1. find out about investment options that suit you (goals, risk)

Tip 1 is to thoroughly research the different investment options and choose the ones that best fit your goals and risk tolerance.

This means that you should inform yourself about the various options in which you can invest your inherited money. These include, for example, stocks, bonds, funds, ETFs, real estate as an investment or alternative forms of investment. You should consider which investment options best fit your financial goals and risk tolerance. A financial advisor or expert can help you choose the investment options that are right for you.

Here is a bullet point list with a short summary of the content of tip 1:

• Find out about the different investment options
• Choose the ones that best fit your goals and risk tolerance
• Consider your financial goals and your risk tolerance
• Seek advice from a financial advisor or expert if you are unsure

2. talk to a financial advisor or an expert

Tip 2 is to talk to a financial advisor or an expert who can help you decide.

This means that it can be helpful to seek advice from a financial advisor or an expert if you are unsure how to invest your inherited money wisely. A financial advisor is knowledgeable about different investment options and can help you develop an investment strategy that fits your goals and risk tolerance. An expert in a particular investment area, such as real estate or art, can also give you valuable advice.

Here is a bullet point list with a short summary of the content of tip 2:

• Talk to a financial advisor or expert
• Get advice if you are unsure how to invest your inherited money wisely
• A financial advisor is knowledgeable about the different investment options and can help you develop an investment strategy
• An expert in a particular investment area can give you valuable tips

3. realistic goals and financial plan

Tip 3 is to set realistic goals and create a financial plan to ensure you are investing your money wisely.

This means that it is important to set clear goals and create a financial plan to ensure that you invest your inherited money wisely. For example, your goals may be to save a certain amount of money to buy a property in the future (Tip 8), or to create financial security for your retirement. A financial plan helps you keep track of your goals, expenses and income.

Here is a bullet point list with a short summary of the content of tip 3:

• Set realistic goals
• Create a financial plan
• Helps you track your goals and keep track of your expenses and income

4. diversify your portfolio

Tip 4 is to diversify your portfolio to minimize risk.

This means it’s important to diversify your portfolio to minimize risk. Diversification means that you invest your money in different investment options and industries, rather than putting everything into a single option. By doing this, you can reduce the risk of suffering big losses if one investment performs poorly. It is important to have a balanced portfolio that consists of different investment options.

Here is a bullet point list with a short summary of the content of tip 4:

• Diversify your portfolio
• Invest in different investment options and industries
• Reduce the risk of losses
• Hold a balanced portfolio of different investment options

5. shares with long-term appreciation / less risk

Tip 5 is: Consider investing in stocks to benefit from long-term appreciation.

This means that it may be an option to invest in shares in order to benefit from long-term increases in value. Stocks are shares in companies that are traded on the stock exchange. They can give you an attractive return if the company is successful and increases its value. However, it is also important to note that stocks are speculative and there is a risk of loss. You should therefore carefully consider whether stocks fit your goals and risk tolerance.

Here is a bullet point list with a short summary of the content of tip 5:

• Consider investing in stocks
• Profit from long-term value increases
• Shares are interests in companies that are traded on the stock exchange
• Take into account that shares are speculative and there is a risk of losses

6. think about ETFs (funds and bonds)

Tip 6 is: Also consider investment options such as bonds, funds, ETFs and other securities.

This means it’s important to consider other investment options such as bonds, mutual funds, ETFs and other securities if you want to invest your inherited money wisely. Bonds are debt instruments issued by companies or governments to raise money.

They can be a good way to earn a fixed return. Funds are investment vehicles that pool the money of many investors and invest in a variety of securities. ETFs are exchange-traded funds that track a specific index. There are many different investment options you can consider, and you should think carefully about which ones best fit your goals and risk tolerance.

Here is a bullet point list with a short summary of the content of tip 6:

• Consider investment options such as bonds, funds, ETFs and other securities
• Bonds are debt instruments that are issued by companies or governments
• Funds pool the money of many investors and invest in a variety of securities
• ETFs are exchange-traded funds that track a specific index
• Choose the investment options that best fit your goals and risk tolerance

7. robo advisor instead of asset manager

Tip 7: Consider using a robo advisor as an automated financial tool.

A Robo Advisor is a digital tool that serves as an automated wealth management tool. It uses algorithmic models to develop investment strategies and invest your money automatically. All you have to do is specify your investment goals and risk tolerance, and the robo advisor will create a customized portfolio for you.

You can use the Robo Advisor online at any time and thus have access to your portfolio around the clock. Robo advisors are usually cheaper than traditional asset managers and are therefore particularly suitable for investors who opt for a long-term investment strategy. However, you should keep in mind that robo advisors also have risks and you should therefore carefully consider whether they fit your goals and risk tolerance.

Here is a bullet point list with a short summary of the content of tip 7:

• Consider using a robo advisor as an automated financial tool
• Use algorithmic models to develop investment strategies and invest your money automatically
• Specify your investment goals and risk tolerance and get a customized portfolio
• Use the Robo Advisor online around the clock
• Robo advisors are usually cheaper than traditional asset managers
• Consider that robo advisors also have risks

More about automated trading:

• Robo Advisor: Provider
• Robo Advisor: 20 tips

8. invest in real estate as a capital investment

Tip 8 is: Consider investing in real estate to benefit from appreciation and rental income.

