Real estate company: Start a business

You want to buy your first property and rent it out? You have inherited a property and now you want to be active in property management, property administration and other related areas or even more, you want to become a property investor yourself? Then the big question is, which company is right for you? What is the first step?

Basically, you have many different possibilities and options how you can set up your business for the future. Roughly explained, everything starts with the sole proprietorship and goes over individual and cooperation models such as OHG and UG to the GmbH.

To give you a first overview, I have written this guide to the different types of companies for you. Here you will get to know the different possibilities you have as a founder in Germany. Definitions, tips for founding, advantages, disadvantages, as well as taxes. Everything you need to have a good basis for decision-making.

Factors: Property type, rental, structure

There is the right type of company for every type of property (condominium, apartment building or property in need of renovation), for the type of rental and structure, depending on your personal requirements. If you later have several properties in your portfolio, you will also choose different company types for the individual properties.

If you are facing the question for the first time: Which company should I found? Here is an overview of all company forms

From the beginnings, as an individual businessman & businesswoman, to simple forms of cooperation with other business partners, to the real estate GmbH and finally AG.

Company: List

1. Sole trader / sole proprietor
2. Civil law partnership (GbR)
3. Registered businessman (e.K.)
4. General partnership (OHG)
5. Limited partnership (KG)
6. Entrepreneurial company (UG)
7. Limited liability company (GmbH)
8. GmbH & Co KG, GmbH & Co OHG
9. Stock corporation (AG)

Also in focus:

1. Real estate GmbH / Asset management GmbH
2. Family Foundation

Tip. According to the company list I still have:

1. Tips for your first real estate purchase
2. Tips on the start-up process

The larger the company, the more tasks and resources have to be delegated.

Let’s start the sole proprietor and sole trader:

Sole trader / sole proprietor

The sole proprietorship is a German legal form which – as the name suggests – is founded and managed by a single person. This includes freelancers, small traders and registered traders. Would you like to become self-employed and learn more about the topic of “forms of business law and the real estate industry”? Learn everything you need to know about sole proprietorships here.

• Sole proprietorship

Registered businessman (e.K.)

Eingetragener Kaufmann (e. Kfm.) / Eingetragene Kauffrau (e. Kfr.) / Registered merchants (e. K.) – The registered merchants embody a German legal form variant, which is based on the corporate legal form of the sole proprietorship (EU). This is therefore a company that is founded and managed by a single person and is also obliged to be entered in the commercial register – hence the name.

• Registered businessman / registered businesswoman (e. K.)

Civil law partnership (GbR)

A civil law partnership is a German legal form established by two or more persons for a certain period of time in order to conduct a certain business together or to achieve a common goal. It is therefore always for a specific purpose and usually exists only as long as the joint venture has not yet been completed. As the name suggests, it is governed by civil law and is therefore often referred to as a BGB partnership. Would you like to join forces with other people and learn more about the topic of “forms of business law and the real estate industry” in advance? Learn everything you need to know about setting up a GbR here.

• Civil law partnership (GbR)

General partnership (OHG)

The general partnership is a German legal form founded by two or more persons and managed by at least one partner. As the name suggests, it is primarily geared towards commercial business and is thus subject to the German Commercial Code (HGB) in the legal sense. Would you like to join forces with other people and learn more about the topic of “business legal forms and the real estate industry” in advance? Let’s start, step by step, the OHG.

• General partnership (OHG)

Limited partnership (KG)

The limited partnership is a German legal form founded by two or more persons and managed by at least one partner. The main feature of this legal form of company is the division of liability risk: at least one partner has unlimited liability and at least one partner has exclusive business liability with his contribution.

• Limited partnership (KG)

Entrepreneurial company (UG)

Unternehmergesellschaft / UG (haftungsbeschränkt) – The Unternehmergesellschaft (haftungsbeschränkt) is a German legal form based on the legal form of the Gesellschaft mit beschränkter Haftung (GmbH). It is considered to be the little sister of the GmbH and is therefore often referred to as the “mini-GmbH”. In principle, there are only minor differences between the UG (haftungsbeschränkt) and the GmbH from a legal perspective.

• Entrepreneurial company (UG)

Limited liability company (GmbH)

GmbH, GmbH & Co KG, GmbH & Co OHG – The limited liability company is a German legal form that is founded by at least one person and managed by at least one shareholder. As the name already indicates, this legal form of company is characterised by a limitation of liability for its shareholder(s). Everything you need to know about taxes and real estate trading.

