For information: GmbH & Co. KG is one of the most complicated forms an company can be founded, the same goes if the inner company is an UG. Many things have to be done twice. The only good thing is that an investor or an owner are not liable with their private money.
> The only good thing is that an investor or an owner are not liable with their private money.
That’s incredibly important. More than a footnote. I would consider any other form to be non-viable if it doesn’t have such protections.
For comparison, starting an LLC in the United States is a trivial operation. I can’t even remember how long it took me to set mine up because it was a trivial event. Maybe a couple hours, mostly research? I also have to fill out an online form and pay a few dollars every year to renew the LLC.
Setting up a plain UG or GmbH gives the same advantage of not being liable with your private money, and is also a comparatively trivial process. Especially if you are the sole owner. Still slow compared to the US or UK, but not half a year slow
Starting out a company as a UG & Co KG is a tax optimization move, not a liability issue
> Starting out a company as a UG & Co KG is a tax optimization move, not a liability issue
Thanks for the clarification. However I’m still surprised that tax optimization is also considered a footnote in these conversations.
In the countries I’m familiar with (mostly the US, minor second-hand experience with friends in some other countries as they started their businesses) starting a limited liability business venture that has the tax structure of a business isn’t considered a heroic effort. Starting the business is basically the least of your concerns. Almost a formality.
When I first started my company I half assed it. The LLC was quick and the EIN took two weeks. I accidentally signed a contract with my name instead of the company and elected to be a sole proprietorship. These are all the worst ways tax-wise to do this.
By Nov that year I decided to look into the tax implications and they were unpleasant so I wrote the IRS asking to be considered an S corp from the beginning of the year and they sent me a letter saying it was so. I ran payroll in Dec to catch up.
When doing taxes likewise I added a cover letter explaining the mistake about which entity was to receive the money and then assigned the income to the S corp on the return and worked everything through and corrected it in the right way.
The return took months to process and I had a mistake in the taxes that I was fined for a couple thousand which was reasonable but they accepted all these natural errors that I fixed up.
That sequence of encounters with the US government blew my mind. The much maligned IRS was eminently reasonable.
My interactions with the IRS have always been reasonable and pragmatic. If you make a mistake they try to be accommodating to help you fix it.
Every interaction Ive had with the IRS or California Franchise Tax Board has been very reasonable and efficient.
Maybe the Strike Commander future was a utopia and not dystopia?
The GmbH has the tax structure of a business, as it is a business.
He wanted something more special than that.
Which is possible, but complicated.
You can get the same in Germany with the much simpler GmbH or UG. GmbH & Co. KG is much more complex and mostly used to save some taxes in some scenarios.
(However I absolutely agree that all of this is much too complicated and slow here in Germany)
In Germany you need a notary in the us you don't.
The notary adds about a week to the process (2-3 hours of your time, plus the time to wait for the appointment), and about $1000 (depends on how much money you put in the company). And for "standard" setups you can skip the lawyer and simply use the templates and "free" legal advice from the notary (free as in "included in the notary fee you have to pay anyways")
Yes, it's more involved than an online form. But in the grand scheme of things, a notary is neither a huge expense (the tax advisor will likely cost you more) nor a big time sink
Why do Europeans put up with that notary nonsense? Ideally almost all notary jobs should be destroyed.
> That’s incredibly important. More than a footnote. I would consider any other form to be non-viable if it doesn’t have such protections
That applies to a normal GmbH as well, so does it to an UG. UG & Co. KG is sometimes done for tax reasons, but not liability
It is not complicated, it is in fact quite standard here in Germany.
I explain in the post how the other options are worse.
Yes, what you are doing is complicated.
I did a GmbH with "Musterprotokolle" so virtually no lawyer fees and quick and easy to set up.
And a GmbH is limited liability. It's in the name. Gesellschaft mit beschränkter Haftung. GmbH.
The Geschäftsführer is liable for certain (avoidable) things in either case.
The difference is that that the Co KG can be taxed like a "Personengesellschaft". So you wanted to optimize taxes, which leads to a more complicated structure.
You are certainly allowed to choose such a more complicated setup if you think it's better for you. But then don't moan about it being complicated. It was your choice.
> But then don't moan about it being complicated. It was your choice.
I don’t understand why you’re deriding someone for explaining why establishing a common business structure is slow and complicated.
The fact that a less advantageous business structure is available faster, but with significant tradeoffs, does not diminish the problems with this business structure.
I am pointing out that his claims are, in fact, not true.
It is not this complicated to set up a limited liability company in Germany. It is this complicated to set up his choice of a two company setup. Which is, I repeat, his choice and much rarer than a GmbH, at around a 5-10% ratio. Because it is more complicated, not just to set up, but also to run. You have two companies, so two sets of books, two sets of audited returns etc.
