UG is a massive scam in that sense, definitely not what’s advertised.
I can't tell you why it is like that in Germany, but I'm curious why it isn't like that in the US and the UK.
They made Ltd companies simple and cheap so that there is no need to complicate things like in Germany and most European countries.
Since the vast majority of companies are Ltd companies there isn't any connotation attached to them. You can just look the company up to check how old it is and to convince yourself of its 'trustworthiness'.
If you’re selling a product, the LLC should protect you from liability caused by the product. (With many caveats)
But the LLC won’t protect you from your personal actions
If I were an entrepreneur and my startup would incur 100 million dollars of liabilities, my assets won't cut it so the more appropriate to say " you are personally liable for damages to the extent of your assets. "
but yes, just relying on some crash course and nothing else is never recommendable
It depends, there is no simple entity "independent contractor". If you can run your business as Freiberufler - roughly but not quite a freelancer - you may have found a pretty lightweight framework - even compared to other jurisdictions. Simpler accounting, no need for balance sheets and therefore for a tax advisor in most cases (still recommended). Liability can be largely limited by insurance, depending on the field of business.
I'm doing this for over 20 years and I simply have no need to own any kind of corporation.
Of course, YMMV.
And if you just want to run a side business, one that doesn't have the potential to ruin you, just run it as an independent income.
You can even have your employees participate in your GmbH, either in enquity or profit. That most German start-ups don't simply means they want to keep salaries down by paying in potentially worthless enquity.
All in all, I'd say cost of doing business. What's next, do we atart complaining that Lenovo isn't providong free laptops? Or that office space costs money?
Could you provide a source for this claim?
In a best-case scenario, where you have founded your company on Jan 1 2021, you so far would have still had to
- hand in your initial balance sheet at the time of founding
- hand in your Umsatzsteuervoranmeldung every month.
Moreover, you will definitely have to
- hand in your Umsatzsteuererklärung, Körperschaftsteuererklärung, Gewerbesteuererklärung (all for 2021) by 31.07.2022
- send your "electronic tax balance sheet" (Elektronische Steuerbilanz / eBilanz) for 2021 to the tax authorities by 31.07.22
- set up your balance sheet for 2021 by 31.06.22 and send it to Bundesanzeiger by 31.12.22
The law very clearly disagrees with you:
https://www.gesetze-im-internet.de/hgb/__242.html
> And your deadlines are longer than if you eork with a registered tax advisor.
True. If you're paying a tax advisor, you don't really care about the deadlines and all the paperwork, anyway, though. You just pay people to do all that for you.
I've never heard about this and also can't find any sources for that when googling. Could you post an article that describes why a UG wouldn't have to file a "Jahresabschluss" in the first two years?
Product market fit doesn't matter if you are unable to run a business.
An American company will focus on American market and while doing that is - due to using a wide spread language - immediately useable world wide and then can adapt to languages and cultures over time.
The point is not that startups shouldn't follow regulations, it's that startups are a uniquely weak type of venture, but with the potential to be tremendously valuable to society. So designing a set of regulations for startups that balances the benefits to society of the regulation with the benefits to society of the potential startups is likely to lead to better outcomes for society.
As an analogy - in the city I live in, no-one is allowed to do any digging around a tree without prior permission from the city tree specialist. That regulation is designed to prevent large construction companies from damaging old and valued trees in the community. But in theory, a child planting an apple seed or small tree without permission would be breaking the regulation - can you see how that might reduce the number of trees being planted? The answer is not to remove the regulation, but to have exemptions or light-weight versions of the regulations for those use cases, and then apply more stringent regulations as the company (or tree) grows and becomes more robust and healthy.
Here is the thing: Most of these "startups" are never raising any money, let alone millions. The burden of regulation should be split into pre-raising and post-raising. (Many governments have figured that out with income, like if you have less than xx.xxx per year, you can get away from some reporting).
Startups don't begin with million of VC money which is what we're discussing here.