This means that investing in real estate to benefit from appreciation and rental income can be an option. Real estate can be a good way to achieve a stable return.

For example, you can invest in a property and rent it out to tenants to generate regular income. However, it is also important to note that real estate investments require a lot of capital and there is a risk of losses. You should therefore carefully consider whether real estate investments fit your goals and risk tolerance.

Depending on the inherited assets, you could also think about a family foundation with tax benefits.

Here is a bullet point list with a short summary of the content of tip 8:

• Consider investing in real estate
• Profit from appreciation and rental income
• Real estate investments can provide a stable return
• Take into account that real estate investments require a lot of capital and there is a risk of losses
• Choose the investment options that best fit your goals and risk tolerance

More on the topic:

• Real estate as an investment
• Buy first property

9. sustainable, green investments with a future – idea

Tip 9 is to consider investing your inherited money in sustainable investments to have a positive impact and benefit financially.

This means that investing your inherited money in sustainable investment vehicles can be an option to have a positive impact and benefit financially. Sustainable investment vehicles are investments that are guided by social, environmental and governance (ESG) criteria and help create a more sustainable future. For example, you can invest in companies that are committed to climate protection or in funds that invest in sustainable projects.

It is important to note that sustainable investments are not without risk and you should consider whether they fit your goals and risk tolerance. You should also make sure that the sustainable investments you invest in are actually sustainable and not just so-called “green washing” products that only pretend to be sustainable.

Here is a bullet point list with a short summary of the content of tip 9:

• Consider investing your inherited money in sustainable investments
• Invest in a more sustainable future and benefit financially
• Sustainable forms of investment are based on ESG criteria (social, environmental and governance criteria)
• Consider that sustainable forms of investment have risks
• Make sure the sustainable investment vehicles you invest in are actually sustainable

Read more about here:

• Green investments

Conclusion: Investing inheritance wisely

There are many ways in which you can invest your inherited money. It is important that you weigh up the different options and choose the most suitable form of investment for you. You should also consider your goals and how much risk you are willing to take. If you are unsure, you can also hire a financial advisor or a financial planner to help you decide.

Inheritance & Inheritance of Real Estate

Never before has so much been inherited in Germany as this year, reports NDR. It continues, “According to the German Institute for Economic Research (DIW), up to 400 billion euros are inherited or given away every year.”

You can find the report in the NDR media center:

• Dispute over inheritance: How does a good will go?

Dispute in the community of heirs and partition auction

We have already reported on the topic of disputes in the community of heirs in the blog. If a deceased person leaves several heirs and the division of the estate among the heirs is not consensual, the division is determined by law. Since the estate is a joint asset, the co-heirs can only dispose of the inheritance jointly.

If this joint disposition does not work, each co-heir can demand the dissolution of the community of heirs at any time and pursue this independently. In this case, the individual co-heir can dispose of his share in the estate as a whole, but not of his share in individual assets.

• Dispute in the community of heirs

If the heirs are in dispute, a partition auction, a specific form of forced sale, is sometimes held. The aim of the partition auction is to convert the assets into a divisible sum of money and divide them among the co-owners.

An excerpt from Monday, April 25, 2022, 22:00 to 22:45 with our TV expert Jan Rickel.

Image source: 45 Min Reportage / NDR

Read even more on the topic here:

Will, house and compulsory share

The distribution of a deceased person’s assets can be recorded in a written declaration before death, which is the will. Every person is capable of making a will from the age of 16 and does not need a notary in the case of a handwritten will, as the testator draws it up himself by hand.

However, if one wants a notarized will, this must be notarized by a notary public, where the costs for this depend on the value of the estate. For clarification, the document should be labeled “Will” or “Last Will” and at the end it should be signed by the testator and dated. If there are several wills, the will with the most recent date is authoritative.

• Will
• Mandatory share

Inherit without a will?

The law of succession comes into force if there is no will. This regulates who receives the assets of the deceased after a death and how this is done. Communities of heirs may be formed if there are several heirs and the estate passes into their possession.

Communities of heirs are formed automatically after the death of the testator if there are several heirs. These must then divide the estate among themselves and make joint decisions about inherited property, such as real estate. If you want to decide for yourself which relatives inherit which property, you should draw up a will and regulate everything in detail.

• Heirs without a will

Partial sale / partial purchase: what is it? Explanation + advantage

Surely you have seen the advertisements of the many part purchase providers. This purchase offer is aimed in particular at older property owners who need money, for example, for a more pleasant retirement.

A look at costs of use, advantages, disadvantages, the total sale, the calculated increase in value under inflation and a comparison, what is “cheaper”: partial purchase or the alternative real estate loan, more specifically the mortgage loan? In addition taxes, sale from community of heirs, divorce and much more.

Here you will also find all calculators with examples: Partial sale provider comparison.

First, a quick, short definition.

Definition partial sale or partial purchase

What does real estate partial sale?

Of course, no second person moves into your property; you remain the sole user. However, as the former sole owner, you now pay a fee for the use of the part of the property that no longer belongs to you in full after the partial purchase – comparable to rent. This payment is referred to as “compensation for use” or “usage fee”.

