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5 Key Differences Between German and American Business Entities

Western Europe has been on the forefront of business since the rise and fall of Rome, with what we now call “partnerships” once referred to as “societas” (although the translation is about the only commonality between the two). Centuries later, and there are still stark differences (and surprising commonalities) between American business entities and western European countries, Germany in particular. Despite both being democratic countries, the German equivalent of a US limited liability company (LLC), the joint-stock company (or aktiengesellschaft (AG)), requires 5 or more members to register the company compared to a standard LLC, which only needs at least one member. Learn more about membership requirement for AGs and LLCs as well as other similarities and differences between these two German and American business entities, and if they are expected to grow in the near future. (Plus, you’ll learn why you should do that Alabama secretary of state business search!)

Types of German Businesses

The joint-stock company is but one of many business entities German entrepreneurs can set up. Other business types include civil law partnership (Gesellschaft bürgerlichen Rechts), limited liability company (Gesellschaft mit beschränkter Haftung), and general partnership (offene Handelsgesellschaft), among others. Since the joint-stock company is one of the most popular business entities to incorporate to, the article will focus on comparing it with the American version: limited liability company.

1. AGs and LLCs Follow Similar (and Different) Registration Procedures

Both an AG and LLC must register with their designated offices, the AG with the Commercial Register and Local Tax Office, and the LLC with the Secretary of State office the LLC wants to register in. Similarly, the joint-stock company submits articles of association while an LLC creates articles of organization. Both are mandatory documents that list company specifics. The AG lists the name of the corporation, registered office, shared capital, and the contributions each shareholder is responsible for. The LLC, on the other hand, records the company name too and its address, not to mention the registered agent’s name and address, what the purpose of the LLC is, and who else is involved such as any other managers and/or members. As you can see, there is some overlap between the two, however the AG includes information you’d also find in an LLC’s Operating Agreement, specifically the contributions of each shareholder or, in the case of the LLC, the stock contributions of each member. Also, as soon as the prospective AG has handed over its required shared capital of approximately 50,000 euros (equivalent of $56,000) and its articles and other documents are notarized and submitted, it becomes an official joint-stock company. The LLC follows a similar path, except notarizing signatures on the operating agreement and articles of organization varies by state. Generally, articles of organization may need a notary, however, operating agreements usually do not. (This is when it’s best to conduct an Alabama secretary of state business search as well as view Alabama’s secretary of state webpage for more information about state-specific rules and regulations, notarizing included. Of course, if you reside in another state, search that state instead.)

2. Establishment Made Official in Print

Once the joint-stock company is official, news of its establishment is shared in a published issue of the Swiss Official Gazette of Commerce. Depending on the state (Arizona, Nebraska, and New York to name a few), some LLCs too may need to announce its formation in an official publication. Basically, this is an announcement to local residents that you’ve formed a new entity. Several other states require an official announcement in the local paper if you filed a doing business as (DBA), also called fictitious business name.

3. Number of Members

This is where an AG and LLC aren’t as similar. With an AG, if the share capital of the company comes out to $3 million (or more), the company needs at least two (if not more) members on the management board. (Please note that an AG consists of two levels of higher-ups: the management board, which surveys the day-to-day goings-on and the supervisory board, which manages the management board.) For every 500 employees that work for the company, there needs to be at least one-third of employee representatives on the supervisory board. Now, for 2,000 (or more) employees, it is required that half of the supervisory board are employee representatives. This type of employee-to-employee-representative ratio is nonexistent in LLCs, which also don’t require a specific number of members or managers—both for single-member and multi-member companies.

4. It’s All About the Name

Both the LLC and AG require that the abbreviation (AG or LLC) or full name (aktiengesellschaft or limited liability company) be added after the company name. However, know that this only applies to joint-stock companies in Luxembourg, Germany, Switzerland, and Austria. And that LLCs can also use other designations such as “Limited” and “Limited Liability Co.” For instance, long-time German energy company, EWE, is formally written as “EWE aktiengesellschaft.” Meanwhile, B2B spirits and wine distribution business, Famous Brands, is officially known as “Famous Brands, LLC.” (You’ll notice that one company has the full joint-stock company indicator at the end, “aktiengesellschaft,” and the abbreviated limited liability company is at the end of the other.) It’s also important to know that companies who aren’t an AG or LLC cannot officially put those abbreviations or the long form versions of them after their names. (When doing an Alabama secretary of state business search, be on the lookout for the “LLC” or “limited liability company” ending.)

5. Limited Liability

Also, both the AG and LLC have limited liability benefits. Shareholders a part of an AG enjoys limited liability in that they aren’t personally liable if the company sinks into debt, with personal assets left untouched. The same applies to an LLC.

Bonus: Share Capital Requirement

Since an AG technically is the public version of a limited company (the more popular Gesellschaft mit beschränkter Haftung is the public version), similar to an American public C or S corporation, its shares can be traded in the public stock exchange. As we’ve touched upon earlier, under the Subject Stock Corporation Act, joint-stock companies are required to have 50,000 euros (or roughly $56,000) in share capital. At least half of this needs to be paid upon registration. This is a big difference compared to single-member or multi-member LLCs, both of which don’t allow its members to have stocks. In fact, since the members are partners, they are not legally allowed to issue stocks. A tradeoff of this is that the LLC normally is taxed like a partnership (however, according to an Entrepreneur article, single-owner LLCs are taxed like a sole proprietorship), which means members are not double taxed as they would be if a part of a corporation.

Final Thoughts

AGs and LLCs share some commonalities, limited liability benefits being at the top of the list. With personal asset protection, it’s no wonder why both business entities are popular in their corresponding countries. Still, the joint-stock company is similar enough to an American corporation since stock is offered and traded in the stock exchange. Nonetheless, growth in both business types is a possibility, as the global economy expands, thanks to improved industrial production, world trade, and overall economic sentiment, as expressed by the United Nations. Do you expect to see more startups file either as an LLC or AG in the near future? Do you see any other similarities or differences between these two business entities? Feel free to share comments and questions in the comment section below!

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