Knowledge – Convertible Loans & Equity Rounds – Do’s and Don’ts

The starting point.

Germany’s strong economy and thriving startup hubs like Berlin and Munich have made it a magnet for international entrepreneurs. For many EU and non-EU founders, establishing a Gesellschaft mit beschränkter Haftung (GmbH) – Germany’s limited liability company – is an attractive way to enter the market. The GmbH offers credibility to investors and partners, as well as the benefit of limited liability. This guide provides a step-by-step overview of the GmbH formation process – from choosing a company name to registering with authorities – and highlights important considerations for founders from both within and outside the EU (excluding visa or residence permit matters). 

Step 1: Plan Your GmbH – Name, Address, and Purpose

Choose a unique company name. The first step is deciding on a name for your GmbH. The name can be creative or descriptive of your business activity, and it may include founders’ names or a brand – but it must be distinguishable from existing company names and must not be misleading. Every GmbH name must also include the designation “GmbH” at the end to indicate its status as a limited liability company. It’s wise to check the German commercial register and even consult the local Chamber of Commerce (Industrie- und Handelskammer, IHK) to ensure no other business in your sector and region has a similar name that could cause confusion. The IHK can provide a statement of no objection for your chosen name, which may smooth the registration process with the authorities. We also do strongly advise to check the respective register of the German Patent and Trademark Office in order to find out whether the chosen name is protected unter trademark law. Additionally, consider securing an available web domain and any trademarks related to your name as part of your planning.

Establish a registered office in Germany.

A GmbH is required to have a registered office (Satzungssitz) in Germany – this is the official address that will appear in the company’s formation documents and records. The registered office determines which local court your company will register with. Importantly, the registered office address must be a German address, but it doesn’t need to be a traditional office space – many startups use virtual office services or co-working spaces as their GmbH’s registered address. The key is that you have a reliable mailing address in Germany for official communications. If none of the managing directors or founders live in Germany, it’s recommended to have a local representative or service provider who can handle official mail and correspondence on behalf of the company. (Having a “local representative” simply means someone authorized to receive documents and notices at the German address – it does not mean the company must have a German-national director or owner, as nationality and residence of shareholders or directors are not restricted for GmbH formation).

Define the business purpose.

As part of planning, you should clearly define the intended business purpose (Unternehmensgegenstand) of your GmbH. The business purpose is a brief description of the company’s main activities and will be written into the Articles of Association (the founding document). While this can be broad, it’s best to keep it focused enough to reflect your core business without accidentally including activities that might require special licenses. For example, if you plan a software development business, you might state a purpose like “development and distribution of software and related IT services” – broad enough to cover future pivots, but clear in scope. A well-defined purpose helps avoid delays in registration; overly vague or extremely wide-ranging purposes can raise questions with authorities. If your business is in a regulated industry (finance, pharmaceuticals, etc.), be mindful that you may need additional permits, though for most typical startup activities no prior government approval is required beyond the standard registrations.

Step 2: Share Capital Requirements and Contributions

Understand the capital requirement.

Germany requires a minimum share capital of €25,000 to found a standard GmbH (Stammkapital). This capital provides financial substance to the company and assurance to creditors, and it is divided into shares that each shareholder holds. You do not necessarily need all €25,000 in cash upfront at the moment of formation – German law allows you to start a GmbH by paying in half of the minimum capital (at least €12,500)before registration. (The remaining half can be contributed later, and until it is fully paid, the shareholders are liable for the unpaid amount internally.) However, it’s strongly recommended to fully fund the share capital as soon as possible, because until the full €25,000 is paid in, the shareholders could be personally liable up to the unpaid portion of the capital if the company can’t meet its obligations. Contributing the entire €25,000 from the outset provides extra assurance and avoids any gap in liability for the founders.

Cash vs. contributions in kind.