Partial sale summarized:

• You sell a part of your property (usually 10-50%)
• Partial purchase house: Yes
• Partial purchase apartment: Yes
• Partial purchase of land: Yes
• Financial company becomes part owner
• You remain the sole user of the property
• You pay monthly usage fee
• Total sales in X years (optional)

The most important questions about the partial purchase

The most important questions at a glance:

• Can I sell half of the house? Yes, most sellers ~ 20-50%.
• Can I sell part of my apartment? Yes.
• Partial purchase also for land? Yes.
• Advantage? Fast, uncomplicated purchase price transfer.
• Disadvantage? Usage fee (~ 3-5% p.a.)
• Moreover, for total sale: sometimes below inflation

These important factors in the purchase of parts

The key factors for the partial sale:

• Value of the property = 500,000 euros
• Desired immediate payout = 100,000 euros
• Share for sale = 20%
• Monthly usage fee = ?
• (if) total sale after X years = ?

You have to answer two key questions in the comparison:

1. What is the monthly usage fee?
2. (At total sale, later) appreciation and fees?

Difference: sale vs. partial sale

What distinguishes the partial sale from the normal real estate sale? If you want to sell a property in the normal way, you will go through a total of three major phases (preparation, viewings/credit checks, sale), which in turn contain several steps. The search for solvent buyers (creditworthiness) can take a longer time depending on the real estate situation (demand).

Regular real estate sale: timing

Roughly summarized, the real estate sale includes the following steps:

1. Prepare documents
2. Valuation
3. Real estate marketing
4. Preparation of an exposé
5. Realization and planning of the viewing appointments
6. Purchase negotiations
7. Processing and drawing up of the purchase contract
8. Handover of keys

Shortened sales phase

With a partial sale, a large part of these steps is skipped completely. You go directly to a financial service provider who buys your property on a pro rata basis. Accordingly, the following steps remain from the procedure of a regular real estate sale:

1. Valuation
2. Processing and drawing up of the purchase contract
3. Handover of keys

Advantages at a glance: Sold and paid for quickly

Whether it’s a terraced house, a single-family home or even the condominium in an apartment building: you’ve never sold part of your property so quickly.

A partial sale has advantages:

• Financing method independent of banks
• No credit check, cf. credit financing
• Fast sales process

Disadvantage? Use in cost comparison

As described in the introduction, the “Partial Purchase” offer is aimed in particular at older property owners.

“Banks give no / few loans to older people”.

Such a common prejudice. That is why advertising with the “partial purchase of your property” currently works so well. However, the subsequent costs are often not taken into account. For example, if you sell 25% of the property and then pay 300 euros a month usage costs, you should definitely compare the amount with a regular real estate loan, more precisely mortgage loan.

In retrospect, otherwise an experience that will cost you cash, every month.

Let’s start the analysis.

Usage fee for partial purchase: Disadvantage 1

Now for the “follow-up costs.”

What is monthly user fee? Many currently advertise it as “easy,” “convenient,” “no bank.” True. But the price is high. First of all, the ongoing costs incurred in the partial purchase to financial companies. The financial company becomes a co-owner. The sold part of the property, will be returned to you.

So you do not give “half” of the garden or part of your rooms: you continue to use your property alone.

For this you pay the “compensation for use”.

Amount of compensation for use

The compensation that the financial company requires for the use of the property is usually:

• Between 3-5% of the amount paid out p.a.

The sum refers to 1 year in each case. The formula for calculating the usage fee (depending on the provider) per month:

• Monthly usage fee = 3% * purchase price (share) / 12
• = 3% * 100.000 / 12

Thus pay, at the partial sale worth 100,000 euros, 250 euros a month.

User fee at 100.000 Euro = 250 Euro / month

As always, depending on the provider. All providers can be found here in the part purchase house: comparison.

Real estate loan comparison: 2-4% cheaper

How much do you currently pay for a “classic” real estate loan? Due to the low interest rate phase, you currently pay only:

• Approximately 1% of the disbursed amount p.a.

Compared to the financing request of 100,000 only ~ 80 euros / month.

Credit only ~ 80 Euro / month

It pays to calculate and consider when it comes to the partial sale of your property. Tip! You will also learn about the “real estate annuity” as another alternative to the partial sale.

Taxes: What do you have to pay?

The tax does not differ in the partial sale from the regular sale.

As you can see in this tax checklist, for private individuals it is actually “only” about the speculation tax. It comes into effect when a property is resold within the first 10 years after purchase. The amount of the speculation tax is calculated according to the individual tax rate, which can be more than 25 percent.

Mentioned for completeness, anyone who sells 3 or more properties in 5 years is also subject to commercial real estate trading and therefore also to trade tax. Last, for the sake of completeness, the sales tax (buyer) for commercial real estate trade.

More on the subject of taxes when selling real estate:

• Selling real estate: taxes

Calculator! Provider comparison

In this analysis, I have calculated example for you in all the calculators of the providers. How much is the usage fee? How much do you get in the total sale? Here you can find the big provider comparison:

• Partial sale provider comparison

Total purchase price and inflation: Disadvantage 2

If you think carefully about the online calculation of step 2) the total purchase, you will notice that you do not specify any regions(real estate location) of the property. Accordingly, the increase in value is a very rough value. But let’s take this as a basis.

Inflation vs appreciation: comparison (-2.8% loss)

Inflation factor (currency devaluation) – If you now add inflation as a second factor, which according to the European Central Bank should be at 2% per year, but is currently even at 5% (as of 01/22), then you will see:

The increase in value of only 25%, 30% in 15 years, does not even equal inflation.

