Societas Europaea (SE) – Forms of incorporation, legal basis & Co

In the German-speaking world, the Societas Europaea – or SE for short – can also be found under the names European Company, European Stock Corporation or casually: Europa AG and describes in the legal sense a corporation and thus a legal entity with its own legal personality. As its German name suggests, the chapter of this corporate legal form is divided into shares. The legal introduction of the Societas Europaea as a transnational legal form came in 2004 within the framework of the so-called Law on the Introduction of the European Company – abbreviated: SEEG.

The background to the introduction of the Societas Europaea is, on the one hand, the possibility of merging companies from different EU member states or establishing a holding company. On the other hand, the aim of the SE was to establish joint subsidiaries between economically active companies and legal entities from different countries of origin in the EU by subscribing to shares.

Other typical corporations in Germany:

• Stock corporation (AG)
• Partnership limited by shares (KGaA)
• Entrepreneurial company / UG (limited liability)
• Limited liability company (GmbH)

Primary formation of an SE – merger, conversion, holding, subsidiary

A European Company is not founded “just like that” out of thin air. The formation process is – as already mentioned – bound to certain requirements… moreover, the Societas Europaea can only arise from certain situations. According to the numerus clausus of the forms of formation mentioned in the Societas Europaea Regulation – in short: SE Regulation – the formation of a Societas Europaea can primarily take place in four different ways: by merger, by transformation, by formation of a holding company or by formation of a subsidiary.

• Merger for inclusion/start-up
• Conversion foundation
• European holding company (Holding-SE)
• European subsidiary (subsidiary-SE)

Secondarily, it is possible to establish a European Subsidiary through a parent SE. However, the SE Regulation does not provide for the formation by natural persons or a spin-off from existing companies under national law.

Option 1 – Merger for incorporation or for new incorporation: 2+ public limited companies

You can form a European Company classically by merging – that is: merging – several existing companies. For the formation, at least two national public limited companies are required, which have a so-called cross-border European element. In a nutshell: the companies must either come from different member states of the European Union or, if their respective registered offices are in the same country, they must have had subsidiaries in other EU countries for at least two years. The latter is also referred to as a multi-country relationship.

The merger can be established either for the purpose of absorption or for the purpose of new formation. In the former case, the acquiring company takes the legal form of an SE, while the transferring company is absorbed into the SE at the time the merger takes effect. A new formation means that both merging companies cease to exist as soon as the merger becomes effective. The new legal entity can then also be established in a third EU country, since the multi-nationality requirement is already covered by the registered offices of the two founding companies. In this case, the merger is also referred to as a third-country merger.

How exactly does the merger of two public limited companies into one Societas Europaea work?

In the case of a merger, two legally independent companies come together and thus form a single entity in both an economic and a legal sense. For this purpose, at least one company must cede its legal independence, which is why the merger represents a typical form of corporate takeover. The purchase price for the takeover of the company can be paid elegantly in shares of the acquiring company.

The merger between companies is legally subject to the so-called Merger Directive 90/434/EEC as well as the European Merger Directive 2005/56/EC. Within Germany, the German Transformation Act (Umwandlungsgesetz, UmwG) also applies, while antitrust law is governed by the Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkung, GWB), which, however, only uses the term “merger” for mergers.

Variant 2 – Conversion foundation: Joint stock company + foreign subsidiary

Ultimately, a stock corporation existing at the national level can also be converted into a transnational stock corporation – i.e. an AG into an SE – provided that the stock corporation has maintained a subsidiary or branch in another EU country for at least two years. A conversion to a Societas Europaea is comparable in nature to a change of legal form under the German Transformation Act (Umwandlungsgesetz, UmwG).

However, in contrast to the change of the legal form, the Societas Europaea Regulation – in short: SE Regulation – provides for the preparation of a conversion plan, whereby it is unclear which legal basis must be used with regard to the scope and, above all, also the content of this plan. A transfer of the previous registered office of the national stock corporation is in principle not permissible on the occasion of the conversion into a Europa AG.

Reverse conversion: Europa AG into conventional AG

The conversion of a conventional public limited company into a Societas Europaea is no problem if all the necessary requirements are met in advance. But what about the reverse case? Can you reverse the conversion and turn your Europa AG back into a normal public limited company on a national level? In fact, it is possible to convert an existing European Company into a classic AG. Provided that the Europa AG has existed in its European legal form for at least two years, a conversion plan can be drawn up to return the company to its original form. However, the approval of the general meeting is mandatory.

You can find out more about the national public limited company (AG) here:

• Stock corporation (AG)

Variant 3 – European holding company/SE: 2+ public limited companies/GmbHs

Alternatively, two or more companies from different EU member states may form a European Holding or Holding-SE together. This applies to any combination of stock corporations (AG) and limited liability companies (GmbH), whereby at least two of the companies must be from different EU countries. Alternatively, two or more participating corporations from the same member state each maintain a subsidiary or branch in another EU country for a minimum of two years and thus satisfy the multiple nationality requirement.

In concrete terms, the participation of companies in a holding SE means an exchange of shares: the companies buy shares in the European holding company and in return contribute their existing company shares, whereby their shares in the holding company must thereby convey more than 50 percent of all voting rights of the respective founding company.

You can find out more about national public limited companies (AG) and limited liability companies (GmbH) here:

• Stock corporation (AG)
• Limited liability company (GmbH)

How exactly does the formation of a European holding company work?

A holding company – short for: Holding company, holding organization or umbrella company – is created when several companies are hierarchically structured in a certain way and therefore does not describe a legal form in its own right, but rather a form of structuring companies that are related to each other. The individual companies hold shares in each other, which creates an economic dependency. Central tasks are usually performed by the parent company, which is at the top of the hierarchy of the holding structure.

Similar to the formation of a partnership under civil law (GbR), holding companies are formed for a specific operational purpose, in this case the holding of equity investments or company participations in other companies. As a holding company, you therefore organise the acquisition and management of shareholdings and thus form the capital provider or shareholder through which the subordinate companies finance their equity.

You can find out more about civil law partnerships (GbR) here:

• Civil law partnership (GbR)

Variant 4 – European Subsidiary/Subsidiary-SE: 2+ legal entities

Legal entities – companies, firms, etc. – may also jointly form a European Subsidiary or Subsidiary-SE. This is possible provided that at least two legal entities are governed by the law of different EU countries or at least two of the legal entities involved have maintained a subsidiary or branch in another EU country for a period of two or more years at the time the formation becomes effective.

This flexibility makes it possible for both civil law companies and commercial law companies – including for-profit cooperatives – to establish a joint subsidiary SE. Furthermore, legal entities under public and private law – irrespective of profit-making purposes – can establish an SE subsidiary if at least two of the founding companies originate from different EU countries or meet the multiple nationality requirement via subsidiaries or branches in other EU member states.

In addition to the option of also involving companies without limited liability in the formation process, probably the most decisive difference to the formation of a holding SE is that the individual companies do not form a joint SE umbrella company, but rather a joint subsidiary in the legal form of an SE.

How exactly does the formation of a European Subsidiary work?

In general, a subsidiary is a corporation that is directly dependent on its parent company. A parent company is in turn defined as a corporation that owns the majority of shares in other companies. The establishment of a parent company with subsidiaries offers the advantage that different business areas can be managed by different companies and individual areas of activity can be clearly and transparently distinguished from one another.

If the parent company establishes its own subsidiaries, this is referred to as affiliation: a term that originates from Middle Latin and can be translated as adoption – i.e. adoption as one’s own child – or takeover in the sense of appropriation. If external companies are acquired on the basis of synergy potential or potential increase in market power and subordinated to the parent company, this procedure is referred to as affiliation. In Germany, the formation procedure of a subsidiary SE is largely subject to German stock corporation law; in other countries, the respective national legal bases apply.

Secondary establishment of SE subsidiary: SE by SE

A Societas Europaea can indeed also come into being as a result of a one-man formation, namely SE by SE. This is of particular interest to providers of shelf companies where multi-nationality is not or only insufficiently present. Moreover, the shares of a shelf SE can also be acquired by natural persons. As with the subsidiary SE, the formation procedure of an SE subsidiary is also subject to the national law of the country in which the company has its registered office. Thus, for the formation of an SE subsidiary in Germany, the information in the German Stock Corporation Act must be followed.

The SE is formed by establishing an SE subsidiary through an existing European company, which then acts as the parent SE. As the establishing SE itself already has a cross-border European element, the multi-nationality requirement generally does not apply to the subsidiary, which in a sense “inherits” the multi-nationality. At the same time, there is no need for the involvement of other companies in the secondary formation.

Legal basis: directives, regulations & laws

Since the Societas Europaea is a legal form under European law, various EU and national legal bases must be taken into account. Primarily, there is Regulation (EC) No. 2157/2001, also known as the Societas Europaea Regulation (SE Regulation), which takes over the introduction of the new legal form and creates a common legal framework between the EU member states and the countries of the European Economic Area (EEA). With regard to employee involvement, Directive 2001/86/EC was introduced as a complementary measure to ensure that the regulations and practices in place prior to the establishment of the SE do not simply disappear.

• CouncilRegulation (EC) No 2157/2001 of 8 October2001 on the Statute for a European company (SE)
• CouncilDirective 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees

Based on the Treaty establishing the European Community, Regulation (EC) No. 1435/2003 was introduced, which enables and organises the establishment of European Cooperatives – in short: SCEs. In the course of this, Directive 2003/72/EC was introduced, which regulates employee participation in European cooperatives.

• CouncilRegulation (EC) No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE)
• CouncilDirective 2003/72/EC of 22 July 2003 supplementing the Statute for a European Cooperative Society with regard to the involvement of employees

As a result of the COVID 19 outbreak, a new regulation was introduced in 2020, under which the general meeting of a European Company or general meeting of a European Cooperative Society required for 2020 can be postponed until the end of the year, taking into account exit restrictions and social distancing measures.

• CouncilRegulation (EU) 2020/699 of 25 May 2020 on temporary measures in respect of general meetings of European companies (SEs) and general meetings of European cooperative societies (SCEs) (Text with EEA relevance).

