automatically granting them the same management powers as a general partner.
Liberal Professions: Under the regulations in effect since 2024, a KG may, under certain conditions, also be open to members of the liberal professions, provided that the relevant professional regulations permit it.
Incorporation: There is no statutory minimum capital requirement. In particular, a articles of incorporation and registration in the commercial register are required.
Accounting and Obligations: As a commercial partnership, the KG is generally subject to commercial accounting and financial reporting regulations.
Partnership (PartG)
Characteristics: A partnership is a type of business entity specifically designed for members of the liberal professions, such as doctors, attorneys, tax advisors, or architects.
Liability: As a general rule, the partners are personally liable in addition to the partnership’s assets. However, a special rule applies to professional errors: If only certain partners were involved in handling an assignment, only those partners—along with the partnership—are generally liable for any resulting professional errors.
PartG mbB: With a partnership with limited professional liability (PartG mbB), liability for damages resulting from professional negligence can be limited to the partnership’s assets, subject to the statutory requirements. In particular, this requires the appropriate mandatory professional liability insurance.
Taxes: Profits are generally attributed to the individual partners and subject to income tax. If the business consists exclusively of freelance work, no trade tax is generally due.
Who it’s for: The PartG is suitable for members of the independent professions who wish to practice their profession jointly and use a corporate structure specifically tailored to the independent professions for that purpose.
Formation: A partnership agreement and registration in the partnership registry are required.
Capital Requirements: There is no statutory minimum capital requirement.
Accounting and Obligations: The requirements for accounting and determining profits depend on the specific nature of the work and the applicable legal provisions. For purely freelance work, it is often possible to use the income-surplus method.
Public limited company (AG)
Characteristics: A stock corporation (AG) is a corporation whose authorized capital is divided into shares. An AG is not required to be publicly traded.
Liability: As a general rule, the company’s assets are liable for the corporation’s obligations. Shareholders are generally not personally liable beyond the amount of their capital contribution.
Taxes: The corporation is subject, in particular, to corporate income tax and business tax.
Who it’s for: This legal form is primarily suitable for larger or capital-intensive companies. It can be particularly useful when company ownership is to be structured in the form of shares or when a broader capital raise is planned.
Incorporation: The articles of incorporation of the AG must be notarized. In addition, the executive board and supervisory board, among other bodies, are required by law.
Capital Requirements: The statutory minimum share capital is 50,000 euros.
Accounting and Obligations: The corporation is subject to extensive requirements regarding corporate organization, accounting, annual financial statements, and disclosure. The administrative and legal burden is correspondingly high.
Sole proprietorships, partnerships, and corporations
Sole proprietorship
A sole proprietorship is neither a partnership nor a corporation. The entrepreneur acts as a natural person on his or her own account and is generally personally liable for the company’s obligations.
Partnerships
In partnerships, the focus is more on the individuals involved. The most important types include the GbR, OHG, KG, and PartG.
Depending on the legal form, personal liability may apply to all shareholders or only to certain ones. It would therefore be too general to say that, in partnerships, all shareholders always have unlimited liability. Important special provisions apply, particularly to limited partnerships (KG) as well as to the PartG and PartG mbB.
Corporations
Corporations are legal entities separate from their shareholders. The most important types include the UG (limited liability), GmbH, and AG.
As a general rule, the company’s assets are liable for its obligations. However, this does not mean that managing directors or shareholders are completely exempt from any personal liability under all circumstances.
Legal Structure and Startup Grant: What You Need to Know About Funding
The start-up grant is provided by the Employment Agency. It is intended for individuals who, while receiving unemployment benefits, begin full-time self-employment and meet the other eligibility requirements. Among other things, this requires that, at the start of self-employment, the individual generally still be entitled to at least 150 days of unemployment benefits and that the viability of the new business be demonstrated.
The Employment Agency does not require a specific legal form in this regard. What is crucial, rather, is that the individual actually begins working as a full-time self-employed person and that the business start-up project meets the eligibility requirements for funding. In this context, the Federal Employment Agency generally defines “full-time” as self-employment involving at least 15 hours per week.