So let’s compare 30% in 15 years and inflation (“as desired” at 2%, with no increases):

The result of our comparison:

According to (most) online calculators, a loss of -2.8%.

Accordingly, you will not even be compensated for inflation if you are below 32.8%.

Tips for your partial sale: use, annuity, divorce and inheritance

Here are some practical tips and food for thought:

Real estate pension: Another alternative

You have now learned about the partial sale, also the mortgage loan. Perhaps another tip for you, the real estate pension. Especially interesting if you have already reached a higher age, usually from 70, 75 years.

Real estate annuity means: You sell your real estate (directly) completely, but keep a lifelong right of residence and use. In addition, you receive a small monthly amount. For some, this is a good solution. Because you also no longer have anything to do with maintenance costs, the new owner takes care of that.

Real estate pension simply explained:

• Direct, complete sale of your property
• Lifetime right of residence and use
• Small, monthly “extra pension” from the seller
• No maintenance costs

Usufructuary right: “Lifetime, sole right of residence

Before we compare the different providers, here is an important tip if you really decide to sell your property in part. As you have already learned in the guide partial sale, you can sell your property in 2 ways: Partial or Partial including total sale in X years.

If you are considering an overall sale after X years, be sure to take a look at the:

Usufructuary right in the event of a total sale

Usufruct right simply means that you have the sole right to use your property – even after the sale (as well as in other cases, such as early inheritance).

Advantage: The usufruct right brings you the advantage that you are not dependent at any time, on the goodwill or the consent of the seller.

Partial sale possible despite current financing?

Partial sales are possible – by arrangement – but both you, as the borrower (property owner), and the bank, are fundamentally bound by the loan agreement you have concluded, at least for an agreed fixed-interest period. Ideally, therefore, your property is paid off.

What is the difference between partial sale and annuity?

Let’s first clarify the term life annuity: Under a life annuity, you sell your property in exchange for an annuity payment and simultaneous, lifelong right of residence and use. It is therefore a special form of selling a property. The advantage: liquidity.

• Mostly owners over 70 years
• Complete sale to a financial company
• In return, lifelong right of residence and use
• Additional monthly amount for you (life annuity)
• No additional costs / maintenance costs

Community of heirs: sale after inheritance

Is it possible to sell a share in a community of heirs? Yes. With reference to BGB § 2033 Paragraph 1, which states:

“Each co-heir may dispose of the share in the estate.”

More on the topic:

• Community of heirs: selling property

Divorce: sale after separation

Is it possible to sell a share from a separation or divorce? In the case of divorce, things are initially a bit more complicated. In principle, only after the separation year, but at the latest after the divorce, can spouses demand that their partner sell their home. Talk to the providers individually about this.

More to:

• Divorce: Sell property

Partial sale land

First of all, let’s start with the basics, for those who have only heard of the “partial sale of a property”.

What does partial sale mean? How does a partial sale work?

A small definition – The principle behind the partial sale, is based on the sale and a subsequent royalty that you pay to your new part owner. So from the understanding the “user fee” is simply explained, with the comparison to rent or lease.

Partial sale at a glance:

• You sell a share (usually 10% – 50%)
• Financial company becomes part owner
• You retain the full right of use
• For this you pay a usage fee

Still in operation, whether in NRW or elsewhere:

Differences in the user fee

When buying a plot of land, it basically comes down to one factor, how big is the usage fee? Should you not have to sell very quickly, due to liquidity, you should think about the alternative mortgage loan anyway. Because, the user fee (disadvantage) is usually between 3 and 5% in the partial sale of land.

• Usage fee depending on provider: 3-5% p.a.

Example:

• Sold share: 100,000 euros
• User fee: 3-5% p.a.
• Cost: 3.000 – 5.000 Euro / year

So you pay an annual fee of 3,000 to 5,000 euros for the share sold worth 100,000 euros.

How is the value of your property determined?

If you do not know the current value of your land, it still needs to be determined. Central to this are, among others, key figures (such as the land area), its use (undeveloped land or used agricultural land, forest, springs, etc.). Important is the standard land value, which you can find in the standard land value map, but also an expert opinion. This is ultimately the basis for the concrete valuation.

Read more about the topic here:

• Rate property

Of course, the most sought-after are plots of land in the urban area, but many also sell agricultural land.

Comparison: mortgage loan on land

Compared to the mortgage loan, where you pay only 1%, already a significant disadvantage of the partial sale. In return, you do not have to go through the credit check of the banks. Another advantage, they get the purchase price almost immediately transferred.

At 1%, the annual savings are already 2,000 – 4,000 euros. In 10 years, a considerable difference.

• Advantage: More favorable conditions
• Disadvantage: Credit checks

So, if you have a lack of liquidity, so that you are forced to sell a plot of land immediately, then a partial purchase is a possible option. Because you save many steps in the sale of land.

On the other hand, you have high follow-up costs. Therefore, a comparison is worthwhile! Sale? Partial sale? Mortgage loan on the property? My recommendation is clearly the mortgage loan, because with it you save 2/3 of the costs (comparison partial sale). If you need money fast, really fast, the partial sale is definitely an option.

So always consider both options, partial sale and real estate loan.