In addition to the ordinances and directives already mentioned, there are also some at national level in Germany:

• Law on the Introduction of the European Company (SEEG) of 22 December 2004
• Law on the Implementation of CouncilRegulation (EC) No. 2157/2001 of 8 October 2001 on the Statute for a European company (SE) (SE Implementation Act – SEAG) of 22 December 2004
• Law on the Involvement of Employees in a European Company (SE Employee Involvement Act – SEBG) of December 22, 2004
• German Stock Corporation Act (AktG) of 6 September 1965
• Commercial Code (HGB) of 10 May 1897

Measures for SMEs – Societas Privata Europaea & Societas Unius Persona

Capital companies for small and medium-sized enterprises – in short: SMEs – were also provided with a largely uniform European legal form, namely the Societas Privata Europaea – in short: SPE; with German name: European Private Company. A first draft for the introduction of such a company was initiated in 2009, but ultimately failed just a few years due to ongoing criticism from other EU member states regarding its design.

As an alternative measure, the project to create a so-called Societas Unius Persona – in short: SUP; with German name: Europäische Einpersonengesellschaft – was launched. This European variant of a conventional limited liability company (GmbH) pursues the goal of enabling single-member companies with legal capacity to act for cross-border business activities, which can be organised and managed by a single managing partner. As with the national Unternehmergesellschaft (haftungsbeschränkt), a single symbolic euro is to be set as the minimum capital. The concept of the SUP has also met with widespread criticism so far, which is why it is currently not foreseeable whether and when the Societas Unius Persona will be available as a company form.

Legal form variant SE & Co KGaA – KGaA with general partner SE

Sometimes the Societas Europaea also appears in combination with a partnership limited by shares (KGaA). Family businesses, for example, occasionally organise themselves as Societas Europaea & Compagnie Kommanditgesellschaft auf Aktien – in short: SE & Co KGaA. In this case, they form a stock corporation in the legal sense – however, the general partner as personally liable shareholder is not just any natural person, but specifically a Societas Europaea (SE). If the general partner is embodied by an AG, one speaks instead of an AG & Co KGaA, in the case of a general partner GmbH of a GmbH & Co KGaA.

• AG & Co KGaA – see stock corporation (AG)
• GmbH & Co KGaA – see limited liability company (GmbH)

Companies operating under the legal form variant of the SE & Co KGaA have only existed since the end of the 1990s, after open legal questions were clearly explained by a court ruling of the Federal Supreme Court (BGF). The well-known health care group Fresenius SE & Co KGaA, which is one of the largest private hospital operators in Germany, has decided to establish an SE & Co KGaA, as have many other companies from a wide range of industries: Sound carriers and multimedia products, outdoor advertising, plant breeding and biotechnology, pump technology as well as thermal insulation composite systems, to name but a few.

Examples of SE & Co KGaA companies:

• AURELIUS Equity Opportunities SE & Co. KGaA
• Edel SE & Co. KGaA
• Fresenius SE & Co. KGaA
• KWS SAAT SE & Co. KGaA
• KSB SE & Co. KGaA
• Mutares SE & Co. KGaA
• Sto SE & Co. KGaA
• Ströer SE & Co. KGaA

CEWE Stiftung & Co. KGaA is a special case: In this company, the general partner is embodied by a foundation. In principle, the partnership limited by shares is possible in all conceivable combinations, as GUB Investment Trust KGaA points out as an example.

Continue reading here on the topic of setting up a family foundation:

• Establish a family foundation

SE formation in detail – registered office, company name, management & Co.

You would like to set up a European Company and become active in the Single Market in an uncomplicated way? To do this, your company must first meet a few requirements: Here you can find out everything you need to know about multi-nationality, minimum capital, co-determination and more, so that you can set up your European Company in a correct and informed manner. First things first: Your company must be a legal entity and have its own legal personality. In addition to the status as a legal entity, the so-called multi-nationality principle must also be complied with and a cross-border European element must be demonstrated.

Further regulations concern the company’s registered office and head office, the minimum capital required, the proper company name and registration, the management and company bodies and, last but not least, the accounting requirements and the right of co-determination of the workforce.

• Principle of multiple nationality
• Registered office & head office
• Minimum capital
• Company name & registration
• Management & corporate bodies
• Accounting
• Co-determination rights of the workforce

Multi-nationality principle as a cross-border element

The multi-nationality principle requires that at least two of all participating founding companies of a Societas Europaea have a cross-border, European element. In plain language, this means that at least two companies must be governed by the laws of different EU member states or, alternatively, must be able to demonstrate a cross-border element through a subsidiary or branch that has been maintained in another EU country for two or more years.

Registered office & head office of a European company

The registered office and the head office of your company must be located in the same EU member state for the formation of a European Company. The choice of the country of incorporation is of decisive importance, since in addition to EU law, the respective applicable national law forms the legal basis of the European Company. In principle, it is possible to subsequently relocate the company’s registered office and head office to another EU member state, should the situation require it or should the company gain advantages as a result. The Association of German Chambers of Industry and Commerce (DIHK) describes this advantage as follows:

“Figuratively speaking: Europa AG is a legal form that comes in 25 colors. The choice of the domicile of the Europa AG therefore opens up interesting design possibilities.”

Some countries have stricter requirements for the formation of a European Company: for example, the member states Bulgaria, Denmark, France, Greece, Latvia, Austria and the Czech Republic require that the registered office and the head office of the company have the same address.

Financing of an SE: 120,000 euros minimum capital

Another requirement concerns the minimum capital required: For a European Company with its registered office and head office in Germany, for example, you need at least 120,000 euros, i.e. more than twice as much as the share capital of 50,000 euros required for a conventional German public limited company. The capital requirement – as well as the other requirements – may vary in the different EU member states. A higher subscribed capital can in principle be agreed in the articles of association.

As a rule, the minimum capital of a Europa AG should be denominated in euros. If the official national currency for a country of domicile is not the euro, the company may request that its annual financial statements and consolidated financial statements be prepared and published in its own national currency.

• Minimum capital: 120,000 euros (Germany)

Europa AG as a trademark: Company name & registration

The company name includes the legal form suffix “SE”, which either precedes the company name as a prefix or follows it as a suffix. Registration is mandatory in the register of the country of incorporation – in Germany, therefore, in the commercial register – and is also published in the Official Journal of the European Communities. If the registered office is moved to another EU member state at a later date, the registration of the Europa AG can be adjusted without any problems or complications.

The existing Societas Europaea does not have to be dissolved for this reason and does not need to be re-established at its new location. Only an entry is made in the register there and a notification is sent to the original EU country, whereupon the latter makes a deletion of the entry in its own register. All entries and deletions in the registers of the various EU member states are listed in parallel in the Official Journal of the European Communities.

Structure of an SE: Management & Corporate Bodies

With regard to management, a distinction is made between a dualistic and a monistic system – the new German two-tier/one-tier model. They differ primarily in the different type and number of SE bodies that are appointed in the company. However, the term of office for the members of the appointed bodies is a maximum of six years in both cases, although reappointment is not ruled out.

• Dualistic system
• Monistic system

Dualistic system (two-tier model)

The structure of the German supervisory board constitution serves as the basis for the dualistic system, which is sometimes also referred to as the two-tier model. It represents the traditional division of management into three bodies, according to which, in addition to the general meeting, the supervisory board is appointed as a control body and the management board as a management body.

If the Europa AG has a share capital of more than three million euros, at least two persons must be appointed to the management board. Smaller European stock corporations may limit the executive board to only one person in accordance with the articles of association, provided that the company is not a co-determined company. Supervision of the management body is the responsibility of the supervisory board, the size of which is directly conditioned by the amount of share capital. In the case of a co-determined Societas Europaea, the supervisory board members must also be representatives of the shareholders and representatives of the employee workforce.

Monistic system (one-tier model)

The so-called one-tier model, on the other hand, is based on the Anglo-American board system. It stands for a monistic system, according to which only a single-member board of directors is appointed in addition to the general meeting, which is composed of the shareholders of the stock corporation.

In principle, three members of the Board of Directors are provided for, one of whom must be an executive director. However, it is possible to appoint a different number of persons to the board of directors, with the maximum number of members permitted being related to the company’s share capital, and European public limited companies with a share capital of more than three million euros being allowed by law to appoint no fewer than three members.

Within Germany, monistic Societas Europaea also demand that the participation of employee representatives on the board be as high as would be required for the traditionally dualistic supervisory board.

Accounting rules

With regard to accounting, the European Company is subject to the laws of the country in which the registered office and head office of the company are located – in a form that is largely standardised under European law. Apart from taxation and accounting, it is obliged to adopt the annual financial statements together with the notes and the balance sheet, profit and loss account (P&L) as well as to prepare the report on the course of business and the situation of the company.

• Annual accounts
  • Balance
  • Profit and loss account
  • Notes to the financial statements
  • Report on the course of business and the situation of the company

Co-determination rights for SE employees

Since the European Union has not formulated any legal formulation of co-determination in a European Company, there is either a binding agreement between the employer and employee sides or the valid co-determination right for the company is determined depending on the form of formation of the Europa AG. You can find out more about the individual forms of formation below.

Special negotiating body: employers & employees

In principle, it is possible for employers and employees to set up a so-called “special negotiating body”, where they can jointly reach a suitable agreement on corporate co-determination and set this down in writing. The members of the body are elected secretly and directly on the basis of a certain country key and are limited to a maximum of 40 members.

The “special negotiating body” must be established within ten weeks of the announcement by the company’s management of the planned formation of a European Company. A decision must be taken within six months – or within twelve months in the case of a request for an extension of the deadline.

Negotiations on employee participation

The “special negotiating body” can decide on employee participation in Europa AG, whereby a qualified majority decision must be reached for this. Agreements leading to a reduction in co-determination require a two-thirds majority representing at least two-thirds of the employees in two or more EU countries. However, this only applies under special conditions:

The special majority in favor of a reduction of the right of co-determination only applies if, in the case of a merger, at least 25 percent of the total workforce or, in the case of the formation of a holding SE or subsidiary SE, at least half of the total workforce is subject to co-determination. In the case of the formation of an SE by way of conversion, in principle, no reduction of the right of co-determination can be resolved.

• Merger: at least 25 % AN representation
• Holding/subsidiary: at least 50 % employee representation
• Conversion: no reduction possible

Termination of ongoing negotiations & waiver decision

In the case of a two-thirds majority, however, it can also be decided to break off ongoing negotiations or not to enter into negotiations at all. In this case, the Europa AG is registered without a co-determination model. In the case of the transformation of corporate form, however, which is based on a stock corporation with co-determination, such waiver resolution is generally excluded.