I see this as being seperate from incorporating so, as everyone is affected by slow tax authorities.
If you look up GmbHs in the central registry (Handelsregister) you will notice that many of them were founded by law firms and sold after a couple of months to the real founders. This is true even for (now) bigger and reputable companies.
If you need to incorporate and have money, you don't need to wait to start doing business.
What about the required 25k to start a GmbH?
Point being, even a dirt cheap corporation will need some money at one point.
All unnecessarily complex.
Sure but then that's not really anyone's goal starting a company in Germany. So ultimately you will have to deal with this issues if you don't fancy being homeless.
Let's not touch VAT so.
Having gone through the process (and a rather smooth one at that), I can say with absolute confidence that this is not true at all.
1) Talking to the notary alone and arranging the details (articles of organization, fees – as the notary might try to rip you off –, and the notary appointment) will take several email round trips, aside from the actual appointment to sign the paperwork and the required self-study to understand what you're doing.
2) Opening a bank account as a UG/GmbH that's in the process of being founded is not difficult but it's not exactly easy, either, because you will have to do it before you sign the documents at the notary, i.e. before you are incorporated, because the notary wants to see a bank statement as confirmation that all shareholders have paid their share. The bank, however, wants to see your founding documents which of course you won't have before you've gone to the notary and received the other paperwork from the local company registry (Amtsgericht / court) confirming the existence of your company. Resolving this catch 22 means several more email round trips and even more paperwork.
3) The fees of the notary alone are in the range of 100€. Add to that the fees at the Amtsgericht for incorporating and the fees for the local government (for registering your business / official company address) and you're looking at a few hundred euros in total founding costs. (I forgot how much exactly; I would have to look it up.)
4) The bank account requirement alone means that you'll probably be paying ~15€ every month to the bank. On top of that, unless you want to do the bookkeeping on paper (i.e. by hand), you'll need proper (tamper-resistant!) double-entry bookkeeping software, which (last time I looked) is not free, either. (Excel is no longer allowed!)
5) Every year you'll be paying ~60€ to hand in your balance sheet (Handelsbilanz) to the Bundesanzeiger and your "electronic tax balance sheet" (Elektronische Steuerbilanz) to the tax authorities. You'll also pay ~150-200€ to the local IHK (Chamber of Commerce and Industry) just because your company… exists(?!)
6) Speaking of bookkeeping & balance sheets, you'll also be handing in tax declarations for the different taxes your company will be subject to (USt, KSt, GewSt). Learning how to do all that is a proper time sink. Unless you want to pay an accountant, you're looking at dozens if not hundreds of hours of self-study and paperwork every year.
7) The second you want to hire anyone, social security and employee wellfare laws will mean even more work for you (at which point you'll probably hire someone just to take care of all of that paperwork for you).
I went through the same process multiple times in the past and every step on the way (like you describe) is complicated, expensive, slow and error-prone. And I am actually fluent in German. I can’t imagine how someone would navigate the process without speaking it.
He only started to act when I used my lawyer to threaten him. Even then my lawyer said that it would be very hard to start legal proceedings against the notary.
If you think notaries are 100% trustworthy you should also have a look at https://www.tagesspiegel.de/berlin/millionen-immobilie-in-be...
I have heard about several other cases like that from friends.
But they do.
In fact every hiring post here has plenty of German companies
(not defending bureaucracy here - but it is good to know the rules and tricks before doing this kind of stuff - in fact I'd even argue you might just establish your company somewhere else in the EU, or even somewhere close)
Also - even in the US there are foot-guns that you can get into if you don't know what you're doing
People who are loosely playing with the idea of running their own tiny company (e.g. as a student side gig, not with the "I'm planning this like a businessperson and here's my plan how to turn it into a unicorn and how to exit" approach) take a look at the system and bureaucracy, and simply give up and forever write off the concept of running your own company as a worthwhile option.
Even becoming an independent contractor is fraught with many of the same hurdles. This creates a strong push towards employment vs. doing your own thing.