Step 2: Total sale from the plot

All partial sale providers also give you the direct option of selling your property in full in the foreseeable future. The buyer is then the previous part owner, who thus becomes the sole owner of the property.

Here I give in the guide partial sale property still 2 valuable tips:

1. Total sales and inflation
2. Agree usufruct

Quickly explained:

Total sales and inflation

Assuming you sell in 15 years, inflation (demonetization) has increased ~ 32%, at 2% / year. So if you are made offer below 32% appreciation, not even inflation is compensated. That’s why it’s worth taking a look at the provider comparison.

Agree usufruct

If you want to sell your property outright but continue to use it “until the end of your life”, agree on usufruct. The usufruct guarantees you a right of use until the end of your life (non-transferable).

Staying liquid.

How does the part sale of a plot of land?

Let’s briefly summarize the findings again:

Difference sale and partial sale

In the regular sale of land, you sell your entire property, which means 100% of the shares of land. In case of partial sale of a land plot, you sell only a part of the property (land plot).

Most partial sale providers buy between 10%, 20%, 25% or even 50%, that is half of your property. For this you usually get, quickly and easily transferred the purchase price. This is the great advantage of partial sale!

Usage fee after the partial sale

For the further, sole use, you have to pay a monthly usage fee, the so-called usage fee. Depending on which provider you choose for the partial sale of your land, the amount varies from 3% to 5% (of the purchase price per year). Compared to the mortgage loan on your land (only 1%), already a significant difference for land sales.

Conclusion: partial sale of land makes sense? 3 options

Partial sale – If you need money fast, really fast (within a few weeks), due to cash shortages, then partial sale of your property is an option.

Sell and lease – Should you have a little time (more than a few weeks) you should rather think about selling your property and then lease it. Because especially in terms of inflation (total sale in the second step), you have some disadvantages in the partial sale.

Mortgage loan on your property – Important, talk to your bank. Even at an older age you can get loans. Many people are afraid of this and say “I won’t get a loan from the bank anyway”. Wrong! Therefore, talk with your bank and with 2, 3 alternatives. This way you pay only 1% instead of 3-5% (at the current interest level).

Tip. Also an option for forest areas with further management:

Partial sale XL: speculation tax, community of heirs & Co.

Read more about partial sale here – A look at costs of use, advantages, disadvantages, taxes, sale from joint heirs, divorce and much more. My recommendations for sellers!

• Partial sale property
• Partial sale provider comparison

Joint stock company: formation, advantages and disadvantages

In the following, you will find out everything you need to know about setting up an AG. How do you become a shareholder of an AG? What are incomplete and complete companies? What are the advantages? What are the disadvantages? How do I set up a company? What is a company? Many questions – many answers! Plus everything you need to know about taxes and real estate trading.

If you’re considering forming a corporation, the first thing you need to know about is the formation process: Who can incorporate, when, at how many, what exactly… what are the differences and similarities between the various forms of corporate law? It is equally important to know the advantages and disadvantages of an AG: From profit distribution to saving taxes – an overview of the seven most important founding criteria for you.

What are the founding criteria?

1. Number of shareholders
2. Management
3. Foundation
4. Company name
5. Funding
6. Liability
7. Profit distribution

Corporation AG: Management according to HGB

In the entrepreneurial world, there are many different forms of business you can choose from. They are roughly divided into two categories, namely sole proprietorship and companies, which in turn are divided into incomplete companies – these include dormant companies and BGB companies – and complete companies – partnerships, corporations and some more.

The stock corporation – AG for short – is one of the so-called complete companies and, in contrast to incomplete companies, is not subject to the German Civil Code (BGB) but to the German Commercial Code (HGB). As a corporation, the AG has a more complex structure than other forms of corporate law, since – like a limited liability company (GmbH) – it cannot simply be founded informally, but rather certain formal requirements must be met in advance for the company to be founded. This essentially includes the notarial certification of the shareholders’ agreement.

Other typical corporations:

• European Company (Societas Europaea, abbreviated to SE)
• Partnership limited by shares (KGaA)
• Entrepreneurial company / UG (limited liability)
• Limited liability company (GmbH)

Together with the GmbH, the stock corporation is the best-known form of corporation. In Germany, it is primarily chosen as the legal form for listed companies and is considered the “big sister” of the limited liability company – not least because of the higher founding capital.

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

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

Companies operating under the legal form variant of AG & Co KGaA have only existed since the end of the 1990s, following the unambiguous declaration of open legal issues by a court ruling of the Federal Court of Justice (BGF). The holding company of the well-known Hornbach Baumarkt AG, Hornbach Immobilien AG and Hornbach Baustoff Union GmbH has opted for the formation of an AG & Co KGaA, as have many other companies from a wide range of sectors: Ticketing & Live Entertainment, Medical and Security Technology, Adhesives, Cleaning Agents and Beauty Care, to name but a few.

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

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

Establishment & Formation of an AG – From Articles of Association to Registration

You want to found an AG and live your dream of independence in reality? No problem! Because for the foundation of a GmbH a natural – or legal – person is completely sufficient. If you want, you can be the sole founder of the company – called a shareholder – and thus automatically be the sole managing member of the board of directors. Such a one-person AG is often called a “small public limited company”. However, it is not possible to go it alone: a “small AG” must appoint at least three supervisory board members, which means that the smallest possible public limited company consists of four people.