The share capital can be contributed in cash or as non-cash assets (contributions in kind). Most startups choose cash for simplicity. If you plan to contribute assets (like equipment, intellectual property, or other tangible/intangible assets) instead of cash, these in-kind contributions must be valued and specifically described in the Articles of Association. An independent valuation or documentation will be required to prove their worth, and the assets must be fully transferred to the company’s ownership. Note that if you use in-kind contributions, the full stated value must be contributed at formation (the law doesn’t allow paying half in kind – only cash contributions have the half/half option). Given the extra complexity of valuation and documentation, many founders stick to cash contributions unless an asset contribution is strategically necessary.

Prepare to demonstrate the capital.

You will need to demonstrate to the notary and the commercial register that the minimum capital has been paid into the company. This means that after signing the formation documents (see Step 3), the founding shareholders must deposit their shares of the capital into a new bank account opened in the company’s name. The notary will typically not forward the registration application to the commercial register until they have proof that the required capital amount has been paid into the account. It’s a good idea to plan which bank you will use ahead of time. Research banks in Germany that work with startups and international founders. In practice, the timeline works as follows: you sign the incorporation papers at the notary, use those documents to open the account, deposit the money, and then provide evidence of the deposit back to the notary so they can finalize the registration filing.

Bank account considerations for foreign founders.

Opening a bank account may be straightforward if you (or one of your co-founders) already have a relationship with a bank in Germany, but it can be more challenging if all founders are non-residents. German banks are required to perform strict Know-Your-Customer (KYC) and anti-money-laundering checks. If the shareholders or ultimate beneficial owners are not German residents, be prepared for additional paperwork and due diligence questions during the account opening. In some cases, it can take several weeks to set up a bank account for a new company when the owners are abroad, so factor this into your timeline. Starting the conversation with a bank early is helpful – many banks will provide a list of required documents (certified copies of passports, proof of address, etc.) in advance. You might also explore fintech alternatives: some online business banking services in Germany cater to startups and may have more streamlined processes for international founders, though they still must comply with KYC rules.

Capital contributions and exchange rates.

If you are transferring funds from outside the Eurozone, remember that your contribution must equal €25,000 in value (or €12,500 for the initial half) after conversion to euros. You should transfer a bit extra to account for any bank fees or exchange rate fluctuations so that the net deposit meets the requirement. The bank will issue a confirmation of the amount deposited, which you’ll present to the notary. Once the company is registered, the money in the bank account belongs to the company and can be used for business expenses (it’s not “frozen” capital). Just ensure that the company maintains enough funds to meet its liabilities; the €25,000 minimum capital is a baseline equity that gives credibility, but it’s not locked away – it can fund your startup’s initial operations.

Consider a shelf company if time is critical.

If you are in a hurry to start operations or anticipate difficulty with opening a bank account (a common pain point for non-EU founders), another option is purchasing a shelf company. A shelf company (Vorratsgesellschaft) is a pre-registered, empty GmbH that service providers sell – it has no business operations but is fully formed and has a bank account already open. By buying a shelf GmbH, you skip the waiting period for registration; you simply notarize a share purchase agreement to transfer the company to you and change the name and details as needed. The trade-off is cost: shelf companies are more expensive than forming a new GmbH because you’re paying for the convenience. Still, for some foreign entrepreneurs who face weeks of delay in account opening or registration, a shelf company can accelerate the launch. If you go this route, legal support is essential to navigate the notarization and ensure the shelf company has no hidden liabilities. Shelf companies must also be updated in the commercial register with the new owners and any new managing directors, but this is generally quicker than registering from scratch.

Step 3: Notary Appointment and Formation Documents

Drafting the Articles of Association (Gesellschaftsvertrag).

The Articles of Association are the constitutional document of your GmbH – they detail the company name, registered office, business purpose, share capital, the number and value of shares each founder takes, and any special rules on shareholder rights or profit distribution. In essence, this document answers who the shareholders are, what the company will do, where it is located, and how it will be structured. German law provides a lot of flexibility in the articles, so you can include clauses about how decisions are made, how shares can be transferred, or what happens in a dispute. If your startup has multiple founders, investors, or special arrangements (like vesting of shares, veto rights, etc.), it’s best to have a lawyer draft customized articles to fit your needs. As the Articles of Association are public, there are cases, in which you should think of a so-called „Shareholders‘ Agreement“. In such an agreement you can agree on arrangements like tag-along or drag-along clauses with your co-founders and/or investors that do not concern the public.