Failure of negotiations & standard rules

If agreement cannot be reached between the employer and employee sides, the negotiations fail and the standard rules automatically apply. The aim is to safeguard the existing co-determination rights of the workforce from the time the Europa AG is entered in the national register. Depending on the form of incorporation, corporate co-determination is absorbed in different ways:

In the case of formation by transformation, the existing co-determination rights of the national AG are continued. In the case of the other forms of formation, the highest standard of participation of a founding company can be transferred to the European Company – but only if in the relevant company, prior to the registration of the Societas Europaea in the national register, regulations on participation were already effective which cover a certain percentage of all employees. In the case of a merger formation, a coverage of 25 percent is required, in the case of SE holding companies and SE subsidiaries even twice as much.

• Conversion: Transfer of the previous right of co-determination
• Merger: 25 % of total workforce covered
• Holding/subsidiary: 50 % of total workforce covered

Advantages of Europa AG – Uniform, international & flexible

The European Company is a relatively new legal form of enterprise and can only be established in accordance with European regulations since 8 October 2004. It is therefore not very widespread and, in the view of many entrepreneurs, has yet to prove itself. However, especially with regard to the transnational business transactions of large companies, the Societas Europaea already offers a number of advantages that have a significant impact on cross-border cooperation between different EU member states and countries of the European Economic Area (EEA).

• Uniform set of rules
• International reputation
• Strengthening co-determination rights for employees
• Cross-border merger
• Flexible relocation
• Streamlined administrative structure
• Cost reduction through branch offices
• Establishment of SE subsidiaries

Uniform set of rules in EU & EEA

A uniform set of rules in favour of cross-border cooperation between several European countries is characteristic of the European Company. By establishing a Societas Europaea, you can do business under a trading name that is effective in all EU Member States and EEA countries, and you do not need to set up a large number of subsidiaries to your company in order to develop an effective international business network.

International reputation & strengthening of employee co-determination

Another plus point is that the name Societas Europaea expresses the internationality of your company and generates public prestige. Last but not least, the establishment of a European Company also has a positive effect on the company’s employees: The EU-wide uniform regulations create a personnel policy framework that strengthens the co-determination of your employees if they work for your company in several countries.

Europe-wide merger formation for AGs

The merger form of incorporation allows entrepreneurs for the first time to merge their public limited company with a public limited company from another EU Member State. The granting of cross-border mergers for all corporations is currently under discussion and could offer an attractive alternative for national public limited companies, limited liability companies and other corporations that conduct business across borders but do not want to give up their legal form in favour of a European Company.

Flexible relocation of the registered office

The flexible and uncomplicated relocation of the registered office is another decisive advantage of the Societas Europaea: although the SE registered office and the head office must initially be located in the same EU member state… the registered office of your company can later be easily relocated to another EU country. In this way, you can react flexibly to changes in the market and make clever use of the European competition between legal systems.

Streamlined administrative structure

In the case of the Europa AG, it is possible to choose between two tried and tested management models: the dualistic system, as is customary in this country, and the monistic system based on the Anglo-American model. In this way, European public limited companies with their registered office in Germany can nevertheless take advantage of a streamlined administrative structure, which makes a uniform form of management possible, especially for multinational corporations.

Branch & SE Subsidiaries

Instead of subsidiaries, a Societas Europaea can also maintain branches throughout Europe, which can mean a significant reduction in costs with regard to the administrative and management apparatus. Should the establishment of subsidiaries prove to be useful at a later date, you as the owner can also establish them in the legal form of a Societas Europaea.

Taxes for Europa AG shareholders: corporate income tax, trade tax, VAT, capital tax & income tax

In all countries of the European Economic Area (EEA), Europa AG is subject to the regulations applicable there with regard to the taxes and fees incurred. Accordingly, no special regulations are provided for current taxation. For permanent establishments and branches in other EU member states, it is subject to limited tax liability and must comply with the regulations applicable there. This concerns, among other things, the determination of profits for tax purposes.

In Germany, stock corporations are usually subject to corporate income tax and trade tax. In addition, sales tax is payable on the performance of non-exempt transactions. Profit distributions to the shareholders of an AG are generally subject to capital gains tax, whereas natural persons in the company must pay income tax. Wage payments to the workforce – for example, the remuneration of members of the management board – are subject to wage tax.

• Corporate income tax (KSt)
• Trade tax (GewSt)
• Value added tax (VAT)
• Capital gains tax (KapESt)
• Income tax (ESt)
• Wage tax (LSt)

You can find out what taxes you can expect with a real estate corporation here:

• Save taxes on real estate

Double Taxation Agreements (DTAs) – Germany, EU & EEA

Between Germany and the other member states of the European Union (EU) and the European Economic Area (EEA), the so-called double taxation agreement – in short: DTA – applies. This agreement ensures that double taxation of income earned abroad can be avoided by granting one participating state the right to tax and, in parallel, denying or at least limiting the right of the other state to tax. The concept of this is sometimes also referred to as the barrier effect or barrier function.

Model agreement OECD-MA & OECD transfer pricing guidelines

An example of this is the model convention of the internationally active Organisation for Economic Co-operation and Development (OECD), whose Model Tax Convention on Income and on Capital (OECD-MA) is recognised worldwide and serves as the basis for over 3,000 intergovernmental double taxation agreements.

The OECD also adresses the well-known problem of transfer pricing when maintaining foreign permanent establishments. The prestigious organisation publishes regular transfer pricing guidelines for multinational companies and tax administrations in order to ensure a proper deferral of profits to the parent SE. They can serve as a guideline for cross-border companies to set the agreed prices at an arm’s length level in accordance with the arm’s length principle.

Parent-subsidiary directive: taxation of dividend payments

By revising the outdated Directive 90/435/EEC – the so-called Parent-Subsidiary Directive – and introducing Directive 2003/123/EC, it was possible to eliminate the previously existing double tax burden on dividend payments. According to the new regulations, the full tax revenue of the subsidiary is due to the member state in which the subsidiary is domiciled. However, capital gains tax (KapSt) may not be levied there in context.

The parent company may use either the exemption method or the imputation method to avoid double taxation.

• CouncilDirective of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (90/435/EEC)
• CouncilDirective 2003/123/EC of 22 December 2003 amending Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States

Merger Directive: taxation of cross-border changes of ownership

Under certain circumstances, a European Company with cross-border incorporation can be managed without affecting profit or loss and be exempted from the taxation of hidden reserves. It then falls within the scope of Directive 90/434/EEC – the so-called Merger Directive – which was later modified by Directive 2005/19/EC. Over the years, the Merger Directive has repeatedly undergone minor amendments, so that the substantive aspects are nowadays also applicable to a cross-border transfer of the registered office, the conversion of permanent establishments into subsidiaries and spin-offs from the parent company.

In Germany, the EC Directive was initially implemented in the Reorganisation Tax Act (UmwStG) and later also in the Act on Tax Measures Accompanying the Introduction of the European Company and on the Amendment of Other Tax Regulations (SEStEG).

• CouncilDirective of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States (90/434/EEC)
• CouncilDirective 2005/19/EC of 17 February 2005 amending Directive 90/434/EEC on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States

Societas Europaea (SE) – For whom is it worthwhile?

The Societas Europaea is particularly suitable for large public limited companies with cross-border business within the European Union and the European Economic Area. For those who are not deterred by the considerable minimum capital of 120,000 euros, there are many opportunities to become active transnationally and to realize their entrepreneurial goals with reduced effort and cost savings. Cross-border mobility enables you to set up your company in accordance with the legal system that suits you best and, if necessary, to flexibly relocate your registered office and head office to another EU country.

For whom exactly is the European Company worthwhile? Large international companies and fast-growing companies with an IPO can particularly benefit from the advantages of a European Company and strengthen their external image, because the Europa AG enjoys a high reputation and respect throughout Europe. Even if you are dissatisfied with the typical German management model and the rigid structure of your public limited company, the conversion formation of a Societas Europaea can be particularly attractive for you, because here you can switch to a monistic system and streamline the corporate bodies.

Alternatives to the Societas Europaea (SE): Legal forms in Germany

Legal forms – What types of company are there? If you want to start your first company, then choosing the ideal legal form is one of the first steps in the process of setting up a company. Whether it’s a special real estate company or a start-up, I’ve summarized all the types of companies in Germany for you here.

• Legal forms: List

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

Societas Europaea (SE) – Forms of incorporation, legal basis & Co

In the German-speaking world, the Societas Europaea – or SE for short – can also be found under the names European Company, European Stock Corporation or casually: Europa AG and describes in the legal sense a corporation and thus a legal entity with its own legal personality. As its German name suggests, the chapter of this corporate legal form is divided into shares. The legal introduction of the Societas Europaea as a transnational legal form came in 2004 within the framework of the so-called Law on the Introduction of the European Company – abbreviated: SEEG.

The background to the introduction of the Societas Europaea is, on the one hand, the possibility of merging companies from different EU member states or establishing a holding company. On the other hand, the aim of the SE was to establish joint subsidiaries between economically active companies and legal entities from different countries of origin in the EU by subscribing to shares.

Other typical corporations in Germany:

• Stock corporation (AG)
• Partnership limited by shares (KGaA)
• Entrepreneurial company / UG (limited liability)
• Limited liability company (GmbH)

Primary formation of an SE – merger, conversion, holding, subsidiary

A European Company is not founded “just like that” out of thin air. The formation process is – as already mentioned – bound to certain requirements… moreover, the Societas Europaea can only arise from certain situations. According to the numerus clausus of the forms of formation mentioned in the Societas Europaea Regulation – in short: SE Regulation – the formation of a Societas Europaea can primarily take place in four different ways: by merger, by transformation, by formation of a holding company or by formation of a subsidiary.

• Merger for inclusion/start-up
• Conversion foundation
• European holding company (Holding-SE)
• European subsidiary (subsidiary-SE)

Secondarily, it is possible to establish a European Subsidiary through a parent SE. However, the SE Regulation does not provide for the formation by natural persons or a spin-off from existing companies under national law.

Option 1 – Merger for incorporation or for new incorporation: 2+ public limited companies

You can form a European Company classically by merging – that is: merging – several existing companies. For the formation, at least two national public limited companies are required, which have a so-called cross-border European element. In a nutshell: the companies must either come from different member states of the European Union or, if their respective registered offices are in the same country, they must have had subsidiaries in other EU countries for at least two years. The latter is also referred to as a multi-country relationship.