In the case of a sole proprietorship, it is usually relatively clear whether a particular activity is part of one’s own self-employment. In the case of corporations such as a UG or GmbH, however, the specific role as a shareholder and managing director may raise additional questions.
In the case of shareholder-managers, the actual legal authority under corporate law plays a particularly important role. According to the principles of the German Pension Insurance system, self-employment may be deemed to exist, in particular, if the shareholder-managing director holds at least 50 percent of the share capital or has a substantial blocking minority under the articles of incorporation. Merely holding the position of managing director or having a minority stake is not automatically sufficient for this purpose.
Important: The start-up grant is administered by the Employment Agency. For individuals receiving benefits from the Job Center, there are other support programs available for self-employment, such as integration benefits for the self-employed.
This is exactly where my AVGS coaching comes in: I ’ll guide you through the process of preparing to launch your business in a structured way, clearly outlining your chosen legal structure in your business plan, and identifying potential stumbling blocks in grant applications early on.
Frequently Asked Questions About Choosing a Legal Structure
What is the best legal structure for freelancers?
There is no single “best” legal structure. Those who start a business on their own often begin as a sole proprietorship. For groups of freelancers, a GbR or—in the case of certain liberal professions—a professional partnership may be an option.
Which option makes sense depends, among other things, on liability risks, the number of parties involved, the organizational effort required, and professional regulatory requirements.
How much will it cost to form a GmbH in 2026?
The statutory capital stock of a GmbH is 25,000 euros. This should be distinguished from the actual incorporation costs, such as those for a notary and the commercial register.
The actual costs depend, among other things, on the number of shareholders involved, whether a model minutes template can be used, and how the articles of incorporation are structured. For this reason, it is not possible to provide a meaningful flat-rate total amount for the formation of a GmbH.
Can I change my legal structure later?
Yes. It is generally possible to change the legal form or restructure the business at a later date—for example, from a sole proprietorship to a GmbH.
However, depending on the original and target legal forms, this may have tax, legal, and organizational implications. Before proceeding with a conversion, it is therefore important to assess on a case-by-case basis which approach makes the most sense.
Which legal structure is eligible for the startup grant?
The startup grant does not require a specific legal structure. This means you are not required to start your business as a sole proprietorship and can generally choose a corporate structure such as a UG or GmbH.
It is essential that you take up an eligible full-time self-employed activity and meet the other requirements set by the Employment Agency. In the case of companies with multiple partners, you should clearly specify the role you personally play within the company.
GbR or sole proprietorship—what’s the difference?
A sole proprietorship is run by a single person. A GbR requires at least two partners.
Personal liability may apply in both cases. A GbR also requires clear rules governing the partners’ collaboration, such as those regarding profit distribution, decision-making authority, the withdrawal of individual partners, and the resolution of conflicts.
Conclusion: Choosing a Legal Structure—How to Make the Right Decision.
The right legal structure depends on your specific business plan. Key factors include liability risks, capital requirements, the number of people involved, tax regulations, and the organizational effort involved. A legal structure that is ideal for one company may be completely unsuitable for another.
Especially if you plan to apply for a startup grant or are preparing to launch your business through AVGS coaching, the legal structure you choose should align with your personal role in the company and how it’s presented in your business plan. That’s why it’s important to make this decision early on, rather than waiting until just before you launch your business.
Are you still unsure about which legal structure to choose?
During a free initial consultation, we can work together to assess where you stand with your startup and determine what the next steps should be for your venture.
Sources and Further Information
- Federal Ministry of Justice – Civil Code (GbR, §§ 705 et seq.) – BGB – Civil Law Partnership
- Federal Ministry of Justice – Limited Liability Companies Act (Sections 5 and 5a) – GmbHG – Share Capital and Entrepreneurial Companies
- Federal Ministry of Justice – Commercial Code (Sections 105 et seq. and 161 et seq.) – Commercial Code – OHG and KG
- Federal Ministry of Justice – Partnership Act – Partnership Act
- Federal Ministry of Justice – Stock Corporation Act (Section 7) – Stock Corporation Act
- Federal Employment Agency – Startup Grant – Startup Grant – Federal Employment Agency
- German Pension Insurance – Managing Director of a GmbH – German Pension Insurance – Managing Director of a GmbH