Notary involvement – a legal requirement.

In Germany, you cannot simply fill out paperwork and mail it in to create a company – a notary public must officiate the GmbH formation. The notary will prepare a formation deed (Gründungsprotokoll) which typically includes the Articles of Association and the appointment of the initial managing director(s). All founding shareholders (or their authorized representatives) and the appointed managing director will attend a notary appointment to sign the documents. The notary will read the Articles of Association aloud to ensure everyone understands the content (if you do not speak German, this will be done through a translator or a bilingual notary). Once everyone agrees, the documents are signed and notarized (in German, beurkundet). This step is mandatory – the incorporation must take place in person (or via a special online procedure) before a German notary.

Language and translation:

The official formation documents will be in German, as that is the language of the commercial register and legal system. If you are not comfortable in German, you can request a bilingual drafting (German with an English translation side-by-side) for information purposes. The notary can also arrange for a sworn interpreter to be present during the signing. It’s important that you understand what you’re signing, so don’t hesitate to ask for clarification or translation – notaries are used to working with international clients in startup hubs like Munich or Berlin. At pikepartners. we usually accompany our clients to the notary appointment and are available to answer questions and clarify any uncertainties.

If you cannot attend in person.

Ideally, all founders attend the notary appointment in Germany. If that’s not possible (for example, you’re overseas and can’t travel easily), you can appoint a proxy, e.g. one of our lawyers, to represent you at the notary. This is done by giving someone a power of attorney (Vollmacht) that is notarized and, if signed abroad, often needs an apostille or consular legalization for use in Germany. The power of attorney document itself must typically confirm the authority of the signatory – for instance, if a company is the shareholder, the POA should prove that the person signing on the company’s behalf is authorized to do so. In practice, many international founders find it simpler to travel to Germany for a day or two to handle the notary appointment and bank account opening in person, rather than dealing with the complexity of foreign document certification. However, if travel isn’t feasible, working with us as your German legal counsel to coordinate a POA in your home country is a viable path. 

Notary fees and timeline.

Notary fees in Germany are statutory (notaries charge fixed rates based on the value of the transaction, i.e., the share capital and complexity of the documents). For a standard €25,000 GmbH with simple articles, notary fees and initial court registration fees might total a couple of hundred euros – this can increase with more complex arrangements or higher capital. The notary will also charge for any translations or extra certifications needed. After the signing, the notary’s office will handle submitting the electronic application to the commercial register (Handelsregister) once they have proof that the share capital is paid (as discussed in Step 2). Generally, the notary will ask you to send a confirmation from the bank (like a deposit slip or bank letter) showing that at least the minimum required capital is in the account. Upon receiving that, the notary uploads all documents to the registry electronically.

Step 4: Registration with the Commercial Register (Handelsregister)

Filing the application.

With the notary deed signed and capital paid in, the notary will file an application for registration of the new GmbH in the commercial register at the competent local court (Amtsgericht). The application includes various documents: the notary’s certified formation protocol (with the Articles of Association and the initial shareholder signatures), a list of shareholders, and statements by the managing director(s) accepting their appointment and confirming they have no legal disqualifications for the role. The managing director(s) must declare, for example, that they have not been convicted of certain financial crimes (such as fraudulent bankruptcy) that would bar them from serving. This is largely a formality for honest entrepreneurs, but it’s an important part of German company law’s integrity checks.

Waiting for registration approval.

Once the notary submits the documents electronically, the timeline for registration is typically around one to two weeks, though it can vary by region and workload of the court. The court’s registry officials will review the application to ensure everything is in order – they check that the company name is acceptable, the share capital is paid (proof provided), the managing directors’ information is complete, and all required documents are present. If something is missing or needs clarification, the notary or we as your lawyers will be contacted to resolve it. In most straightforward cases, however, registration is a fairly routine process. Once the review is completed and the company is officially entered into the commercial register, the notary will be notified and can provide you with the registration excerpt (Handelsregisterauszug).