The merger can be established either for the purpose of absorption or for the purpose of new formation. In the former case, the acquiring company takes the legal form of an SE, while the transferring company is absorbed into the SE at the time the merger takes effect. A new formation means that both merging companies cease to exist as soon as the merger becomes effective. The new legal entity can then also be established in a third EU country, since the multi-nationality requirement is already covered by the registered offices of the two founding companies. In this case, the merger is also referred to as a third-country merger.

How exactly does the merger of two public limited companies into one Societas Europaea work?

In the case of a merger, two legally independent companies come together and thus form a single entity in both an economic and a legal sense. For this purpose, at least one company must cede its legal independence, which is why the merger represents a typical form of corporate takeover. The purchase price for the takeover of the company can be paid elegantly in shares of the acquiring company.

The merger between companies is legally subject to the so-called Merger Directive 90/434/EEC as well as the European Merger Directive 2005/56/EC. Within Germany, the German Transformation Act (Umwandlungsgesetz, UmwG) also applies, while antitrust law is governed by the Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkung, GWB), which, however, only uses the term “merger” for mergers.

Variant 2 – Conversion foundation: Joint stock company + foreign subsidiary

Ultimately, a stock corporation existing at the national level can also be converted into a transnational stock corporation – i.e. an AG into an SE – provided that the stock corporation has maintained a subsidiary or branch in another EU country for at least two years. A conversion to a Societas Europaea is comparable in nature to a change of legal form under the German Transformation Act (Umwandlungsgesetz, UmwG).

However, in contrast to the change of the legal form, the Societas Europaea Regulation – in short: SE Regulation – provides for the preparation of a conversion plan, whereby it is unclear which legal basis must be used with regard to the scope and, above all, also the content of this plan. A transfer of the previous registered office of the national stock corporation is in principle not permissible on the occasion of the conversion into a Europa AG.

Reverse conversion: Europa AG into conventional AG

The conversion of a conventional public limited company into a Societas Europaea is no problem if all the necessary requirements are met in advance. But what about the reverse case? Can you reverse the conversion and turn your Europa AG back into a normal public limited company on a national level? In fact, it is possible to convert an existing European Company into a classic AG. Provided that the Europa AG has existed in its European legal form for at least two years, a conversion plan can be drawn up to return the company to its original form. However, the approval of the general meeting is mandatory.

You can find out more about the national public limited company (AG) here:

• Stock corporation (AG)

Variant 3 – European holding company/SE: 2+ public limited companies/GmbHs

Alternatively, two or more companies from different EU member states may form a European Holding or Holding-SE together. This applies to any combination of stock corporations (AG) and limited liability companies (GmbH), whereby at least two of the companies must be from different EU countries. Alternatively, two or more participating corporations from the same member state each maintain a subsidiary or branch in another EU country for a minimum of two years and thus satisfy the multiple nationality requirement.

In concrete terms, the participation of companies in a holding SE means an exchange of shares: the companies buy shares in the European holding company and in return contribute their existing company shares, whereby their shares in the holding company must thereby convey more than 50 percent of all voting rights of the respective founding company.

You can find out more about national public limited companies (AG) and limited liability companies (GmbH) here:

• Stock corporation (AG)
• Limited liability company (GmbH)

How exactly does the formation of a European holding company work?

A holding company – short for: Holding company, holding organization or umbrella company – is created when several companies are hierarchically structured in a certain way and therefore does not describe a legal form in its own right, but rather a form of structuring companies that are related to each other. The individual companies hold shares in each other, which creates an economic dependency. Central tasks are usually performed by the parent company, which is at the top of the hierarchy of the holding structure.

Similar to the formation of a partnership under civil law (GbR), holding companies are formed for a specific operational purpose, in this case the holding of equity investments or company participations in other companies. As a holding company, you therefore organise the acquisition and management of shareholdings and thus form the capital provider or shareholder through which the subordinate companies finance their equity.

You can find out more about civil law partnerships (GbR) here:

• Civil law partnership (GbR)

Variant 4 – European Subsidiary/Subsidiary-SE: 2+ legal entities

Legal entities – companies, firms, etc. – may also jointly form a European Subsidiary or Subsidiary-SE. This is possible provided that at least two legal entities are governed by the law of different EU countries or at least two of the legal entities involved have maintained a subsidiary or branch in another EU country for a period of two or more years at the time the formation becomes effective.

This flexibility makes it possible for both civil law companies and commercial law companies – including for-profit cooperatives – to establish a joint subsidiary SE. Furthermore, legal entities under public and private law – irrespective of profit-making purposes – can establish an SE subsidiary if at least two of the founding companies originate from different EU countries or meet the multiple nationality requirement via subsidiaries or branches in other EU member states.

In addition to the option of also involving companies without limited liability in the formation process, probably the most decisive difference to the formation of a holding SE is that the individual companies do not form a joint SE umbrella company, but rather a joint subsidiary in the legal form of an SE.

How exactly does the formation of a European Subsidiary work?

In general, a subsidiary is a corporation that is directly dependent on its parent company. A parent company is in turn defined as a corporation that owns the majority of shares in other companies. The establishment of a parent company with subsidiaries offers the advantage that different business areas can be managed by different companies and individual areas of activity can be clearly and transparently distinguished from one another.

If the parent company establishes its own subsidiaries, this is referred to as affiliation: a term that originates from Middle Latin and can be translated as adoption – i.e. adoption as one’s own child – or takeover in the sense of appropriation. If external companies are acquired on the basis of synergy potential or potential increase in market power and subordinated to the parent company, this procedure is referred to as affiliation. In Germany, the formation procedure of a subsidiary SE is largely subject to German stock corporation law; in other countries, the respective national legal bases apply.

Secondary establishment of SE subsidiary: SE by SE

A Societas Europaea can indeed also come into being as a result of a one-man formation, namely SE by SE. This is of particular interest to providers of shelf companies where multi-nationality is not or only insufficiently present. Moreover, the shares of a shelf SE can also be acquired by natural persons. As with the subsidiary SE, the formation procedure of an SE subsidiary is also subject to the national law of the country in which the company has its registered office. Thus, for the formation of an SE subsidiary in Germany, the information in the German Stock Corporation Act must be followed.

The SE is formed by establishing an SE subsidiary through an existing European company, which then acts as the parent SE. As the establishing SE itself already has a cross-border European element, the multi-nationality requirement generally does not apply to the subsidiary, which in a sense “inherits” the multi-nationality. At the same time, there is no need for the involvement of other companies in the secondary formation.

Legal basis: directives, regulations & laws

Since the Societas Europaea is a legal form under European law, various EU and national legal bases must be taken into account. Primarily, there is Regulation (EC) No. 2157/2001, also known as the Societas Europaea Regulation (SE Regulation), which takes over the introduction of the new legal form and creates a common legal framework between the EU member states and the countries of the European Economic Area (EEA). With regard to employee involvement, Directive 2001/86/EC was introduced as a complementary measure to ensure that the regulations and practices in place prior to the establishment of the SE do not simply disappear.

• CouncilRegulation (EC) No 2157/2001 of 8 October2001 on the Statute for a European company (SE)
• CouncilDirective 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees

Based on the Treaty establishing the European Community, Regulation (EC) No. 1435/2003 was introduced, which enables and organises the establishment of European Cooperatives – in short: SCEs. In the course of this, Directive 2003/72/EC was introduced, which regulates employee participation in European cooperatives.

• CouncilRegulation (EC) No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE)
• CouncilDirective 2003/72/EC of 22 July 2003 supplementing the Statute for a European Cooperative Society with regard to the involvement of employees

As a result of the COVID 19 outbreak, a new regulation was introduced in 2020, under which the general meeting of a European Company or general meeting of a European Cooperative Society required for 2020 can be postponed until the end of the year, taking into account exit restrictions and social distancing measures.

• CouncilRegulation (EU) 2020/699 of 25 May 2020 on temporary measures in respect of general meetings of European companies (SEs) and general meetings of European cooperative societies (SCEs) (Text with EEA relevance).

In addition to the ordinances and directives already mentioned, there are also some at national level in Germany:

• Law on the Introduction of the European Company (SEEG) of 22 December 2004
• Law on the Implementation of CouncilRegulation (EC) No. 2157/2001 of 8 October 2001 on the Statute for a European company (SE) (SE Implementation Act – SEAG) of 22 December 2004
• Law on the Involvement of Employees in a European Company (SE Employee Involvement Act – SEBG) of December 22, 2004
• German Stock Corporation Act (AktG) of 6 September 1965
• Commercial Code (HGB) of 10 May 1897

Measures for SMEs – Societas Privata Europaea & Societas Unius Persona

Capital companies for small and medium-sized enterprises – in short: SMEs – were also provided with a largely uniform European legal form, namely the Societas Privata Europaea – in short: SPE; with German name: European Private Company. A first draft for the introduction of such a company was initiated in 2009, but ultimately failed just a few years due to ongoing criticism from other EU member states regarding its design.

As an alternative measure, the project to create a so-called Societas Unius Persona – in short: SUP; with German name: Europäische Einpersonengesellschaft – was launched. This European variant of a conventional limited liability company (GmbH) pursues the goal of enabling single-member companies with legal capacity to act for cross-border business activities, which can be organised and managed by a single managing partner. As with the national Unternehmergesellschaft (haftungsbeschränkt), a single symbolic euro is to be set as the minimum capital. The concept of the SUP has also met with widespread criticism so far, which is why it is currently not foreseeable whether and when the Societas Unius Persona will be available as a company form.

Legal form variant SE & Co KGaA – KGaA with general partner SE

Sometimes the Societas Europaea also appears in combination with a partnership limited by shares (KGaA). Family businesses, for example, occasionally organise themselves as Societas Europaea & Compagnie Kommanditgesellschaft auf Aktien – in short: SE & Co KGaA. In this case, they form a stock corporation in the legal sense – however, the general partner as personally liable shareholder is not just any natural person, but specifically a Societas Europaea (SE). If the general partner is embodied by an AG, one speaks instead of an AG & Co KGaA, in the case of a general partner GmbH of a GmbH & Co KGaA.

• AG & Co KGaA – see stock corporation (AG)
• GmbH & Co KGaA – see limited liability company (GmbH)

Companies operating under the legal form variant of the SE & Co KGaA have only existed since the end of the 1990s, after open legal questions were clearly explained by a court ruling of the Federal Supreme Court (BGF). The well-known health care group Fresenius SE & Co KGaA, which is one of the largest private hospital operators in Germany, has decided to establish an SE & Co KGaA, as have many other companies from a wide range of industries: Sound carriers and multimedia products, outdoor advertising, plant breeding and biotechnology, pump technology as well as thermal insulation composite systems, to name but a few.