The process of founding an AG can be divided into two phases, namely the internal formation of the AG and the external formation of the AG. While the first phase is basically a kind of preparatory phase or pre-foundation – in other words, it forms the basic framework for your public limited company – in the second phase you present your company to the public.

Phase 1 – Preparation & Basic Framework

You set up your public limited company internally. One of the most important steps is to draw up articles of association for your AG – also known as a shareholders’ agreement – which must later be certified by a notary public. For the formulation of the articles of association, all founding members must be fully present and the future executive board and the future supervisory board must also be present. At this first meeting it is decided how announcements are to be made in the company and how many board members are to be appointed.

Together you also decide on the company name – i.e. the name of your company as it is to be entered in the commercial register -, the registered office, the amount of share capital – 50,000 euros or more – as well as the nominal value and the number of shares, including details of the respective share type. From bearer shares to par value shares – find out more about the individual types of shares here:

• Types of shares – transferability, legal scope & share capital breakdown

The second step is the acquisition of the shares and the appointment of the bodies of a joint stock company, which must be notarized. The deposit of the securities itself can also take place after the notary appointment. Optionally, the auditor for the annual financial statements can already be appointed here. The supervisory board then appoints the management board of the public limited company as its first official act. At this point at the latest, the contributions must also be paid into the business account until at least a quarter of the share capital has been recorded.

Phase 2 – Entry in the Commercial Register

To complete the formation process for your public limited company, your company must be entered in the commercial register. This step equips the public limited company with its own legal personality and signals to the public that a new public limited company exists on the market. The founding members together with the supervisory board and executive board carry out the application for registration in the commercial register together. An overview of all supervisory and executive board members, various deeds and notarial certifications are required, the contribution of the shares must be documented and a price for the subsequent share issue must be defined.

After all documents and records have been submitted, the registration court assesses whether the formation of the public limited company has been carried out properly. In a final step, the entry is made in the commercial register and your public limited company is officially deemed to be established.

The foundation process at a glance

Here is an overview of all the steps up to the official, externally effective formation of your corporation:

• Phase 1 – Establishment in the internal relationship
  • Adoption of the Articles of Association (certified by a notary)
  • Share acquisition
  • Appointment of the AG bodies (notarized)
  • Appointment of the auditor, if applicable
  • Payment of deposits (min. 1/4 share capital)
• Phase 2 – External incorporation
  • Application for registration
  • Submission of documents & records
  • Assessment by the registry court
  • Entry in the register of companies

Entry in the Commercial Register: The most important applications for AG founders

The internal relationship determines the beginning of the company as the date contractually agreed between the shareholders. In the external relationship, however, the formation of the AG is dated on the first action on behalf of the company, i.e. at the latest with the binding entry in the commercial register. Registration costs you on average around 200 to 300 euros and is usually carried out by a notary.

As you are registered in the commercial register as a shareholder of an AG, you can officially trade under a company name – just like a shareholder of a GmbH. This means that your company has a company name, i.e. an official name, which you can freely design together with the other shareholders. It doesn’t matter whether it’s a personal company, a real company, a fancy company or a mixed company… As long as the name is in line with the prohibition of misleading people and bears the suffix “AG”, almost anything is allowed.

Tax ID, Trade Licensing Office, Articles of Association & Notary Public

You will first receive a tax identification number – tax ID for short – from your local tax office, which serves as a basic prerequisite for all other formalities and applications. The registration of your AG as a company or commercial enterprise is carried out by the Trade Licensing Office for a processing fee of approximately 10 to 65 euros.

According to the law, there is no obligation to make additional contributions for stock corporations, in contrast to cooperatives with and without limited liability, just as there is for general partnerships (Offene Handelsgesellschaften, OHG) or limited partnerships (Kommanditgesellschaften, KG). In the case of shares with restricted transferability, however, it is possible to stipulate in the articles of association that the shareholders are to make recurring payments – excluding cash payments. The precise ancillary obligations of shareholders are explained in the German Stock Corporation Act (AktG).

Excerpt from the law – § 55 AktG:

(1) If the transfer of shares is subject to the consent of the company, the articles of association may impose on shareholders the obligation to make recurring non-cash contributions in addition to the contributions to the share capital. In doing so, they must determine whether the payments are to be made against payment or free of charge. The obligation and the scope of the benefits shall be stated in the shares and interim certificates.
(2. The statutes may lay down contractual penalties in the event of failure to fulfil the obligation or failure to fulfil it properly.

Excerpt from the law – § 180 AktG:

(1) A resolution imposing ancillary obligations on shareholders shall require the consent of all shareholders concerned in order to be effective.

(2) The same shall apply to a resolution by which the transfer of registered shares or interim certificates is made subject to the consent of the Company.

Equity capital: 50,000 Euro Share capital & reserves

The share capital of a joint-stock company is called capital stock, because it forms the basis for the equity capital of the joint-stock company. The share capital is defined as the sum of all contributions and is given the term “subscribed capital” in the balance sheet. A prerequisite for registration in the commercial register is the payment of the required share capital of at least 50,000 euros into the business account. This means that twice as much share capital is required for the formation of a public limited company as for the formation of a private limited company, where 25,000 euros is sufficient as share capital. A return of the share capital to the shareholders is not permitted.

