GmbH — Definition, requirements, and variants

Key takeaways
* GmbH stands for Gesellschaft mit beschränkter Haftung — “company with limited liability.”
* It is the common private limited company form in Germany (roughly equivalent to an LLC in the U.S. or Ltd. in the U.K.).
* Minimum nominal capital for a standard GmbH is €25,000 (at least half must be available before registration).
* A low-capital “mini‑GmbH” (Unternehmergesellschaft, UG) can be formed with €1 but must build reserves until it reaches €25,000.
* Registration requires appointment of managing directors and a shareholder list; the company becomes legally effective upon registration.

What is a GmbH?
A GmbH is a private limited liability company used primarily in Germany (also in Austria and Switzerland under similar designations). Shareholders’ liability is limited to their capital contributions, so personal assets are generally protected from company creditors once the entity is legally formed and registered.

Capital and formation requirements
* Minimum capital: €25,000 nominal share capital for a standard GmbH. At least €12,500 (half) must be paid in or available before registration.
* Registration: The company is registered at the local court (and recorded in the Unternehmensregister/Company Register). Registration typically takes a few weeks.
* Documentation: Incorporation requires notarized articles of association, appointment of the first managing director(s), and a shareholder list.
* Pre-registration risk: Business activity may begin before registration, but participants can be personally liable until registration is complete.

Governance and corporate structure
* Management: GmbHs are typically managed by one or more managing directors (Geschäftsführer) who act with company authority.
* Supervisory board: Mandatory only for larger companies (e.g., when headcount exceeds statutory thresholds such as 500 employees).
* Shares: GmbH shares are privately held and not publicly traded; transfer rules are governed by the articles and company law.

Unternehmergesellschaft (UG) — the “mini‑GmbH”
* Purpose: A simplified, low-capital version intended to encourage entrepreneurship.
* Minimum capital: Can be incorporated with as little as €1.
* Reserve rule: A UG must retain at least 25% of annual net profit in a reserve until the statutory €25,000 GmbH minimum is reached. Once reached, the company may convert to a GmbH.

Other variants
* GmbH & Co. KG: A hybrid where a GmbH acts as the general partner in a limited partnership (Kommanditgesellschaft).
* gGmbH: A non‑profit GmbH (gemeinnützige GmbH) that operates for charitable or public-benefit purposes.

How a GmbH compares to an LLC or Ltd.
* Functional equivalence: A GmbH performs the same basic role as an LLC (U.S.) or Ltd. (U.K.) by providing limited liability to owners.
* Legal differences: Specific rules on formation, capital requirements, governance, taxation and share transfer differ by jurisdiction. GmbHs have formal minimum capital and stricter notarization/registration procedures than many LLCs.

Where GmbH is used
* Germany (GmbH), Austria (GmbH or GesmbH), and Switzerland (GmbH) use this designation or close variants. Each country applies its own corporate law and registration procedures.

Practical steps to form a GmbH (overview)
1. Choose a unique company name that includes “GmbH.”
2. Draft and notarize the articles of association.
3. Appoint managing director(s) and prepare a shareholder list.
4. Deposit the required capital (or demonstrate availability).
5. File for registration at the local court/Company Register.
6. Complete any tax and commercial registrations after the court entry.

Conclusion
A GmbH is Germany’s standard private limited company form, offering limited liability in exchange for formal capital and registration requirements. For entrepreneurs with limited funds, the UG provides a low‑entry option with a mandatory reserve-building rule aimed at reaching GmbH capital levels over time. Specific obligations and procedures vary by country and should be reviewed with local legal or tax advisors when forming a company.