Examples of SE & Co KGaA companies:

• AURELIUS Equity Opportunities SE & Co. KGaA
• Edel SE & Co. KGaA
• Fresenius SE & Co. KGaA
• KWS SAAT SE & Co. KGaA
• KSB SE & Co. KGaA
• Mutares SE & Co. KGaA
• Sto SE & Co. KGaA
• Ströer SE & Co. KGaA

CEWE Stiftung & Co. KGaA is a special case: In this company, the general partner is embodied by a foundation. In principle, the partnership limited by shares is possible in all conceivable combinations, as GUB Investment Trust KGaA points out as an example.

Continue reading here on the topic of setting up a family foundation:

• Establish a family foundation

SE formation in detail – registered office, company name, management & Co.

You would like to set up a European Company and become active in the Single Market in an uncomplicated way? To do this, your company must first meet a few requirements: Here you can find out everything you need to know about multi-nationality, minimum capital, co-determination and more, so that you can set up your European Company in a correct and informed manner. First things first: Your company must be a legal entity and have its own legal personality. In addition to the status as a legal entity, the so-called multi-nationality principle must also be complied with and a cross-border European element must be demonstrated.

Further regulations concern the company’s registered office and head office, the minimum capital required, the proper company name and registration, the management and company bodies and, last but not least, the accounting requirements and the right of co-determination of the workforce.

• Principle of multiple nationality
• Registered office & head office
• Minimum capital
• Company name & registration
• Management & corporate bodies
• Accounting
• Co-determination rights of the workforce

Multi-nationality principle as a cross-border element

The multi-nationality principle requires that at least two of all participating founding companies of a Societas Europaea have a cross-border, European element. In plain language, this means that at least two companies must be governed by the laws of different EU member states or, alternatively, must be able to prove a cross-border element through a subsidiary or branch that has been maintained in another EU country for two or more years.

Registered office & head office of a European company

The registered office and the head office of your company must be located in the same EU member state for the formation of a European Company. The choice of the country of incorporation is of decisive importance, since in addition to EU law, the respective applicable national law forms the legal basis of the European Company. In principle, it is possible to subsequently relocate the company’s registered office and head office to another EU member state, should the situation require it or should the company gain advantages as a result. The Association of German Chambers of Industry and Commerce (DIHK) describes this advantage as follows:

“Figuratively speaking: Europa AG is a legal form that comes in 25 colors. The choice of the domicile of the Europa AG therefore opens up interesting design possibilities.”

Some countries have stricter requirements for the formation of a European Company: for example, the member states Bulgaria, Denmark, France, Greece, Latvia, Austria and the Czech Republic require that the registered office and the head office of the company have the same address.

Financing of an SE: 120,000 euros minimum capital

Another requirement concerns the minimum capital required: For a European Company with its registered office and head office in Germany, for example, you need at least 120,000 euros, i.e. more than twice as much as the share capital of 50,000 euros required for a conventional German public limited company. The capital requirement – as well as the other requirements – may vary in the different EU member states. A higher subscribed capital can in principle be agreed in the articles of association.

As a rule, the minimum capital of a Europa AG should be denominated in euros. If the official national currency for a country of domicile is not the euro, the company may request that its annual financial statements and consolidated financial statements be prepared and published in its own national currency.

• Minimum capital: 120,000 euros (Germany)

Europa AG as a trademark: Company name & registration

The company name includes the legal form suffix “SE”, which either precedes the company name as a prefix or follows it as a suffix. Registration is mandatory in the register of the country of incorporation – in Germany, therefore, in the commercial register – and is also published in the Official Journal of the European Communities. If the registered office is moved to another EU member state at a later date, the registration of the Europa AG can be adjusted easily and without complications.

The existing Societas Europaea does not have to be dissolved for this reason and does not need to be re-established at its new location. Only an entry is made in the register there and a notification is sent to the original EU country, whereupon the latter makes a deletion of the entry in its own register. All entries and deletions in the registers of the various EU member states are listed in parallel in the Official Journal of the European Communities.

Structure of an SE: Management & Corporate Bodies

With regard to management, a distinction is made between a dualistic and a monistic system – the new German two-tier/one-tier model. They differ primarily in the different type and number of SE bodies that are appointed in the company. However, the term of office for the members of the appointed bodies is a maximum of six years in both cases, although reappointment is not ruled out.

• Dualistic system
• Monistic system

Dualistic system (two-tier model)

The structure of the German supervisory board constitution serves as the basis for the dualistic system, which is sometimes also referred to as the two-tier model. It represents the traditional division of management into three bodies, according to which, in addition to the general meeting, the supervisory board is appointed as a control body and the management board as a management body.

If the Europa AG has a share capital of more than three million euros, at least two persons must be appointed to the management board. Smaller European stock corporations may limit the executive board to only one person in accordance with the articles of association, provided that the company is not a co-determined company. Supervision of the management body is the responsibility of the supervisory board, the size of which is directly conditioned by the amount of share capital. In the case of a co-determined Societas Europaea, the supervisory board members must also be representatives of the shareholders and representatives of the employee workforce.

Monistic system (one-tier model)

The so-called one-tier model, on the other hand, is based on the Anglo-American board system. It stands for a monistic system, according to which only a single-member board of directors is appointed in addition to the general meeting, which is composed of the shareholders of the stock corporation.

In principle, three members of the Board of Directors are provided for, one of whom must be an executive director. However, it is possible to appoint a different number of persons to the board of directors, with the maximum number of members permitted being related to the company’s share capital, and European public limited companies with a share capital of more than three million euros being allowed by law to appoint no fewer than three members.

Within Germany, monistic Societas Europaea also demand that the participation of employee representatives on the board be as high as would be required for the traditionally dualistic supervisory board.

Accounting rules

With regard to accounting, the European Company is subject to the laws of the country in which the registered office and head office of the company are located – in a form that is largely standardised under European law. Apart from taxation and accounting, it is obliged to adopt the annual financial statements together with the notes and the balance sheet, profit and loss account (P&L) as well as to prepare the report on the course of business and the situation of the company.

• Annual accounts
  • Balance
  • Profit and loss account
  • Notes to the financial statements
  • Report on the course of business and the situation of the company

Co-determination rights for SE employees

Since the European Union has not formulated any legal formulation of co-determination in a European Company, there is either a binding agreement between the employer and employee sides or the valid co-determination right for the company is determined depending on the form of formation of the Europa AG. You can find out more about the individual forms of formation below.

Special negotiating body: employers & employees

In principle, it is possible for employers and employees to set up a so-called “special negotiating body”, where they can jointly reach a suitable agreement on corporate co-determination and set this down in writing. The members of the body are elected secretly and directly on the basis of a certain country key and are limited to a maximum of 40 members.

The “special negotiating body” must be established within ten weeks of the announcement by the company’s management of the planned formation of a European Company. A decision must be taken within six months – or within twelve months in the case of a request for an extension of the deadline.

Negotiations on employee participation

The “special negotiating body” can decide on employee participation in Europa AG, whereby a qualified majority decision must be reached for this. Agreements leading to a reduction in co-determination require a two-thirds majority representing at least two-thirds of the employees in two or more EU countries. However, this only applies under special conditions:

The special majority in favor of a reduction of the right of co-determination only applies if, in the case of a merger, at least 25 percent of the total workforce or, in the case of the formation of a holding SE or subsidiary SE, at least half of the total workforce is subject to co-determination. In the case of the formation of an SE by way of conversion, in principle, no reduction of the right of co-determination can be resolved.

• Merger: at least 25 % AN representation
• Holding/subsidiary: at least 50 % employee representation
• Conversion: no reduction possible

Termination of ongoing negotiations & waiver decision

In the case of a two-thirds majority, however, it can also be decided to break off ongoing negotiations or not to enter into negotiations at all. In this case, the Europa AG is registered without a co-determination model. In the case of the transformation of corporate form, however, which is based on a stock corporation with co-determination, such waiver resolution is generally excluded.

Failure of negotiations & standard rules

If agreement cannot be reached between the employer and employee sides, the negotiations fail and the standard rules automatically apply. The aim is to safeguard the existing co-determination rights of the workforce from the time the Europa AG is entered in the national register. Depending on the form of incorporation, corporate co-determination is absorbed differently:

In the case of formation by transformation, the existing co-determination rights of the national AG are continued. In the case of the other forms of formation, the highest standard of participation of a founding company can be transferred to the European Company – but only if in the relevant company, prior to the registration of the Societas Europaea in the national register, regulations on participation were already effective which cover a certain percentage of all employees. In the case of a merger formation, a coverage of 25 percent is required, in the case of SE holding companies and SE subsidiaries even twice as much.

• Conversion: Transfer of the previous right of co-determination
• Merger: 25 % of total workforce covered
• Holding/subsidiary: 50 % of total workforce covered

Advantages of Europa AG – Uniform, international & flexible

The European Company is a relatively new legal form of enterprise and can only be established in accordance with European regulations since 8 October 2004. It is therefore not very widespread and, in the view of many entrepreneurs, has yet to prove itself. However, especially with regard to the transnational business transactions of large companies, the Societas Europaea already offers a number of advantages that have a significant impact on cross-border cooperation between different EU member states and countries of the European Economic Area (EEA).

• Uniform set of rules
• International reputation
• Strengthening co-determination rights for employees
• Cross-border merger
• Flexible relocation
• Streamlined administrative structure
• Cost reduction through branch offices
• Establishment of SE subsidiaries

Uniform set of rules in EU & EEA

A uniform set of rules in favour of cross-border cooperation between several European countries is characteristic of the European Company. By establishing a Societas Europaea, you can do business under a trading name that is effective in all EU Member States and EEA countries, and you do not need to set up a large number of subsidiaries to your company in order to develop an effective international business network.

International reputation & strengthening of employee co-determination

Another plus point is that the name Societas Europaea expresses the internationality of your company and generates public prestige. Last but not least, the establishment of a European Company also has a positive effect on the company’s employees: The EU-wide uniform regulations create a personnel policy framework that strengthens the co-determination of your employees if they work for your company in several countries.

