Founding a company (real estate): procedure, costs, requirements, legal forms – 7-step checklist
Founding a company (real estate) – You want to found your first company? Requirements for you as a founder, share capital, shareholder agreements, costs for the foundation, legal forms and checklists. This sounds complicated for beginners, but it is actually quite simple. The process of founding a company is usually relatively the same. I have summarized the foundation here once in simple steps, for you. Learn how to start your own business. After the great guide to all legal forms or types of companies, today a detailed look at the establishment of a (real estate) company for beginners.
Type of company: What should I start?
When founding a company, you move from theory to practice, so to speak.
First, of course, is the type or structure of your company. Step one is very basic: You have to choose the right company for your (personal) construct.
In the article legal forms company / business you may have already learned about the different business forms or company types that you can choose in connection with real estate, whether renting or just buying and selling. Each individual company type has its own advantages and disadvantages, which you as an entrepreneur have already learned about in advance! Which requirements and factors influence the selection?
So the factors of company choice include:
- Share capital
- Number of founders or shareholders
- Liability
- Taxes
Share capital – As always, one of the most important requirements is your own capital. For the foundation of a company you need money for the share capital. If you already own real estate, capital stock will not be a problem for you. If you have to buy your first real estate, then “share capital” means “no costs” for you. You can use the capital immediately after the foundation. So you have the advantage that you can reinvest your share capital directly after the foundation, as far as the real estate is not bought privately, but through your business.
Number of founders or shareholders – In addition to the share capital of your company formation, the number of persons is also an important factor. More on this later in the section “Shareholders’ agreement”.
Liability for founders
Liability – Liability plays a big role in incorporation, in some forms of business you are privately liable, in others you have limited liability. As an e.K. (Sole trader) you are fully liable, with a GmbH “not” (not means here, if all transactions are clean).
Tax on income / profits
Taxes – In addition to the liability factor, there is also the future tax structure of your company. E.g. when it comes to renting and the profits that you have earned from capital gains. I have already written about this in the Real Estate GmbH article. Let’s look at an example calculation from the article.
Excursus: Company type and taxes
Example: Calculation of private rental income
Here is a very simplified calculation for a quick comparison of the taxation of private rental income compared to the commercial income of a GmbH. No tax allowances and no solidarity surcharge are taken into account here.
Simplified example calculation (private):
- Monthly rental income: 1,000 euros
- Rental income / year: 12.000 Euro
- Tax burden (income tax 42%): 5,040 Euro
- Profit after tax: 6,960 Euro
Example: Calculation of commercial rental income
Here is a very simplified calculation for a quick comparison of the taxation of private rental income compared to the commercial income of a GmbH. No tax allowances are taken into account here.
Simplified example calculation (GmbH):
- Monthly rental income: 1,000 euros
- Rental income / year: 12.000 Euro
- Tax burden (corporate income tax 15%): 1,800 Euro
- Profit after tax: 10,200 euros
The difference here, in our simplified calculation, is:
+ 3,240 Euro / year
You can read about all the individual types, factors, advantages and disadvantages in detail above. Now let’s move on to step 2, the distribution of the company shares.
The amount of share capital is usually not an issue in the formation of real estate companies. Capital is available, at least so much that the share capital, which must be provided in a founding, can be easily provided in almost all cases. If not, you should think again about starting a “real estate company”. As an alternative to real estate, you could, for example, buy real estate shares.
Comparison: AG, GmbH, KG and UG
For a GmbH you only need 25,000 euros, or only 12,500 euros (then profits gradually become share capital). For KGs, the same rules apply as for the GmbH.
The highest sum that would have to be raised for a foundation is currently 50,000 euros if you want to found an AG (public limited company). The formation of a public limited company is of course the exceptional case and has other objectives, namely the collection of capital by investors on the stock exchange. As a rule, OHGs, KGs and GmbHs are founded.
You can found a UG theoretically already with 1 euro, and/or 1000 euro, since you must pay from the establishment costs still notary (establishment) and trade register.
Share capital is used immediately for:
- Notary fees ~ 600 Euro for simple companies
- Commercial register & Co. with ~ 150 Euro
That’s how much share capital you need when you set up:
- No share capital – OHG
- 1 Euro (or ~ 1,000 Euro) – UG
- 25,000 Euro (or 12,500 Euro) – GmbH, KG
If you are not founding alone, but have co-founders, then you must calculate the company shares well in advance of the founding. Because it is not just a matter of two people “simply” sharing 50% of the profits each.
Knowledge and network
Knowledge – The distribution of company shares depends on the wealth of experience that a person brings to the table. Knowledge (this also includes network, i.e. contacts), which under certain circumstances creates strategic and operational advantages that would not have become possible without the knowledge.
Practical work and results
Practical work – In addition to the knowledge, it is also about the practical work in the company, who brings which future work results? Thereby the work results are not always measurable in qualitative quantity, that means in pure time measurement. Some people work well and quickly. They can achieve the same results in a short time as others can in double or triple the time. This must be taken into account from the beginning when distributing company shares.
Avoiding arguments: Talk and plan objectively
Before founding a company “naively” with 50% shares each, it should be strategically considered before the founding who brings which assets (values) and who does not. This avoids later disputes when in practice founder A brings in 70% results and founder B only 30%.
Redistribute company shares later is very difficult, because it often inevitably leads to disputes. This weakens the business.
Factors in company shares:
- Capital and share capital of the individual founders
- Know-how Basic knowledge for operational and strategic advantages
- Actual, subsequent work results and performance
After everything is discussed around the shares of the company, it goes to the next step, the shareholder agreement.