• GmbH: Limited liability company

Real estate GmbH / Asset management GmbH – Special

Immobilien GmbH / Vermögensverwaltende GmbH / Immobiliengesellschaft – In this article you will learn the basics about real estate companies. Who would think of founding a limited liability company when buying a house or a condominium? Admittedly, this makes no sense for owner-occupation, but it does for renting.

• Real estate GmbH / Asset management GmbH

Here still special case GmbH & Co KG, GmbH & Co OHG, no person GmbH, one person GmbH, two person GmbH and the organs of a GmbH.

GmbH & Co KG

GmbH & Co KG – The GmbH & Co KG is a German legal form which combines the corporate legal form of the limited partnership (KG) with a limited liability company (GmbH). Thus, the greatest advantages of both legal forms – the separation between general partner & capital provider typical for the KG plus the limitation of liability of the GmbH – intertwine and enable an innovative, new form of structuring for start-ups.

• GmbH & Co KG

GmbH & Co OHG

GmbH & Co OHG – The GmbH & Co OHG is a German legal form which combines the corporate legal form of the general partnership (OHG) with a limited liability company (GmbH). Thus, the greatest advantages of both legal forms – the uncomplicated formation typical for the OHG as well as equality of all shareholders plus the limitation of liability of the GmbH – intertwine and enable an innovative, new form of organization for start-ups.

• GmbH & Co OHG

No-Person-GmbH

No-Person GmbH – The model for a GmbH without shareholders! By appointing new shareholders or leaving existing shareholders, the limited company model you choose can easily change. Whether it’s a one-person company, a two-person limited company or even a company that operates without shareholders at all…. In each case, there are specifics that you should be aware of as they deviate from the norm of the traditional limited liability company.

• No-Person-GmbH

One-person limited liability company

One-person GmbH – The GmbH model for solo founders! By appointing new shareholders or leaving existing shareholders, the GmbH model you have chosen can easily change.

• One-person limited liability company

Two-person limited liability company

Two-person GmbH – The GmbH model for founding duos! By appointing new shareholders or leaving existing shareholders, the GmbH model you have chosen can easily change.

• Two-person limited liability company

Corporate bodies of a limited liability company

A limited liability company consists of several bodies. The managing directors deal with the day-to-day business and other matters of the company and represent their company externally in accordance with the GmbHG. The supervisory board is required by law above a certain number of employees and acts as a controlling body of the company by appointing and advising the management, but also by monitoring and, in case of doubt, dismissing it. Alternatively, its establishment can also be determined within the framework of the articles of association. The shareholders’ meeting acts as the decision-making body of the GmbH.

• Corporate bodies of a limited liability company

Stock corporation (AG)

Aktiengesellschaft (AG) – The stock corporation is a German legal form founded by at least one person and organized by different bodies. Instead of a managing director, the company is managed by a board of directors consisting of at least one person. As the name already indicates, this corporate legal form primarily stands for share trading.

• Stock corporation (AG)

In addition, the special case of real estate stock corporations (REIT-AG).

Real estate stock corporation (REIT-AG)

Real estate stock corporation / REIT-AG – You don’t find the idea of a stock corporation bad at all and are now wondering how you can combine your capital company with the real estate industry? A real estate company is a company that serves the financing, development, realization, leasing, or marketing of real estate – starting with a single property up to a real estate portfolio in the three or multi-digit range. The management of real estate property or third-party real estate on behalf of third parties can also be handled by a real estate company.

• Real estate stock corporation (REIT-AG)

Types of shares

Types of Stocks – A corporation, as the name suggests, deals with stock trading. I’m sure you’ve heard that stocks can go up and down. You may also know someone who has invested their wealth in stocks. But what exactly is a share? In a nutshell, a share is a document that determines your entitlement to the share capital of a public limited company and guarantees you a fixed share of the profits. In this context, there is often talk of “securitising a claim”.

• Types of shares

AG in detail: Management Board and Supervisory Board

The management board of a joint stock company deals with the day-to-day business and other matters of the company and represents the joint stock company externally.

• Board of directors

The Supervisory Board is a legally prescribed self-monitoring body that appoints and monitors the individual members of the Management Board and, in case of doubt, also removes them. Furthermore, it is responsible for the written reporting of the annual financial statements as well as for business reports.

• Board of directors

Annual General Meeting

The Annual General Meeting acts as the decision-making body of the stock corporation.

• Annual General Meeting

Limitation of liability for AG bodies

Limitation of liability for AG executive bodies – In the event of a loss, the stock corporation as a legal entity under private law is, to a certain extent, subject to a limitation of liability, because the liability – apart from a few rare exceptions – exclusively burdens the business assets of the company. In the external relationship, therefore, only the share capital is liable for any losses. In the internal relationship, however, the liability claim may vary depending on the governing body of the AG.