Excerpt from the law – § 57 AktG:

(1) Shareholders may not be repaid their contributions. The payment of the purchase price in the case of a permissible acquisition of treasury shares shall not be deemed to be a return. Sentence 1 shall not apply in the case of payments which are made in the event of the existence of a control or profit and loss transfer agreement (§ 291) or which are covered by a fully-fledged claim for consideration or restitution against the shareholder. Sentence 1 also does not apply to the return of a shareholder loan and payments on receivables from legal acts that correspond economically to a shareholder loan.
(2) Interest may neither be promised nor paid to shareholders.
(3) Prior to the dissolution of the Company, only the distributable profit may be distributed among the shareholders.

The second pillar of equity is the capital reserves. This includes all amounts that are added to equity, for example by means of a premium – alternative designation: issue premium or premium – i.e. the amount by which securities are priced above their nominal value. If shares are issued, the premium must be allocated to the capital reserves and thus contributes to the equity capital shown in the balance sheet. In addition, there are the revenue reserves, which are made up of the statutory reserves, the reserves under the articles of association and other reserves.

Caution: Reserves and provisions are not the same thing: Reserves are amounts of money that are saved for security or emergencies. Reserves, on the other hand, represent future liabilities and therefore do not count as equity under any circumstances!

Dividend & Reserve Accumulation

The distribution of profits takes place differently in the joint-stock company Kraft legal form than in other forms of corporate law. As a share trading business, the shares are understood as profit shares, whereby one share corresponds exactly to one profit share. The shareholders of an AG therefore also do not receive a profit distribution, as is the case with the general partnership (OHG), the limited partnership (KG) and optionally also the limited liability company (GmbH), they rather receive so-called dividends. The distribution of dividends is decided by the general meeting.

In addition, the German Stock Corporation Act (AktG) requires stock corporations to form legal reserves until ten percent of the share capital is reached. For this purpose, five percent of the net income for the year is added to the statutory reserves each year – after adjustment of the net income for any losses carried forward from previous years. The same applies to the capital reserve, where contributions must also be made until the ten percent mark is reached.

Other revenue reserves are possible within the framework of the adoption of the annual financial statements by the Management Board and Supervisory Board. The allocation may amount to a maximum of half of the net income for the year; higher amounts are only permitted if the Articles of Association allow this. Further contributions may be made to the reserve if a corresponding resolution has been passed at the Annual General Meeting.

AG Organs: Management Board, Supervisory Board & Annual General Meeting

A joint stock company consists of several organs. These bodies are divided into:

1. The Board,
2. The Supervisory Board and
3. Annual General Meeting.

The Management Board deals with the day-to-day business and other matters of the company and represents the stock corporation externally. 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 annual reports. The Annual General Meeting acts as the decision-making body of the stock corporation.

Liability of an AG – internal relationship & external relationship

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 burdens – with a few rare exceptions – exclusively 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 can vary depending on the governing body of the AG.

• Liability in the external relationship with the AG: through share capital
• Liability in the internal relationship with the AG: by the executive bodies

If you want to know in detail how a limitation of liability for shareholders, management board and supervisory board affects the internal relationship, read more here:

• Limitation of liability for AG bodies

Advantages: Limitation of liability, financial independence & Co

After presenting the typical features of a public limited company, you have certainly already recognised the advantages that this legal form offers you: The high initial capital also makes the AG a reputable legal form, which can be an advantage especially in matters of company financing. Financial institutions are therefore often willing to issue good loans and business partners and customers gain more security due to the good credit rating.

At the same time, the financial risk remains relatively low, as the liability claims are limited to the share capital and the AG shareholders cannot be held liable externally with their private assets. Plus: As a listed legal form, stock corporations are financially independent through the IPO.

• Respected legal form
• High credit rating
• More security for banks, business partners & customers
• Low financial risk due to limitation of liability
• Financial independence through IPO

Disadvantages: Share capital, formal incorporation & GewSt

The disadvantages that the formation of an AG can bring with it are also quickly located: On the one hand, the high share capital of at least 50,000 euros is an obvious problem for many start-ups. Also the social adhesion measures itself accordingly on at least 50,000 euro. The foundation may not take place informally, but is subject to extensive formalities and specifications. Banks can easily leverage the exemption from liability if, despite high creditworthiness, they aim for a directly enforceable guarantee from the shareholders. Last but not least, the AG is subject to trade tax and, depending on the purpose of the company and how it is handled, has to pay further taxes.

• High share capital required
• Liability based on share capital
• No informal incorporation
• Banks may require directly enforceable guarantees
• High trade tax levies

Evaluation: Low-risk legal form for large companies

After comparing the advantages and disadvantages, it becomes clear that the formation process is significantly more complex and extensive than is the case, for example, with a civil law partnership (GbR) or even a limited liability company (GmbH). In addition to the formal formation, the appointment of the individual bodies of an AG is also obligatory and the formation process as a whole is very time-consuming. It is rather difficult for small to medium-sized companies to raise the necessary share capital. For larger companies, however, the legal form of an AG may be a good option for expanding and gaining an international foothold.

A public limited company makes particular sense if business projects are planned that are exposed to a high level of risk, as the shareholders can protect themselves well through limitations of liability in the external relationship and optionally also in the internal relationship and their private assets remain unaffected. Fast-growing companies can also benefit from the formation of an AG.