Europe-wide merger formation for AGs

The merger form of incorporation allows entrepreneurs for the first time to merge their public limited company with a public limited company from another EU Member State. The granting of cross-border mergers for all corporations is currently under discussion and could offer an attractive alternative for national public limited companies, limited liability companies and other corporations that conduct business across borders but do not want to give up their legal form in favour of a European Company.

Flexible relocation of the registered office

The flexible and uncomplicated relocation of the registered office is another decisive advantage of the Societas Europaea: although the SE registered office and the head office must initially be located in the same EU member state… the registered office of your company can later be easily relocated to another EU country. In this way, you can react flexibly to changes in the market and make clever use of the European competition between legal systems.

Streamlined administrative structure

In the case of the Europa AG, it is possible to choose between two tried and tested management models: the dualistic system, as is customary in this country, and the monistic system based on the Anglo-American model. In this way, European public limited companies with their registered office in Germany can nevertheless take advantage of a streamlined administrative structure, which makes a uniform form of management possible, especially for multinational corporations.

Branch & SE Subsidiaries

Instead of subsidiaries, a Societas Europaea can also maintain branches throughout Europe, which can mean a significant reduction in costs with regard to the administrative and management apparatus. Should the establishment of subsidiaries prove to be useful at a later date, you as the owner can also establish them in the legal form of a Societas Europaea.

Taxes for Europa AG shareholders: corporate income tax, trade tax, VAT, capital tax & income tax

In all countries of the European Economic Area (EEA), Europa AG is subject to the regulations applicable there with regard to the taxes and fees incurred. Accordingly, no special regulations are provided for current taxation. For permanent establishments and branches in other EU member states, it is subject to limited tax liability and must comply with the regulations applicable there. This concerns, among other things, the determination of profits for tax purposes.

In Germany, stock corporations are usually subject to corporate income tax and trade tax. In addition, sales tax is payable on the performance of non-exempt transactions. Profit distributions to the shareholders of an AG are generally subject to capital gains tax, whereas natural persons in the company must pay income tax. Wage payments to the workforce – for example, the remuneration of members of the management board – are subject to wage tax.

• Corporate income tax (KSt)
• Trade tax (GewSt)
• Value added tax (VAT)
• Capital gains tax (KapESt)
• Income tax (ESt)
• Wage tax (LSt)

You can find out what taxes you can expect with a real estate corporation here:

• Save taxes on real estate

Double Taxation Agreements (DTAs) – Germany, EU & EEA

Between Germany and the other member states of the European Union (EU) and the European Economic Area (EEA), the so-called double taxation agreement – in short: DTA – applies. This agreement ensures that double taxation of income earned abroad can be avoided by granting one participating state the right to tax and, in parallel, denying or at least limiting the right of the other state to tax. The concept of this is sometimes also referred to as the barrier effect or barrier function.

Model agreement OECD-MA & OECD transfer pricing guidelines

An example of this is the model convention of the internationally active Organisation for Economic Co-operation and Development (OECD), whose Model Tax Convention on Income and on Capital (OECD-MA) is recognised worldwide and serves as the basis for over 3,000 intergovernmental double taxation agreements.

The OECD also adresses the well-known problem of transfer pricing when maintaining foreign permanent establishments. The prestigious organisation publishes regular transfer pricing guidelines for multinational companies and tax administrations in order to ensure a proper deferral of profits to the parent SE. They can serve as a guideline for cross-border companies to set the agreed prices at an arm’s length level in accordance with the arm’s length principle.

Parent-subsidiary directive: taxation of dividend payments

By revising the outdated Directive 90/435/EEC – the so-called Parent-Subsidiary Directive – and introducing Directive 2003/123/EC, it was possible to eliminate the previously existing double tax burden on dividend payments. According to the new regulations, the full tax revenue of the subsidiary is due to the member state in which the subsidiary is domiciled. However, capital gains tax (KapSt) may not be levied there in context.

The parent company may use either the exemption method or the imputation method to avoid double taxation.

• CouncilDirective of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (90/435/EEC)
• CouncilDirective 2003/123/EC of 22 December 2003 amending Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States

Merger Directive: taxation of cross-border changes of ownership

Under certain circumstances, a European Company with cross-border incorporation can be managed without affecting profit or loss and be exempted from the taxation of hidden reserves. It then falls within the scope of Directive 90/434/EEC – the so-called Merger Directive – which was later modified by Directive 2005/19/EC. Over the years, the Merger Directive has repeatedly undergone minor amendments, so that the substantive aspects are nowadays also applicable to a cross-border transfer of the registered office, the conversion of permanent establishments into subsidiaries and spin-offs from the parent company.

In Germany, the EC Directive was initially implemented in the Reorganisation Tax Act (UmwStG) and later also in the Act on Tax Measures Accompanying the Introduction of the European Company and on the Amendment of Other Tax Regulations (SEStEG).

• CouncilDirective of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States (90/434/EEC)
• CouncilDirective 2005/19/EC of 17 February 2005 amending Directive 90/434/EEC on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States

Societas Europaea (SE) – For whom is it worthwhile?

The Societas Europaea is particularly suitable for large public limited companies with cross-border business within the European Union and the European Economic Area. For those who are not deterred by the considerable minimum capital of 120,000 euros, there are many opportunities to become active transnationally and to realize their entrepreneurial goals with reduced effort and cost savings. Cross-border mobility enables you to set up your company in accordance with the legal system that suits you best and, if necessary, to flexibly relocate your registered office and head office to another EU country.

For whom exactly is the European Company worthwhile? Large international companies and fast-growing companies with an IPO can particularly benefit from the advantages of a European Company and strengthen their external image, because the Europa AG enjoys a high reputation and respect throughout Europe. Even if you are dissatisfied with the typical German management model and the rigid structure of your public limited company, the conversion formation of a Societas Europaea can be particularly attractive for you, because here you can switch to a monistic system and streamline the corporate bodies.

Alternatives to the Societas Europaea (SE): Legal forms in Germany

Legal forms – What types of company are there? If you want to start your first company, then choosing the ideal legal form is one of the first steps in the process of setting up a company. Whether it’s a special real estate company or a start-up, I’ve summarized all the types of companies in Germany for you here.

• Legal forms: List

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

Partnership limited by shares (KGaA) – formation, financing, liability & Co

The partnership limited by shares – abbreviation: KGaA – is a relatively unknown form of corporate law and is formed as a hybrid of the conventional limited partnership – short: Kommandite or KG – plus the classic stock corporation – short: AG. Both the Kommandite and the AG belong to the so-called complete companies and are therefore primarily subject to the German Commercial Code (HGB). The limited partnership belongs beyond that however to the partnerships and has no own legal personality. The stock corporation, on the other hand, is probably the best-known corporation of all and is primarily committed to share trading.

The KGaA adopts the best features of both legal forms: it takes a stock corporation as its basic structure and supplements it with the structure of general partners and limited partners that is characteristic of the KG. Thus, the entrepreneurial management – similar to the AG – is divided into different bodies, whereas the liability risk is distributed among at least one personally liable partner and the remaining partners in the amount of their capital contribution. Although the partnership limited by shares is a limited partnership in name and suggests the legal status of a partnership, beware: it is in fact a corporation by virtue of its legal form, including its own legal personality!

Other typical corporations:

• Stock corporation (AG)
• European Company (Societas Europaea, abbreviated to SE)
• Entrepreneurial company / UG (limited liability)
• Limited liability company (GmbH)

Corporation KGaA – Stock Corporation Act §§ 278 – 290 & §§ 161 – 177a German Commercial Code (HGB)

In principle, the legal basis for partnerships limited by shares is the German Stock Corporation Act (Aktiengesetz, AktG), more precisely: paragraphs 278 to 290, where, among other things, the nature of the KGaA is defined. For the legal position of the individual partners, on the other hand, reference is made to the applicable provisions for conventional limited partnerships, which are found in the German Commercial Code (HGB) – sections 161 to 177a.

Excerpt from the law – § 278 AktG:

(1) A partnership limited by shares is a company with its own legal personality in which at least one partner has unlimited liability to the company’s creditors (general partner) and the others have an interest in the share capital divided into shares without being personally liable for the company’s obligations (limited shareholders).
(2) The legal relationship of the general partners among themselves and vis-à-vis the entirety of the limited liability shareholders as well as vis-à-vis third parties, namely the authority of the general partners to manage and represent the partnership, shall be determined in accordance with the provisions of the Commercial Code on limited partnerships.
(3) In all other respects, the provisions of the First Book concerning the stock corporation shall apply mutatis mutandis to the partnership limited by shares, unless otherwise provided for in the following provisions or in the absence of a management board.

Kommanditgesellschaft auf Aktien – International distribution of the legal form

The partnership limited by shares – abbreviated to KGaA – is where the legal form of a stock corporation and the typical features of a limited partnership meet. The resulting hybrid of a corporation and partnership features has so far been rather rare in Germany, although interest has been slowly but steadily increasing since the end of the 1990s. The partnership limited by shares also appears internationally, for example as a “commercial partnership limited by shares” in English-speaking countries or as a “société en commandite par actions” in France.

International distribution of the KGaA:

• Anglophone region: Commercial partnership limited by shares
• Belgium: Commanditaire vennootschap op aandelen (CommVA)
• Denmark: Partnerselskab (P/S) or Kommanditaktieselskab
• Germany: partnership limited by shares (KGaA)
• France: Société en commandite par actions (SCA)
• Italy: Società in accomandita per azioni (S. a. p. A. / S. A. A.)
• Iceland: Samlagshlutafélag (slhf.)
• Netherlands: Commanditaire vennootschap (CV)
• Poland: SpóÅka Komandytowo-Akcyjna (S. K. A.)
• Portugal: Sociedade em Comandita por acções (SCA)
• Spain: Sociedad comanditaria por acciones

Legal form variant Kapitalgesellschaft & Co KGaA – General partner as legal entity

Sometimes different corporations also appear in combination with a partnership limited by shares (KGaA). For example, family businesses occasionally organise themselves as a Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft auf Aktien – in short: GmbH & Co KGaA. In this case, they form a stock corporation in the legal sense – however, the general partner as personally liable shareholder is not just any natural person, but specifically a limited liability company (GmbH). If the general partner is instead embodied by an AG, it is referred to as an AG & Co KGaA, and in the case of a Societas Europaea, as an SE & Co KGaA.