Which is why most companies are not GmbH & Co KG. They are plain GmbH. A GmbH & Co KG is a much more complex setup and known to be a much more complex setup. Which he knowingly chose.
And his claim that this is somehow necessary for limited liability, which would be a legitimate "significant tradeoff" is simply not true at all. That's what the GmbH is for.
Now maybe he was badly advised by his lawyer, but then complain about the bad advice. Not about the consequences of choices you made.
GmbH & Co KG are not that common, in fact the overwhelming majorities are GmbH, UG or AG (public corporation). The only benefit you can get out of this shell structure is that you don‘t have to disclose investors publicly
Well said!
It is one of the most complicated forms. A GmbH alone is good enough in 99.99% of cases, and its usually done really quick.
Also, if you believe in your product there usually isn't a reason to go for a GmbH this early. You can send invoices a lot earlier with just a eK or GbR. Its not an issue to adhere with your private money if your product isn't causing damages.
> Its not an issue to adhere with your private money if your product isn't causing damages.
Might happen really easily though. E.g. you install some package which has been compromised, infecting your software product and suddenly all your customer's systems are cryptolocked and you are on the hock for millions of €€€.
Or your db crashes in new and creative ways and your backups don't work for some reason and now your customer lost an expensive contract because critical data that was in your db is gone.
Of course, you can try to foresee every eventuality, but you will indubitably overlook something and probably never make it to market.
Isn't that what (liability) insurance is for?
(if there's anything Germans like as much as bureaucracy it's insurance)
Every good company in Germany has insurance. General liability insurance
Professional indemnity insurance
Business interruption insurance
Directors and Officers (D&O) insurance
Commercial legal expenses insurance
nowadays Cyber insurance
I think I might have forgotten one or two...
Not in mine. Check the post.
So basically you go for the legal stuff only really big companies use (instead of changing once its necessary) because you dont believe in your own product and dont want to be held liable, got it.
Every sane founder uses a limited liability company (e.g. UG/GmbH). What's a bit unusual is the "& Co. KG" part.
Do people in Germany see limited liability as some kind of crazy thing only a scammer would want?
If you just want limited liability, you'd go with a simple UG (takes a week and costs 600€, but if you do it right it takes 2-3h and costs 300€).
If you additionally want to avoid being taxed when you sell stock, the entire company, or transfer it to another country, you'd create two UGs, one as the primary company, the other as a holding. That takes 2-3h for both and costs typically around 800€, but can be had for as little as 400-500€.
This is what previous German YCombinator startups have gone with and recommended in the past.
Going one step further, because a UG is so easy to start, banks will refuse to loan you money in the first year, so you can only raise money by selling shares. If you want to avoid that, you can start a GmbH with an UG as holding instead. This will take a month and requires you to sign over at least 12500€ of assets to the GmbH.
Now, what if you want all of that, but you also want a shell corporation to hide the owners and investors? Then you'd start a GmbH & Co KG, where you set up a limited liability corporation, a shell corporation with multiple special classes of stock, and potentially additional holdings. This is what OP went with.
Nope.
But the GmbH & Co KG setup the poster wants is not needed for limited liability.
You get that with a plain GmbH (or UG), which is much, much simpler to set up.
Depends. Given OP built yet another AI tool, yea, I want to hold them liable in case something goes wrong (not that I'd buy these tools in the first place).
Useful info, explains a lot. Thanks.
But hey, at least they get to write about their mid company name ("Plenty" - lol) got (rightfully) rejected...
He wanted to go all out and maximise "company form". Same as optimizing your website for hundred of thousands of visitors even if you have only like one hundred visitors...
If the parent comment is correct and this form is necessary for personal financial protection, I wouldn’t consider that “all out”.
That’s the bare minimum consideration for a viable company structure.
OP wanted to set up a nested copmany structure. Instead of Person -> LLC it goes Person -> Limited Partnership --> LLC. The in between company is only for tax-efficiency and has nothing to do with limited liability.
Even then you'd usually go with a Person -> Holding UG -> Startup UG structure. That's a few hours and less than a thousand Euros.
It’s not necessary. They did something completely overkill
It's not.
You get one chance at getting your company form right. Any other new chance costs a ton of money in restructuring. Software is malleable, companies are less so.
I am not familiar with German business entity structures, so this is very interesting.
So, if I started a sole proprietorship, it is not possible to convert it to a full blown, privately held corporation in Germany?
It is obviously possible, the process is probably very similar in effort and expenses to founding it in that form directly.