Legal effect of registration. The GmbH as a company with limited liability comes into legal existence only upon its entry in the commercial register.

Before registration, in the interim phase after notarization, the entity is sometimes referred to as a “GmbH in formation” (Vor-GmbH). It can act in a limited capacity (e.g., you might begin setting up contracts or hiring in preparation), but be extremely cautious with pre-registration commitments. If you or the founders sign contracts on behalf of the company before it’s officially registered, you can be held personally liable for those obligations if the company doesn’t honor them. The limited liability shield only “switches on” once registration is complete. Therefore, it’s usually best to wait for the registration confirmation before engaging in significant business transactions as “GmbH”. If you must act sooner (perhaps due to business timing), consult us as your legal advisor on how to manage this risk – often counterparties can be made aware that the company is not yet registered and agree to wait for the registration or include a clause that the contract is void if registration fails.

When registration is done, congratulations – your GmbH is now a legal entity! You’ll receive a registration number and your company’s details will be publicly visible in the online commercial register. From this point, the GmbH can fully operate, enter contracts, hire employees, and conduct business, with its liability limited to the company’s assets (i.e. the shareholder(s)’ personal assets are protected, provided you follow all corporate formalities).

Step 5: Post-Registration Steps – Trade Office, Tax, and Other Registrations

The work isn’t over once the GmbH is registered – there are a few post-incorporation registrations and notifications you must complete to legally start business operations in Germany.

• Trade Office Registration (Gewerbeanmeldung): In Germany, most businesses must notify the local Trade Office (Gewerbeamt) or Ordnungsamt of the commencement of business. This is a simple procedure where you file a form (and pay a small fee, usually around €50) to officially register your business activity in that municipality. Even though a GmbH is formed at the national level via the commercial register, the local authorities require this notification for any commercial activity in their area. Once your GmbH is registered, head to the trade office (or its online portal, if available) in the city where your company’s registered office is located. In many cases, no special license or permit is needed just to register the business – the trade office registration is mostly a formality if your business is in a standard industry. They will issue a trade registration certificate (Gewerbeschein). If your company’s activities are in a regulated field (e.g., running a restaurant, financial services, medical services, etc.), you may need to show additional permits or qualifications at this stage, but for typical tech startups (software development, consulting, ecommerce) no additional trade permits are required beyond the registration itself.

• Tax Registration: Next, you need to register your GmbH with the tax authorities (Finanzamt) to obtain a tax number (Steuernummer) and, if applicable, a VAT ID (Umsatzsteuer-Identifikationsnummer). In many cases, once your company is on the commercial register and trade register, the tax office may proactively send you a questionnaire to fill out about your new company’s expected business activities, revenues, and so on. If you don’t receive something within a couple of weeks of formation, be sure to contact the local tax office or look for the “Fragebogen zur steuerlichen Erfassung” online to fill out. Every GmbH must have a tax number for corporate income tax and trade tax purposes, and if you plan to do business that involves charging VAT (most do), you should apply for the VAT ID as well. The tax registration process involves detailing your business activity, the official representatives, and sharing the Articles of Association and registration excerpt. Once processed, the tax office will issue a tax number (this is used on invoices and for filing taxes). Getting the VAT ID (an EU-wide identifier for sales tax transactions) might take a bit longer, but you can often request it at the same time in the questionnaire. It’s crucial not to skip this step – operating without proper tax registration can lead to penalties. Fortunately, it’s usually straightforward as long as you provide all information requested.

