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Comment by OtherShrezzing | Hacker News Reader

Minimum initial share capital of €12,500 to found a company where liability is limited to the firm seems like a very regressive impediment to business. For comparison in the UK, there's a £12 registration fee, and a £1 (one pound) minimum initial share capital. It must put limited liability out of reach of so many people.

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It's extremely regressive. I started an effort to reform things in Italy and... it kinda sorta got some actual results, although not quite as much as I'd hoped

https://blog.therealitaly.com/2015/04/16/fixing-italy-a-litt...

How many days of wages is 12,500 for the average worker? In the US, even for someone making minimum wage, you could pretty quickly cover the costs of forming an LLC, let alone someone making more.

Isn’t that already an option in Italy with the SRL Semplificata and initial capital starting at 1€?

I think that guy's campaign is what resulted in SRL Semplificata in the first place

Yes, that's correct. Other people did the real, heavy lifting to get things done, but my idea caught their attention.

Yes, I lit the fuse on that. I took a look at your site and the first thing I saw was about a guy who lives here in Bend, Oregon, where we moved from Padova. Small world!

Ah that’s quite a neat coincidence!

> It must put limited liability out of reach of so many people.

That's the entire point. The concept that any idiot can start an LLC with no collateral (which the 25k are) is completely, absolutely, mind bogglingly bonkers to us Germans. Sounds like a scam imo.

why is there an assumption that people starting an LLC in Germany not an idiot?

no wonder you guys fell for Wirecard

good thing the EU/Eurozone/EFTA/EEA lets anyone do business with a business entity registered in any member state and accept SEPA in any regional currency

so some microstate with competitive laws and more egalitarian access can circumvent Germany’s exclusionary hurdles

I'm not saying it's great, it's just that German culture has no place for no collateral LLC's. We don't do this here, our business culture is much closer to medieval trade guilds still, rather than a modern globalized economy.

I really get tired of the old world bullshit, especially regarding share capital. It seems it was more useful as a form of Proof of Stake to support old isolated currencies that doesn't have much relevancy in a monetary union.

But I'm glad Luxembourgh, Estonia and others do things that mirror new world novelties, while remaining easier to bank in the EU with than non-EU entities, and look familiar to EU residents.

Companies are the legal ownership equivalents of shipping containers, and enabled a revolution in humanity despite being so simple, much like shipping containers. There is something up with your laws if that is not what they effectively act as to need collateral like that.

I don't fully understand the comment you've made. Why do you believe it to be bonkers or a scam to allow no-capital limited liability firms?

It effectively puts the entire country into a position where unless a citizen is born relatively wealthy, they have to perform labour for someone else for several years while they save up enough to start their own business. Who does the system benefit? What is it preventing? Why has the sky not fallen in on the UK with a near identical economy, but near-zero cost ltd company startup fees?

There are plenty of other forms of companies than LLC which people can use.

With an LLC, the company is only liable with the capital that it has, and if it has none, then it can scam people with impunity (there can be criminal charges if there's outright fraud, but you won't win any money in a civil case against a company that scammed you, if the company has no money).

Don't know how it works in the UK/Germany, but an LLC isn't a complete shield against liability. If you're scamming people or acting recklessly you could easily find your personal assets targeted by a judge.

> It effectively puts the entire country into a position where unless a citizen is born relatively wealthy, they have to perform labour for someone else for several years while they save up enough to start their own business.

Yup that's pretty much the idea. If you think that's unfair, oh boy, wait until you hear about our infamous trade schools and apprenticeships.

Though you're right, incorporation doesn't shield from scammers. We as a nation fell for Wirecard after all.

> If you think that's unfair, oh boy, wait until you hear about our infamous trade schools and apprenticeships.

Got any stories to tell? ;)

Am lost. I started a business here in Germany as a Kleinunternehmer, cost me 30 EUR. GmbH is not the only form available.

This thread is discussing limited-liability companies. You're personally liable for that Kleinunternehmer, in Germany your only option is a GmbH.

I'm responding to the parent "It effectively puts the entire country into a position where unless a citizen is born relatively wealthy..."

Sure the thread is about limited-liability, but parent argues as if non-wealthy people can't form businesses, which is not true.

I see, I think it's implied there that if you're not wealthy then forming a business while assuming all the liability of the business is an equally or larger moat to cross for the poor.

It means that as soon as you screw something up or just get unlucky you might not only lose your business, but your personal savings, house etc.

You're correct, this is the opinion I was trying to get across in my original comment about the inequity in the German system relating to limited liability firms.

If we follow your logic, only the rich will be able to create LLCs then..