The next step is to draw up the shareholders’ agreement. For persons founding alone, this is done by the notary (according to standard protocol). For the formation of two or more persons, the shareholder agreement is already more extensive. You can find detailed information on the individual shareholder agreements in our facts and figures on the individual company forms.
Look here specifically at the type of company you are interested in:
Company types in detail:
- Sole proprietorship
- Registered businessman / registered businesswoman (e. K.)
Civil law partnership (GbR) General partnership (OHG) Limited partnership (KG) - Entrepreneurial company (UG)
- GmbH: Limited liability company
- Real estate GmbH / Asset management GmbH
- Stock corporation (AG)
- Real estate stock corporation (REIT-AG)
- Societas Europaea (SE)
- Foundation / Family Foundation
Specialist lawyer for company contracts
The more assets are already available, the larger the project, the more important it is to involve a specialist lawyer in the formation process and in the step of the partnership agreement. Ultimately, the partnership agreement is the basis for the entire future cooperation between the entrepreneurs. What is not regulated here can lead to disputes later on. Disputes always have a negative impact on the business. This is exactly what you want to avoid in the partnership agreement.
You can find good incorporation lawyers in pretty much any part of town.
Bring property into company? Real estate lawyer
Already a property owner? If you’re already a property owner and are bringing a property into the new business, you may also want to contact a real estate lawyer. Here is a list with recommendations for all major cities like Frankfurt, Düsseldorf, Cologne, Berlin, Hamburg and Munich:
The type of company is chosen. The company shares are distributed. The partnership agreement is in place. Now comes the notary appointment.
Notary: Arrange an appointment for the foundation
Notaries make purchase contracts for real estate official, but also the formation of a company. This step is about the notary appointment where the foundation of your (real estate) company is officially sealed.
How long does a notary appointment take?
Such a notary appointment for the company formation usually goes relatively quickly if everything goes according to standard protocol. This means that you call a notary early and make an appointment. You provide all the important information in advance. Your chosen notary will tell you which data or documents these are.
If you are setting up alone, such a notary appointment usually takes no more than 60 minutes. If you want to form a company with several people, the appointment usually lasts no longer than three hours. However, this is the case with more complex contracts.
60 – 120 minutes (standard case)
What happens at the notary appointment?
At the notary appointment, the partnership agreement is read out loud to you again. Legal aspects can be discussed with the notary one last time. Here you can also clarify open questions for the last time.
Once everything has been read through, the signature or signatures of the partners follow. After the signature, the notary provides the partnership agreement with his official seal and signature.
The company is incorporated.
For the following steps you need a business address. This business address can be an independent one, e.g. with a real estate agency, in an extra office or smaller, in a coworking. Alternatively, it can be your home address if you work from home, which many people do in real estate.
Business account: Basis financial transactions
Starting a business is all about making a profit. Your next step among the tasks is to open a business account.
Separate business account: Exclusively for the company
It is important that you have a separate business account for this one company. There are no entries on this account that are not directly related to your company.
No private / business use, set up extra account
Second business account for payment security / creditworthiness
If you are setting up a company for the very first time, here’s a tip: create two business accounts. Should there ever be problems with one account, you always have access to a second alternative.
Tip 1: Start with 2 business accounts
This can happen, for example, if you work alone at the beginning and don’t notice a reminder. It becomes a garnishment and bang, your account is frozen. This can take up to 30 days. Only then will you have access to your business account again. Even if the garnishment is just 20 euros and you have 100,000 euros in the account! Your account remains frozen until the official collection. Of course, this would immediately disrupt your payment transactions.
Two accounts bring the but also the advantage that in normal times, two banks learn of your good credit rating. Should you ever need help with the financing of a property, you have directly two contacts who already know the longer.
Tip 2: Talk to your bank, even in good times
Here’s a tip for the future, don’t just talk to a bank when you need financing or loans. Share positive information as well. The bigger your company gets, the more often you will (automatically) talk to the bank for loans, short-term overdrafts and all other forms of financing, for example to get new construction projects going.
Now follows the registration in important registers.
Commercial register, trade, tax office and IHK
In the last step, you register your new company in the important registers. The last step is quickly explained in a clear list of key points. For a real estate GmbH these are:
- Entry in the commercial register
- Entry at the trade office
- Entry at the tax office
- IHK registration
Conclusion: Starting a company / real estate company for beginners
Congratulations! You’ve now done it all and completed the entire process in starting a company. That was a quick insight into setting up a company. Of course, there are many more details to consider, liability plays a big role, as does the future tax structure of the company. To get even more information on the individual points, take a look at our overview here. Everything from GbR, KG, GmbH to AG & Co. with comparison, advantages and taxes of all company types:
Starting a business: Starting Your Own Business in 18 Parts
Ok, you’ve read it all and you still want to get started and go into business for yourself?
- Business Plan
- Founder and founding team
- Product / Service: USP
- Increase customer satisfaction
- Market Overview: Customers & Competition
- Reference customers: Positive image transfer
- Market analysis / validation: business idea
- Site selection
- Marketing concept: Sales
- Advertising: Google Ads, SEO, Newspaper, Radio?
- Marketing: Media advertising, costs and CPM
- Marketing: trade fairs, training courses and trade advertising
- Marketing: sales talk, telephone call and psychology
- Marketing: promotions, discounts and special offers
- Marketing: Social Media and Online Advertising
- E-business: electronic commerce in the enterprise
- Cooperations: Cooperative Principle
- Financial planning: capital and financing