• Limitation of liability for AG bodies

Societas Europaea (SE)

Societas Europaea (SE) – The Societas Europaea is a legal form that was introduced with regard to harmonization efforts at the European level. In German usage, the terms “Europäische Gesellschaft” or “Europäische Aktiengesellschaft” and Europa AG are therefore also commonly used. Characteristic features of a Societas Europaea are, above all, the simplification of cross-border business activities in EU member states and EEA countries through largely uniform legal bases and the personnel policy framework with regard to the co-determination rights of employees of the company.

• Societas Europaea (SE)

Foundation / Family Foundation

Saving taxes with real estate – In this special article I will take a deep look into the subject of foundations, family foundations, real estate purchases, taxes and tax optimization. The establishment of a foundation, more specifically a family foundation has many advantages for you. From tax-free capital gains after speculation tax to low, 15 percent taxation of rental income. In this article you will learn how this works, how you can set up a foundation and how your grandchildren will still benefit from it.

• Family Foundation

Founding a company: Process, costs, requirements, legal forms – 7 steps checklist

You want to found your first company? Requirements for you as a founder, share capital, shareholder agreements, costs for the foundation, legal forms and checklists. This sounds complicated for beginners, but it is actually quite simple. The process of founding a company is usually relatively the same. I have summarized the foundation here once in simple steps, for you. Learn how to start your own business. After the great guide to all legal forms or types of companies, today a detailed look at the establishment of a (real estate) company for beginners.

• Form a company

Company formation in 7 steps: checklist

In the article you will find the foundation of a company explained in 7 simple steps. So you have a quick overview.

Checklist to start a company in 7 steps:

1. Type of company: What should I start?
2. Share capital: amount and forms of enterprise
3. Company shares: Who brings / gets what?
4. Shareholder agreement: Preparing the foundation and the business
5. Notary: Arrange an appointment for the foundation
6. Business account: Basis financial transactions
7. Commercial register, trade, tax office and IHK

When setting up a company, you move from theory to practice, so to speak. First of all, of course, it’s about the type or structure of your company. Step one is very basic: you have to choose the right company for your (personal) construct. What factors influence the choice? The factors influencing the choice of company include: Share capital, number of founders or shareholders, liability criteria but also taxes. Learn more about founding a company in 7 steps here:

• Establish a company (real estate)

Tax for companies: Taxes in Germany

Buying your first real estate: Getting Started

The first property is your real “seed money”. A good location is the biggest advantage when it comes to returns.

So if you want to start your business, you need good real estate that will give you a solid return, which in turn will allow you to make new investments. To do this, you need to learn about the selection and purchase process: how do you find good properties and how do you buy them?

Location, valuation and appreciation

There is a world of difference between a condominium in Dortmund and luxury real estate in Hamburg. An apartment building in Braunschweig is easier to get hold of than a villa in Berlin-Grunewald. At the same time, the apartment building (as a type of property itself) is much harder to get than the condominium itself. So it’s not just apportionment, but also property type, i.e. house type and apartment type. Add to that time, do you need to buy something “right away” or do you have time to research and compare?

Your 3 key factors in buying:

1. Location
2. Property type / property
3. Time

All this and more, must be included in the property valuation and this requires, depending on the type of property, location, demand and supply on site and also the purchase desire. Do you want to buy the property for your portfolio or do you want to live in the property yourself and sell or rent it later, after two, three or four years? Here again comes the value appreciation end game, especially of properties in very desirable locations, such as Berlin, Hamburg or Düsseldorf.

After the macro perspective, the micro perspective

After the macro perspective comes the micro perspective. What features does the property offer? And what construction costs were incurred? How does all of this affect the property, the land, and the future return on rent? From the carport for the modern family home, to the spa area for the luxury villa, all factors play into the property valuation.

After finding the right real estate, it is about the real estate valuation. The evaluation of house and apartment is very difficult, especially for beginners and beginners. Facts are, for example:

• Construction costs of the object
• Land value
• Increase in value
• Demand and supply (on site)

Evaluate and buy: More tips

Learn more about buying real estate here:

• Buying real estate
• Value real estate

Here you will find more specific tips for each type of house and apartment:

• Buy apartment
• Buy a house
• Buy apartment house
• Buy a villa
• Buy land

A community of heirs means a community of joint owners. This means that the inheritance is a joint property. Each individual member of the community of heirs becomes the owner, but always only together with the other heirs. Each individual is thus entitled to the property, but this right is limited by the rights of the other co-heirs. None of the heirs can give away or sell individual items of the estate without consent, not even his own share of it, since everything belongs to all of them.