> The concept that any idiot can start an LLC with no collateral (which the 25k are) is completely, absolutely, mind bogglingly bonkers to us Germans.

Uhh, what? Have you never heard of UGs? That is, 1 Euro GmbHs.

No it's not. With UG's limited liability is only extended to the collateral put in, meaning that as soon as someone sues you for 2€, suddenly you're liable with your private wealth. A GmbH is a true shield against that, you can be sued for millions and are shielded behind the 25k collateral.

That sounds unlike anything I've ever read about it? Where have you seen this?

Here is the law that regulates GmbHs, with the paragraph specific to UGs:

https://www.gesetze-im-internet.de/gmbhg/__5a.html

Where in the GmbH-law do you find anything to support your claim?

My understanding was so far, that if the initial Stammkapital for an UG is too low, it then is seen under constant thread of insolvency under the law. Meaning that you're effectively always delaying insolvency, which is a crime. So if you then actually go bankrupt, assuming you're both Gesellschafter and Geschäftsführer, you're pretty much guaranteed to be convicted.

Though I have to admit this was 10 years ago when I looked into it. I remember there being a lot of fearmongering around starting an UG back then.

I'm not an expert, especially not on the German law. But here's my understanding:

If a UG with 1 euro in share capital has a large equity, low expenses, and is run prudently, then I don't think the CEO/shareholders are personally liable if the UG is sued for a million euros and must pay that?

Both a GmbH and a UG have a "share capital" (Stammkapital). It is at least 25 000 euros for a GmbH, and 1 euro for a UG. On day 1, this is also the equity (Eigenkapital).

If the company makes profits, that will increase the equity. The equity makes it possible to keep spending money for a while even if the cash flow is negative. A 1 euro UG can in theory have 1 million euros in equity.

In both cases, the CEO is legally obligated to start insolvency proceedings immediately if it looks like the company can't pay its bills or loans any more. This is also required if the equity goes below half the share capital (same as in Sweden, "kontrollbalansräkning").

> if the initial Stammkapital for an UG is too low, it then is seen under constant thread of insolvency under the law

I don't think it's that simple? To begin with, it's the equity and the cash flow that matters, not just the Stammkapital (share capital) by itself. A UG can start out with a very low share capital, but if it has no expenses and a positive cash flow, then insolvency is not a risk, right?

If the cash flow suddenly becomes negative, for instance by losing a big client, or the main product suddenly can't be sold any more, then even a GmbH can be under immediate threat of insolvency. The 25 000 euro in share capital is nothing compared to salaries for a bunch of people, plus an office lease agreement that runs for another couple of years, etc.

So if you're operating a GmbH with employees and an office, then I'd say that it can be "seen under constant threat of insolvency" if it only has the share capital available as equity (or worse, just half of it), and the future income is very uncertain. So both a GmbH and a UG can put the CEO in jail if he plays it fast and loose.

I can definitely see how it is easier for a UG to get into insolvency territory, and above all, people running UGs aren't as familiar with the rules and pitfalls.

I could be wrong on some things? I'm interested to learn more in that case.

This is wrong. The UG offers the same protection as the GmbH. It's probably less trusted.

Funfact: you should always use the full title, Companyname UG (haftungsbeschränkt) on all communications and contracts. Emitting the 'haftungsbeschränkt' or shortening it 'haftungsb.' may make you as a CEO personally liable for damages occured.

You, as CEO, are also personally liable in a GmbH if you screw up very badly. In reality, it might not happen too often, but if you act illegally, you're on the hook: https://de.wikipedia.org/wiki/GmbH-Gesch%C3%A4ftsf%C3%BChrer...

I have a hard time believing there are many scams that have succeeded specifically because the scammer was permitted to set up an LLC with nominal share capital (at least in the last few decades). In the business world it is pretty standard to do due diligence and get collateral for any material exposure to an LLC. So the people who would be taken in would mainly be the vulnerable and uneducated who could likely be scammed without an LLC. There are additional protections against scams via various laws relating to bankruptcy, creditor protection and "piercing the corporate veil" (https://en.wikipedia.org/wiki/Piercing_the_corporate_veil).

Not to mention that the minimum capital requirement is unlikely to deter any determined scammer. All you're really doing is making life slightly difficult for scammers who can't scrape together €12.5k in capital, while simultaneously also making life hard for all the legitimate contractors and (would-be) entrepreneurs who can't scrape together that amount.

If you read the German version of the Wikipedia article you linked, you'll find that this concept is rarely, and I mean _rarely_ applied by courts. It is also case law, which is exceedingly rare in German law. You're going to have a hard time arguing for it's application in court.

