Limited liability companies

German law provides two major types of corporations: the
limited liability company (Gesellschaft mit beschränkter Haftung
– GmbH) and the stock corporation (Aktiengesellschaft – AG).
Both are separate legal entities with shareholders’ liability
restricted to the value of the corporation’s assets (including
outstanding contributions). The GmbH is the most common form
of incorporated company under German commercial law.

The GmbH is generally preferred as a vehicle for closely held com-
panies (no IPO possible) and subsidiaries of foreign corporations
due principally to the fexibility it offers. Among the special fea-
tures of the law governing the GmbH that are important for the
choice of entity consideration are: firstly, the ability to tailor the
articles of association to the needs of the enterprise and, sec-
ondly, the right of the shareholders at the shareholders’ meeting
not only to formulate general guidelines for management, but
also to stipulate specifc instructions for particular areas of
business in which the shareholders wish to exert their infuence.

By contrast, the AG is the corporate form adopted by many of
Germany’s largest corporations. The principal advantage of an
AG is that its shares, unlike those in a GmbH, may be transferred
with relative ease and can be listed on a stock exchange.