Advantages and disadvantages of GmbH (limited liability company).

Advantages of GmbH

Compared to a partnership, a limited liability company has the following advantages:

– Limitation of liability for company assets. Shareholders are not liable with assets


– GmbH’s own legal capacity, i.e. The GmbH can make its own transactions and, for example.

hold shares in other companies.

– Taxation: while partners in a partnership are subject to a progressively increasing tax rate

income tax with their share of profits, the corporate tax rate

is usually much lower.

– It is possible to create hidden reserves, since you don’t have to pay out profits.

– A change of shareholders is not an obstacle according to the Law on Limited Liability Companies.

(GmbH-Gesetz), but the obstacles may be contained in the company’s articles of association.

– The articles of association (Articles of Incorporation) can be created flexibly, for example, a council can be established

supervisory or advisory board, while shareholders may be required to make an additional payment.

– When selling a company-run business, only the following is required

transfer of shares held by its shareholders to the buyer.

– If no shareholder wants to serve as managing director, you can appoint a

external managing director. This can, for example, facilitate succession in a company.

Disadvantages of GmbH

In addition to the above-mentioned advantages associated with a limited liability company, there are also disadvantages and risks that one must know in order to avoid legal damage and by which a limited liability company in some cases is not the optimal legal form.

– The establishment of a GmbH and other organizational activities (such as amending the articles of association) require notarization and registration in the Commercial Register.

– Assignment of shares in a GmbH must be notarized; in the case of partnerships, only the written form without notarization can be maintained.

– A GmbH is fully subject to the provisions of the German Commercial Code, i.e. the obligation to keep commercial books and prepare commercial balance sheets, the commercial obligation to report defects, etc.


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