More about the individual hybrid forms:

• GmbH & Co KGaA – see limited liability company (GmbH)
• AG & Co KGaA – see stock corporation (AG)
• SE & Co KGaA – see Societas Europaea (SE)

CEWE Stiftung & Co. KGaA is a special case: In this company, the general partner is embodied by a foundation. In principle, the partnership limited by shares is possible in all conceivable combinations, as GUB Investment Trust KGaA points out as an example.

Continue reading here on the topic of setting up a family foundation:

• Establish a family foundation

Foundation, company name & organs of a KGaA

The formation process of a partnership limited by shares is based on the formation process of stock corporations. Accordingly, a KGaA is considered a legal entity and can only participate in legal transactions through its executive bodies. Unlike the conventional stock corporation, however, this legal form does not provide for a management board as the governing body, so that the governing bodies of a KGaA are limited to the general meeting – consisting of the total of the limited liability shareholders – and the supervisory board. The management authority and the power to represent the company externally are incumbent on the general partners as personally liable partners.

You can find out here how the process of founding an AG works in detail:

• Formation of a public limited company

A personally liable partner can be either a natural person or a legal entity, which limits his liability to the business assets of the corporation and cleverly avoids personal liability. The limited partners or limited shareholders can also be natural persons or legal entities and are in any case only liable to the extent of their respective share contribution.

To set up your KGaA, you also need the following in brief: a tax identification number (tax ID); the confirmation of registration from the Trade Licensing Office; the shareholders’ agreement aka articles of association together with notarial certification; 50,000 euros of share capital; and finally the entry in the Commercial Register under the company name you have chosen plus the legal form suffix “KGaA”.

Examples of KGaA companies:

• Merck KGaA
• MERKUR PRIVATBANK KGaA

Limited partner & general partner: A question of liability

What is a limited partner and general partner? This is a question many people ask themselves when they first hear about the special characteristics of a limited partnership. This is because, unlike all other partnerships, the partners in a limited partnership are clearly divided into general partners and limited partners. Therefore, a single individual or legal entity can never be a general partner and a general partner at the same time.

Usually, general partners are the personally liable partners of a limited partnership. In a partnership limited by shares, too, a distinction is made between general partner and limited partner, the latter being contextually referred to as limited shareholder. The general partner bears the full risk as a general partner: as with the conventional KG, he is also jointly and severally liable, directly and without limitation with business assets and private assets. The liability risk of the limited shareholders, on the other hand, is limited only to the amount of the mandatory sum that they paid in as a limited partner contribution in the form of shares when the KGaA was formed.

Financing & profit distribution

The financing of a KGaA is advantageous compared to the conventional limited partnership, as equity capital can be raised more easily. Overall, as with the AG, a share capital of 50,000 euros or more is required. With regard to the distribution of profits and loss sharing, there are no special regulations compared to the conventional KG: Either the legal principles come into play or corresponding specifications have been anchored in the articles of association. Profits are distributed in principle to 4 per cent of the capital share plus additional profit “in the appropriate relationship”. Losses are also shared appropriately.

Taxes for company & shareholder: separation principle & transparency principle

Like all other forms of corporate law, the partnership limited by shares is generally liable to pay taxes. It is considered an independent tax subject with regard to corporate income tax and trade tax; all natural persons in the partnership are usually subject to income tax.

Due to its hybrid form, however, special regulations apply to the KGaA under tax law: the taxation of the company itself is based on the separation principle, the taxation of the limited liability shareholders is also based on the separation principle and the taxation of the general partners is compulsorily based on the transparency principle. In the case of taxable turnover, the KGaA is always subject to turnover tax.

• Trade tax (GewSt)
• Value added tax (VAT)
• Income tax (ESt)
• Corporate income tax (KSt)

Taxation of the KGaA – separation principle

As a corporation and legal entity, the partnership limited by shares is generally subject to corporate income tax. Insofar as the KGaA exercises its management and/or its registered office in Germany, it is deemed to be subject to unlimited corporate income tax and must pay tax on its entire global income accordingly. In the case of foreign management and/or foreign registered office with domestic income – for example from a domestic permanent establishment – the KGaA is deemed to have limited tax liability.

The profit of a KGaA is determined by means of a comparison of business assets. For the taxable income, on the other hand, a special provision applies with regard to deductible expenses, which is anchored in the German Corporate Income Tax Act (Körperschaftsteuergesetz, KStG) – the corporate income tax of the KGaA therefore only applies where income is attributable to the share capital, i.e.: the profit shares of the limited liability shareholders. The profit shares of the general partners as well as their management remuneration are deducted in advance and can be deducted as operating expenses. They do not come into play in the calculation of the KGaA’s income, but must be taxed by the general partners themselves.

Excerpt from the law – Section 9 (1) no. 1 KStG:

in the case of partnerships limited by shares and comparable corporations, that part of the profit which is distributed to personally liable partners on their contributions not made to the share capital or as remuneration (bonus) for management;

The KGaA must pay trade tax as an entrepreneur, regardless of its hybrid structure. Thus, the determined profit from business operations – increased and decreased by the amounts specified in the Trade Tax Act (GewSt) – is understood as the trade income of the KGaA. The amounts previously calculated for corporate income tax purposes for profit shares and management remuneration of the general partners are now added back to the calculated profit from business operations, thereby ensuring that no amounts escape taxation through trade tax.

Taxation of the limited liability shareholders of the KGaA – separation principle

As natural persons, limited shareholders do not have to pay corporate income tax. Therefore, their profit shares and any management remuneration are settled via the partnership limited by shares itself. Like their counterparts in the conventional limited partnership, they are subject to income tax in the event of a dividend distribution. If they hold limited partnership shares as private assets, they generate income from capital assets in accordance with the German Income Tax Act (EStG).

Taxation of the general partners of the KGaA – separation principle

General partners are taxed like co-entrepreneurs for the purposes of tax law. In this context, they are not to be regarded as co-entrepreneurs, but merely treated as co-entrepreneurs – a small but significant difference… especially in terms of “taxes”! As natural persons, general partners are subject to income tax as normal and must pay tax on their income from business operations.

In contrast to the limited liability shareholders, general partners are required to pay corporate income tax: Their profit shares and any management remuneration are deducted from the KGaA’s income to be determined and charged directly to the general partners. The corresponding amounts must be taxed as part of the income tax return.

Partnership limited by shares (KGaA) – For whom is it worthwhile?

The possibility of easy capital procurement is certainly one of the reasons for founders of new businesses to opt for the formation of a KGaA. In addition, the partnership limited by shares has a high resistance to takeovers, which is why the individual partners can contribute personally and maintain their entrepreneurial commitment despite high capital contributions. The sometimes high liability risk of the general partner can be absorbed by the clever positioning of a GmbH or AG as a personally liable partner.

So who is the partnership limited by shares suitable for? This legal form is worthwhile for start-ups that cannot avoid external financing, but do not want to make any concessions with regard to their decision-making authority as well as the management of their company. The special legal form of the KGaA provides family businesses with a company in which control does not have to be transferred to outside hands as soon as share capital is issued as shares.

Alternatives to the KGaA: Legal forms in Germany

Legal forms – What types of company are there? If you want to start your first company, then choosing the ideal legal form is one of the first steps in the process of setting up a company. Whether it’s a special real estate company or a start-up, I’ve summarized all the types of companies in Germany for you here.

• Legal forms: List

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

GmbH & Co OHG – formation, financing, liability & Co

The general partnership – OHG for short – is one of the so-called full companies and, as a partnership, is subject to the German Commercial Code (HGB). The formation process for this legal form of company is quite uncomplicated, as it can be formed informally and requires a minimum of only two founding members. It can be formed by both natural persons and legal entities. A maximum number of permissible shareholders is not specified by law.

If the personally liable main shareholder of an OHG appears as a limited liability company (GmbH) or if no natural persons but exclusively legal entities are liable in the company as a whole, a so-called Gesellschaft mit beschränkter Haftung & Compagnie Offene Handelsgesellschaft – in short: GmbH & Co OHG – is formed. But be careful: While the GmbH represents a legal entity by virtue of its legal form, a GmbH & Co OHG does not have its own legal personality and is always considered a partnership!

Other typical partnerships:

• Limited partnership (KG)
• General partnership (OHG)
• Limited Liability Company and Company Limited Partnership(GmbH & Co KG)

Foundation & Company Name

The formation of a GmbH & Co OHG requires at least two persons, with at least one of the two appearing in the form of a GmbH. A common scenario sees both founding members as limited liability companies that join together to form a GmbH & Co OHG for a joint project. In any case, all legal entities of the company act as general partners.

If you are starting from scratch, you first need to set up a limited liability company. To do this, you need the following in a nutshell: a natural or legal person as the founder of the company; a tax identification number (tax ID); the registration confirmation from the trade office; the shareholders’ agreement aka articles of association together with notarial certification; 25,000 euros in share capital; and finally the entry in the commercial register.

You can find out how the process of setting up a GmbH works in detail here:

• Establishment of a limited liability company (GmbH)

You have successfuly founded your GmbH? Then the next step is to set up a limited liability company (Gesellschaft mit beschränkter Haftung & Compagnie Offene Handelsgesellschaft). Since the GmbH & Co OHG is a separate company, you again need a tax ID and must register the company with the trade office. Since one of the partners is a GmbH, the GmbHG also requires a minimum capital of 25,000 euros, in contrast to the conventional OHG. The establishment of articles of association is also mandatory and of course your company needs a suitable company name including the company suffix “GmbH & Co OHG”.

Management & power of representation

Insofar as no other regulation has been established in the shareholders’ agreement, each shareholder of a GmbH & Co OHG has the power of representation in the external relationship. It is possible to agree on a joint representation within the articles of association – and to enter this in the commercial register – or to withdraw the power of representation from individual shareholders. However, this restriction only applies in the internal relationship and is ineffective vis-à-vis third parties, since they cannot view the representation authority of the individual partners.

The same applies to the power to manage: In principle, all shareholders may – and should – act in a managing capacity. Deviations from the legal regulations in the German Commercial Code (HGB) are possible, but only become effective in the external relationship if a corresponding note has been entered in the commercial register and the information is thus accessible to the public. In the absence of a corresponding entry in the commercial register, a transaction is effective even if the shareholder has been excluded from management in the internal relationship.

Excerpt from the law – § 114 HGB:

(1) All shareholders are entitled and obliged to manage the business of the Company.
(2) If the management is assigned to one or more shareholders in the partnership agreement, the other shareholders shall be excluded from the management.