Immobilien AG: Holding, trading, managing, letting

You don’t think the idea of an AG is bad at all and are now asking yourself how you can combine your capital company with the real estate business? 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 AG / REIT-AG

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

As a shareholder of a public limited company, you need to know about some types of tax, because when you set up your company, you receive income from your business and must of course also pay tax on this. In accordance with tax law, sales tax must therefore naturally be paid, insofar as the AG does not only carry out tax-free sales. Profit distributions to the shareholders of an AG are also subject to capital gains tax – for natural persons in the company, income tax is of course also due.

The following applies to all corporations: They are subject to corporate income tax. The payment of trade tax is also obligatory for an AG, even if all founding members were freelancers, because by virtue of its legal form it is always regarded as a commercial enterprise.

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

Here’s the entire list:

• Taxes in Germany

Attention: As already mentioned, the obligation to pay corporation tax and trade tax does not apply to REIT real estate companies as soon as the real estate company fulfils the legal requirements!

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

• Save taxes on real estate

Conclusion: Public limited company – For whom is it worthwhile?

The formation of a public limited company requires a large amount of capital and an equally large amount of administrative work. For this reason, an AG is more worthwhile for large companies which, on the one hand, have the corresponding financial resources and, on the other hand, are already characterised by a certain routine in business processes and legal issues. Start-ups with monetary reserves and real estate investors are given an attractive opportunity by an AG to realise their dreams and entrepreneurial goals.

In the real estate industry, stock corporations are a stable legal form for the purpose of real estate preservation, real estate management as well as trading with and brokering real estate portfolios. If you are already trading within the meaning of the REITG, you can expect significant tax benefits. Real estate stock corporations are worthwhile for a variety of people of different professions: From builders to financiers to real estate fund shareholders, the real estate corporation can contribute significantly to stable cash flow and capital growth.

Tip: Apart from the stock exchange, a public limited company without a stock exchange listing is particularly suitable for families to jointly manage existing real estate portfolios.

Comparison: Sole proprietorship, one-man GmbH, small AG or entrepreneurial company?

If you plan to set up your business on your own, you can choose between different legal forms of business: On the one hand, there is the classic sole proprietorship, in which you act as a freelancer or registered trader, or set up a small business. Alternatively, you can choose between the one-man limited liability company and the entrepreneurial company – often referred to as a “mini-GmbH” – or set up a small public limited company.

You can find out more about the different legal forms for solo founders here:

• Sole proprietorship (EU)
• One-man limited liability company – see GmbH
• Entrepreneurial company / UG (limited liability)

Sole proprietorship & one-person GmbH

Basically, there is not much difference between the two legal forms of a sole proprietorship and a single-member company, because in both cases you are the sole shareholder with sole power of management and sole power of representation. However, the decisive difference arises in the form of the liability issue: As a registered businessman (e. Kfm.) or registered businesswoman (e. Kff.) you are liable without limitation, directly and jointly and severally – as the sole shareholder of a one-person GmbH, on the other hand, you are liable exclusively for the business up to the amount of the capital contribution you have made.

Are you a sole proprietor yourself and no longer want to bear the enormous liability risk? Then you should think about converting your sole proprietorship into a one-person limited liability company. The change of form is easily accomplished, but can make a huge difference in case of losses! In order to avoid personal liability, as part of the registered traders (e. K.) you only need a notarial certificate confirming a value of at least 25,000 euros for your business and submit this to the commercial register together with the opening balance sheet. The sole proprietorship is practically brought into the GmbH as a contribution in kind.

Entrepreneurial company & small public limited company

Alternatively, you can consider setting up an entrepreneurial company (UG). Often referred to as a “small GmbH” or “mini-GmbH”, this legal form of company is a sub-form of the conventional limited liability company, but unlike the “normal” GmbH, it only requires a single euro as share capital. It is therefore particularly attractive for solo founders who do not have 25,500 euros in their bank account. Without the share capital of a GmbH, however, your image with the banks could be lower and your chances of getting a good loan could decrease.

The so-called “small AG” is primarily intended for individual shareholders who wish to keep their public limited company within a small group of people. Apart from the individual shareholder, who also equally assumes the role of the management board, only three other persons are required to be appointed as supervisory board members. However, the formation of a public limited company, regardless of its size, is very time-consuming and more cost-intensive than the other common forms of corporate law. Therefore, a one-person limited liability company or an entrepreneurial company may be more suitable if you intend to found your company on your own. Alternatively, you might also consider setting up a sole proprietorship.

AG: Special case real estate and more

1. Real estate stock corporation (REIT-AG)
2. Real estate shares: List of companies
3. Legal forms: List

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)

Real estate shares: List of companies

Real Estate Shares – Not everyone can afford real estate as a capital investment. Through real estate shares, however, everyone can participate in the real estate market and invest money. The share prices of the big players are rising year after year. Vonovia, Deutsche Wohnen, Dream Global, CBRE and Patrizia are a few of the best known active companies in Germany. In addition, there are more than 25 other companies. We have an overview of the most popular real estate stocks for you as an investor. But first a look at the risks of a stock, the stock market, for beginners and beginners. Now to the list and more on the real estate market, your investment options and all prices at a glance, here in the article on real estate stocks.

• Real Estate Stocks

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
• Real estate stock corporation (REIT-AG)
• Societas Europaea (SE)
• Foundation / Family Foundation