Types of Companies in Germany: What U.S. Businesses Need to Know

Two Main Categories of Business Entities

Under German law, there is a fundamental distinction between two broad categories of business entities:

• Entities that are separate from their owners and have their own legal personality (juristische Personen) – These provide legal liability protection and include the entity types GmbH (limited company), UG (limited company), and AG (stock company). They are taxed at the company level.
• Partnerships without separate legal personality (Personengesellschaften) – These do not provide limited liability and taxation flows through to the partners (no company level taxation). Examples for this company type are GbR (simple partnership) OHG (general partnership for commercial activities) and KG (limited partnership).

In some cases, a combination of two company types – a legal entity and a partnership combined – can make sense and achieve the advantages of both categories of company types.

Entities with Separate Legal Personality and Limited Liability

1. GmbH (Gesellschaft mit beschränkter Haftung)

The GmbH is the most common type of private limited company in Germany. It requires a minimum share capital of €25,000, of which at least half must be paid in upon formation. The GmbH is ideal for most privately held companies and offers legal certainty, strong credibility in the market, and limited liability for its shareholders.

2. UG (Unternehmergesellschaft)

The UG, sometimes called a “Mini-GmbH”, was designed to be a more flexible entry point for startups and small businesses. This type of private limited company can be formed with as little as €1 in share capital. The UG is essentially a GmbH with fewer capital requirements but stricter rules on profit retention until the company builds up sufficient reserves to convert into a GmbH. For many U.S. businesses starting lean, this can be a goodchoice.

3. AG (Aktiengesellschaft)

The AG, a public limited company, is structured for larger-scale enterprises. It is the entity type suitable for listing shares on a stock exchange. It requires €50,000 in minimum capital and is subject to stricter corporate governance and administrative requirements than a GmbH and UG. For U.S. companies, the AG is typically only relevant if they are planning significant fundraising or a public listing in Germany.

Partnerships without Separate Legal Personality

1. OHG (Offene Handelsgesellschaft)

The OHG is a general partnership where all partners are fully liable with their personal assets. It rarely makes sense for foreign investors who expect limited liability protection, except where flow through taxation is .

2. KG (Kommanditgesellschaft)

This is a limited partnership, consisting of at least one general partner with unlimited liability and one or more limited partners whose liability is restricted to their investment. A special hybrid often used in Germany is the GmbH & Co. KG, where the general partner is itself a GmbH. This structure combines tax advantages of a partnership with the liability shield of a GmbH, making it attractive for sophisticated tax planning.

Combining Two Company Types

In some cases, it might make sense to combine two types of companies, one from each of the two categories described above.

A typical use case for this is the combination of a GmbH and a KG into a GmbH & Co. KG. Here, the overall structure is that of a limited partnership (KG) but the general partner (Komplementär) is not an individual but a GmbH, a limited liability company. This structure combines the flexibility and tax advantages of a partnership (no corporate income tax) with the liability protection of a limited company: the GmbH as general partner is only liable up to its own share capital, while the limited partners are liable only to the extent of their contributions to the KG.

This hybrid structure can make sense for businesses that want the tax and organizational flexibility of a partnership while limiting the personal liability of the partners—especially family businesses, medium-sized companies, or enterprises seeking outside investors without exposing individuals to unlimited risk. However, such a combination involves higher setup and administrative costs because two company types (a GmbH and a KG) must be established and maintained.

Which Structure Fits U.S. Businesses Best?

If you are entering Germany for the first time and are not planning a public listing, the practical choice is usually either a GmbH or a UG. In fact, the large majority of foreign-owned private companies choose one of these two. The decision often depends on how much capital you are ready to commit at the outset:

• Lean start: If you wish to minimize upfront costs, set up a UG.
• Stronger market presence: If you can commit €25,000 in share capital, the GmbH signals more stability and is often favored by banks and business partners.

For detailed guidance on the registration process, see our Company Registration in Germany: A Practical Guide for U.S. Businesses.

Next Steps for Your Expansion

Selecting the right legal entity is more than a legal formality—it impacts liability, taxation, corporate governance, and your ability to attract investors. If you are unsure whether your business plan and resources are sufficient for a GmbH or if starting with a UG is more strategic, I recommend evaluating your readiness with our tailored tool: Are You Ready for Europe?.

With the right structure in place, you can focus on what really matters: building your business in Germany and the wider EU market.