Disputes Within the Community of Heirs are Common

Disputes within the community of heirs often arise when the interests of the co-heirs differ greatly. This is the case, for example, when one of the siblings needs money as quickly as possible and is therefore interested in selling the house, while the other siblings expect an increase in the property price and want to keep or rent the house.

The Testator can Prevent the Community of Heirs

From the very beginning, a community of heirs can only be prevented by the testator, by writing a will. Married couples often agree on a Berlin testament. After this, the spouse who lives longer becomes the sole heir.

Children are excluded from this inheritance. If there are several children, a community of heirs can be excluded by designating one child as the sole heir, while bequests are made to the other children. The legatee thus receives a payment or a specific object of the estate without becoming the legal successor.

General information on the Dissolution of the Community of Heirs

If the children wish to dissolve the community of heirs, it must first be examined how large the estate is. A certificate of inheritance is required for this. In the case of a community of heirs, this is a joint certificate of inheritance. It contains all the names of the heirs as well as an exact list of the shares of each heir. Only when the certificate of inheritance has been obtained, the banks where the accounts of the deceased exist, allow an insight into the finances.

If the estate also contains debts, these must first be paid off. This can lead to the fact that the estate itself must be sold.

The co-heirs are obliged to provide information about donations during the testator’s lifetime. If one of the siblings has already received a plot of land or real estate at an earlier point in time, it is a donation that is subject to equalization. Compensatory gifts increase the value of the estate. This in turn is deducted from the inheritance quota of the co-heir.

It often happens that if there are several siblings, one of them takes care of the parent free of charge. This sibling can claim compensation through the care provided. This increases the inheritance share of this person. The amount of the compensation depends on the duration and extent of the care provided as well as on the amount of the estate itself.

Dissolution of the community of Heirs: Ways and Means

Different ways to dissolve the community of heirs

Division Agreement

If the community of heirs agrees on what is to be done with the estate, i.e. the real estate, a division agreement can be concluded. This agreement must be notarized if real estate is to be transferred.

Transfer of Inheritance

Another possibility to dissolve the community of heirs is the transfer of inheritance. In exchange for a settlement, the co-heirs can transfer their inheritance share to a co-heir. This step also requires a notary. This is a particularly simple solution to dissolve the community of heirs.

Division

In the case of stratification, the individual also leaves the community of heirs in exchange for a settlement. However, his share of the inheritance is not transferred to a single heir, but becomes part of the joint heirs’ total inheritance. By paying the compensation, the individual thus relinquishes his or her rights as co-heir. As a result, the share of the inheritance of the other co-heirs increases. The amount of the compensation can be determined by the heirs themselves.

Selling an Inheritance Share

Each co-heir can sell his or her own inheritance, also to third parties. However, no individual items of the estate may be sold. Instead, the buyer becomes part of the community of heirs. Each co-heir has a right of first refusal and can purchase the share of the inheritance on the conditions agreed with the third party. It must be noted that this step is also notarized.

Court of Probate

If a dispute arises and no agreement is in sight, a probate court can be involved. This court assumes the role of mediator in the matter. However, any co-heirs can prevent the involvement of a probate court by lodging an objection.

Arbitration

In the event of a dispute, an arbitral tribunal may also make a decision.

Action for Partition

In the event of an action for partition, the objects of the estate will be sold at public auction. In the case of real estate, a compulsory auction takes place. The action for partition is usually associated with high costs and should therefore be avoided in the interest of all co-heirs.

Division Auction

If the estate includes a property, any of the co-heirs can apply for a divisional auction. The only requirement for this step is that the applicant is registered in the land register. The purpose of a division auction is to make money out of the property and then to divide it among the heirs.

Due to the usually high loss of value, a division auction is not advisable. In division auctions it is common practice to set the market value of the property as low as possible in order to increase the interest of potential buyers and thus to sell the property quickly and promptly. The price that is collected for the property at the end of the auction rarely corresponds to the real sales value of the property.

There is no claim to dissolve the community of heirs

The individual is not entitled to have his heir share paid out to him or to be released from the community of heirs. If you do not want to be part of a community of heirs, your only choice is not to accept the inheritance.

In a community of heirs it is financially advantageous and in the interest of all if an agreement is reached.

We would be happy to advise you personally with regard to your inherited property. Get in touch with us.