Regardless, most laws around incorporation in Germany are a deterrent to any founder, I agree, but I honestly think we don't want this as a society. German culture is about work, and working for _someone_, not starting your own business.

I agree it could, and should be easier, at the same time you won't change a system that evolved from medieval trade guilds.

> German culture is about work, and working for _someone_, not starting your own business.

I wonder how Germany will survive the 21st century, where a key part is to make/capture a market first by some innovation that comes out of some startup scene (Silicon Valley most prominently) and push out all the other players.

German's in tech spheres keep complaining that they are being "ripped of" by the Anglo-Saxon space, but it seems to me it's actually their own mentality that is holding them back.

And of course everyone knows the story about the mp3 format, apparently invented in Germany and monetized in the US

Since 2008 you can found a "UG" ("Mini GmbH") that doesn't require that much upfront capital. It can be foundet with 1 Euro. The catch is that you need use 25% of your yearly revenue until you reached the 25k of a proper GmbH.

https://www.firma.de/en/company-formation/what-is-a-ug-haftu...

correction: 25% of the yearly profit

Thanks. I never know the correct terms of revenue vs. profit :)

The catch is also that everyone can see that you have less than 25k € in funds, so depending on what your customers are, they might not take you serious.

The registration at the notary alone already costs several hundred euros, you would be immediately bankrupt with 1€.

Exactly, there's the notary cost, the monthly banking fees, the yearly books closing and accounting related to that, chamber of commerce registration (recurring yearly as well). You also need to have a mailbox somewhere to be able to receive all the paper work. You can use your home address but it's generally not recommended and frowned upon by land lords.

In my case, I burned through about 2500 euro in the first year just on stuff like that for a holding company that holds shares in my actual company. It takes about 4-5 months to get most of that behind you. Yearly running cost are about 1000 euro (accounting, recurring fees, etc.).

Reading a lot on Germany business culture, my takeaway is that Germany is not made for lean founders who start small but aim big, i.e. your typical startup.

It seems to be aimed either at well established business magnates who want to open yet another business (and 25k€ is nothing in that case) or small bakery-on-the-corner businesses who will go for GmbH anyways (and hence no reason to cough up 25k€).

There's no path that explicitly caters to the tech founder.

Someone correct me if I'm wrong.

Start with a "Einzelunternehmung". Registering that takes 15 to 30 minutes at your local mayors office and costs 30 Euro. From there on you can make something like 20k Euro turnover per year, if you grow out of that, you can still "invest" in a GmbH or whatever suits your needs best.

On the other hand, if you are sure that you're building the next Facebook, getting the money for a GmbH together on day -1 should be no problem at all. It turns out that most companies don't make it that far, though...

That 22k limit is only for the small business rule, which allows the choice of not collecting VAT on sales (but on the flip side cannot deduct it on purchases). Up to a yearly revenue of 0.6M one can also use a simplified profit calculation method for taxes.

Ah yes, you're right. I'm still not that settled in on the rules... :-D

Still suboptimal to have to iterate between business types as I grow (compared to other jurisdictions).

This "slow grow" mindset is so typical German. No one know who the next Facebook/Meta will be - but I would guess for some VCs (not all though) it helps to show you're not some random sole trader

There are 2M sole proprietorships in Germany and around 0.4M partnership type companies (Personengesellschaft; GbR, etc.) and aside from the aspect of trying to appear like a large corporation while actually being a small start-up, they are perfectly adequate for many businesses.

There is also no limit on how large a sole proprietorship can grow. While mostly held up as example for why one might not want to keep the company form a sole proprietorship forever, Schlecker scaled from a single shop to over 14000 stores near the end and a couple billion euro revenue per year.

A lot of German law is based around the unstated assumption that business owners are 19th century industrial tycoons and all workers are employees. There are a lot of protections for employees (dependent workers) but practically zero for freelancers, for example. The concept of co-owning a business with your spouse is also alien to German law as in almost every situation it's more beneficial for one of both to either be an employee or primarily work elsewhere.

And don't get me started on being a business owner and wanting to become a mother. A lot of women business owners abandon their companies to get hired as regular employees when they want to have children.

Is running under a limited enough to limit liability? I'm no lawyer but thought you'd have to establish all the corporate infra (bank, tools, etc) to avoid piercing the veil in your daily ops.

Yes. The corporate veil isn't a literal one - you own the company in your real name, registered to your real address, but the company is the entity that is at risk from legal action unless you've explicitly offered a personal guarantee.

Depends if this can be spend. On things like equipment, services and wages and so on. It is not actually that much money as runaway for most fields.

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