Business letters – offers, order forms, invoices & Co.

In business transactions, the GmbH & Co OHG is bound to a certain presentation. Thus on all business letters – as with the conventional OHG also – information must be given to the legal form addition, the company seat, the responsible register court as well as the commercial register number. Since it concerns with the partners legal entities, a GmbH & CO OHG must indicate additionally the companies of the partners together with legal form addition and further their commercial register number, the responsible register court and the registered office of the companies. The full names of all managing directors and members of the management board – as well as the first name and surname of the chairman of the supervisory board, if applicable – must also be listed on all business letters.

Business correspondence includes all written communications from a company that are specifically adressed to one or more recipients, such as order forms, solicited offers, invoices and payment reminders or dunning letters. General promotional literature and direct mail, on the other hand, are not business letters in form and accordingly do not have to contain any of the above information.

Profit distribution, loss sharing & liability

With regard to the distribution of profits and the sharing of losses, either the statutory principles come into play or corresponding provisions have been anchored in the Articles of Association. Profits are generally distributed “per capita” at 4 percent of the capital share plus additional profit. Loss sharing is also carried out “according to heads”.

A limited liability company & Compagnie General partnership is liable as a company with its business assets. In addition, the individual partners – as with the general partnership – are directly, unlimitedly and jointly and severally liable, i.e.: creditors can not only directly attack the partners independently of the causer, but in case of doubt also raise liability claims beyond the company assets, namely on the private assets of the individual partners.

If, on the other hand, shareholders of a GmbH & Co OHG appear in the form of a limited liability company (GmbH), they are liable as legal entities only to the extent of the GmbH’s capital contribution. The limitation of liability as a legal entity is one of the advantageous features of this legal form of enterprise.

Tax liability of GmbH & Co OHG shareholders – GewSt, USt & ESt / KSt

Like all other legal forms of companies, the Gesellschaft mit beschränkter Haftung & Compagnie Offene Handelsgesellschaft is generally liable to pay taxes. For commercial enterprises with an annual income of more than 24,500 euros, the trade tax obligation applies and, in principle, for all companies, the turnover tax obligation applies, insofar as the GmbH & Co OHG does not only carry out tax-exempt sales.

In addition, partnerships are generally subject to the transparency principle, which states that due to the income tax liability of the individual partners, the payment of income tax for the partnership as a whole is superfluous. Distributed profits are also taxed in the partners’ income tax return as income from business operations. However, this is based on the assumption of natural persons. Income from profits for legal entities, on the other hand, is subject to corporate income tax.

• Trade tax (GewSt)
• Value added tax (VAT)
• Income tax (ESt)
• Corporate income tax (KSt)

Taxes for businesses, all in one list:

• Taxes in Germany

GmbH & Co OHG – For whom is it worthwhile?

A significant advantage of a GmbH & Co OHG is undoubtedly the limitation of liability to the business assets of the GmbH as a personally liable partner. This means that company founders can quickly and easily get off the ground in a team on an equal footing and do not directly risk the existence of their company if an investment turns out to be disadvantageous. In contrast to the GmbH & Co KG, the equal cooperation of the partners is particularly important here and strong hierarchies corresponding to the limited partnership are avoided.

So who is the GmbH & Co OHG suitable for? This legal form is worthwhile for start-ups who would like to set up their business as a partnership without having to forego the special liability restrictions of a GmbH. A GmbH & Co OHG is also conceivable as an asset-managing company and for family businesses.

Alternatives to the GmbH & Co OHG: Legal forms in Germany

Legal forms – What types of company are there? If you want to start your first company, then choosing the ideal legal form is one of the first steps in the process of setting up a company. Whether it’s a special real estate company or a start-up, I’ve summarized all the types of companies in Germany for you here.

• Legal forms: List

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

Stock Corporation: Establishment, Advantages and Disadvantages

The AG is not just a legal form — it is a structured vehicle for taxation, liability, and capital raising. In the following, you will learn everything essential about the establishment: Who can found an AG? What is the difference between internal and external relations? What are the actual costs — not only the share capital, but also notary, founding auditor, and ongoing management? And above all: When is an AG worthwhile from an investor’s perspective — and when is a Real Estate Holding in GmbH structure the better choice?

The 7 Founding Criteria of an AG at a Glance

1. Number of Partners — at least 1 shareholder, plus 3 supervisory board members = 4 people minimum
2. Management — Board of Management (not managing director!), controlled by the supervisory board
3. Founding — formal, notarized, multi-stage process
4. Company Name — freely selectable, suffix “AG” mandatory
5. Funding — at least 50,000 Euro share capital, share issuance possible
6. Liability — limited to share capital in external relations
7. Profit distribution — dividends, decided by the general meeting

Capital company AG: Management according to HGB

In the business world, there are many different types of business structures. They are broadly divided into two categories: sole proprietorships and companies, which in turn are divided into incomplete companies — including silent partnerships and BGB partnerships — and complete companies (personal companies, capital companies, and a few more).

The stock corporation — abbreviated as AG — is one of the complete companies and is not subject to the Civil Code (BGB), unlike incomplete companies, but rather to the Commercial Code (HGB) and the Stock Corporation Act (AktG). As a capital company, the AG is more complex in structure than other forms of business law. It cannot be established informally, but requires the notarized certification of the shareholder agreement and compliance with numerous legal requirements.

Other typical capital companies:

• European stock corporation (Societas Europaea, abbreviated as SE)
• Limited liability company with shares (KGaA)
• Entrepreneurial company / UG (limited liability)
• Company with limited liability (GmbH)

The stock corporation is, together with the GmbH, the best-known form of capital companies. In Germany, it is mainly chosen as a legal form for listed companies and is considered — not least because of the higher initial capital — as the “big sister” of the company with limited liability.

AG vs. GmbH vs. KGaA: Comparison table

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Before you decide on a legal form, a direct comparison of the three heavyweights of capital companies is worthwhile:

Insider Tip: For pure Real Estate Holding Structures, the GmbH is usually the more efficient choice — the AG only pays off starting from an asset base of 5–10 million euros or in case of a planned stock market listing/REIT status.

Legal Form Variant AG & Co KGaA — KGaA with Complementary AG

Sometimes the AG also appears in combination with a stock limited partnership (KGaA). For example, family businesses occasionally organize themselves as a stock corporation & Compagnie Limited Partnership on Shares — short: AG & Co KGaA. In this case, they form a stock corporation in a legal sense — however, the general partner as personally liable partner is not an individual, but also a stock corporation. If the general partner is instead represented by a GmbH, it is referred to as a GmbH & Co KGaA, and in the case of a Societas Europaea, as a SE & Co KGaA.

Why this structure? It combines the capital market capability of an AG with the takeover protection of a KG. Families like Henkel, Merck or Hornbach thus retain full control through the general partner, even if 90% of the shares are listed on the stock exchange.

More about the individual hybrid forms:

• GmbH & Co KGaA — see Gesellschaft mit beschränkter Haftung (GmbH)
• SE & Co KGaA — see Societas Europaea (SE)

Examples of AG & Co KGaA companies:

• CTS EVENTIM AG & Co. KGaA
• Drägerwerk AG & Co. KGaA
• Fresenius Medical Care AG & Co. KGaA
• Henkel AG & Co. KGaA
• HORNBACH HOLDING AG & Co. KGaA
• ProCredit Holding AG & Co. KGaA

A special case is CEWE Stiftung & Co. KGaA: Here, the general partner is represented by a foundation. In general, the stock limited partnership is possible in all conceivable combinations.

Read more about the topic “Establishing a family foundation”:

• Establishing a family foundation

Establishment & Founding of an AG — From Articles of Association to Registration

You want to set up an AG? Then you need to know: A natural or legal person is sufficient as a founder, so you can appear as the sole shareholder and automatically be the sole managing board member. Such a one-person AG is often referred to as a “small stock corporation.” However, you can’t do it entirely alone: an AG must appoint at least three members of the supervisory board — the smallest possible AG thus consists of four people.

The process of establishing an AG can be divided into two phases: the internal establishment of the AG and the external establishment of the AG.

Phase 1 — Preparation & Foundation (Internal Relations)

You establish your stock corporation internally. The most important step is first and foremost the drafting of the articles of association, which must be notarially certified by a notary. For the formulation of the articles of association, all founding members must be present, as well as the future management board and supervisory board.

Content of the articles of association (mandatory under § 23 of the Stock Corporation Act):

• Company name and registered office
• Business purpose
• Amount of share capital (minimum 50,000 €)
• Face value and number of shares
• Type of shares (bearer or registered shares)
• Number of board members
• Form of announcements

From bearer shares to nominal value shares — learn more about the different types of shares here:

• Types of shares — Transferability, scope of rights & division of share capital

In the second step, the acquisition of shares and the appointment of the organs of a stock corporation follows, which must be notarially certified. Optionally, the auditor for the annual financial statements can already be appointed here. The supervisory board then appoints the management board as the first official act. No later than now, the contributions must be deposited into the business account, with at least a quarter of the share capital (i.e., at least 12,500 €) being recorded.

Phase 2 — Registration in the Commercial Register (External Relations)

Zum Abschluss des Gründungsprozesses muss dein Unternehmen ins Handelsregister eingetragen werden. Dieser Schritt rüstet die Aktiengesellschaft mit einer eigenen Rechtspersönlichkeit aus. Die Gründungsmitglieder, Aufsichtsrat und Vorstand führen die Anmeldung gemeinsam aus. Es bedarf einer Übersicht zu allen Aufsichtsräten und Vorständen, diverser Urkunden und notarieller Beglaubigungen, sowie eines Gründungsberichts und ggf. einer Gründungsprüfung durch einen externen Wirtschaftsprüfer (bei Sachgründung oder qualifizierter Bargründung).

Das Registergericht beurteilt nach Vorlage aller Dokumente, ob die Errichtung der Aktiengesellschaft ordnungsgemäß erfolgt ist. In einem letzten Schritt wird die Eintragung ins Handelsregister vorgenommen — deine Aktiengesellschaft gilt damit offiziell als gegründet.

The Founding Process at a Glance

• Phase 1 — Construction in the internal relationship
  • Determination of the bylaws (notarially certified)
  • Share acquisition
  • Order of the company organs (notarially certified)
  • Possibly ordering the final examiner
  • Einzahlung der Einlagen (mind. 1/4 Grundkapital = 12.500 €)
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