• Transparency Register (Transparenzregister): Germany, like other EU countries, maintains a Transparency Register for companies to declare their ultimate beneficial owners (UBOs). A UBO is usually the individual who ultimately owns or controls the company (e.g. a founder with more than 25% shares or voting rights). New GmbHs are required to register their beneficial owner information on the Transparency Register shortly after formation. This is an online filing where you provide the name, birth date, nationality, and address of the individuals who are the ultimate owners, along with the nature and extent of their ownership (e.g., “50% of shares and voting rights”). If you are a small founding team, this is usually just each founder. If your company is owned by another company, you trace up to the individuals behind that parent company. Note that if your ownership is already fully reflected in the public commercial register (which for most straightforward GmbHs it will be), Germany recently changed the law so that a separate filing may not be required – however, in practice, many still submit it to be safe or if notified by authorities. It’s wise to consult your legal advisor on this, but in general, be prepared to comply with the transparency rules to avoid fines.

• Other licenses/registrations: Depending on your business, there might be additional registrations. Common ones include enrolling your company with the local Chamber of Commerce and Industry (IHK) – this often happens automatically via the trade office, as membership in the IHK is mandatory for most businesses (they will send a welcome letter and later an annual fee invoice, typically a modest amount for small companies). If you plan to hire employees, you will need to register with the social security and health insurance system as an employer. If your business involves importing/exporting outside the EU, you might register for an EORI number (Economic Operators’ Registration and Identification) for customs. Tech startups usually won’t need special permits, but always consider if there are industry-specific regulations (for example, fintech or medtech startups may have extra compliance steps).

Managing Directors: Roles and Considerations for International Founders

Every GmbH needs at least one Managing Director (Geschäftsführer) appointed – this is the person (or people) who will legally represent the company and handle its day-to-day management. Managing Directors are appointed as part of the formation process (they are named in the notary’s formation deed and in the application to the commercial register). Here are key points to know about managing directors:

• Who can be a managing director: There is no requirement for the managing director to be a German or EU citizen or resident. Any adult individual with legal capacity can serve in this role, including a founder or an external hire, regardless of nationality. What matters is that the person is trustworthy (they must declare they have no recent convictions for financial crimes) and competent to run the business. It’s common in startups that the founder who is driving the business will also be the managing director, but you can appoint someone else (for example, if an investor or parent company wants to install their own director, or if the founders live abroad and want a local person on the ground).

• Duties and liabilities: A managing director has a fiduciary duty to the company – they must act in the company’s best interest, comply with laws, and ensure proper bookkeeping and tax filings. They sign contracts on behalf of the GmbH and are responsible for things like filing annual accounts and making sure the company pays its taxes. While the GmbH structure protects shareholders’ personal assets, managing directors can be held personally liable in cases of negligence or legal violations (for example, if they knowingly don’t pay taxes or engage in fraud). It’s important to choose an MD who is both capable and trustworthy. If you are the founder and also the MD, familiarize yourself with German compliance requirements to avoid unintentional missteps.

• Multiple directors: You can have more than one managing director. The Articles of Association or a shareholders’ resolution will specify whether the directors can represent the company alone or only jointly. For example, some companies require that two directors sign together for certain transactions as a checks-and-balances measure. If you have co-founders, you might appoint all of them as managing directors and allow each to act individually, which is efficient for a small startup. On the other hand, if you bring in a director who is not a shareholder, the shareholders’ agreement (if you have one) should outline how decisions are made to keep strategic control. Make sure any combination of directors is acceptable to you and reflected properly in the incorporation documents.

• International considerations: If you, as a non-EU citizen, are the sole managing director and you plan to run the company from abroad, be aware of practical hurdles. German banks, for instance, may want to meet the managing director in person as part of opening an account (though some allow video verification). Also, while not a legal requirement in the formation process, in practice the managing director will need to be able to be present in Germany as needed – for example, to sign documents at the notary and to handle any on-site obligations. Some international founders choose to appoint a local co-managing director in Germany whom they trust, especially if the founders will not be physically present often. This can facilitate handling day-to-day administrative tasks and communication with German authorities. However, this is optional and should be weighed carefully – any managing director has a lot of power to act for the company, so it must be someone reliable. The law does require that the GmbH maintains a German address, and having a managing director or authorized receiver in Germany helps ensure the company doesn’t miss important official notices.

• Documentation: Upon incorporation, each managing director will sign a document for the commercial register declaring they accept the role and confirming no disqualifying circumstances (as noted earlier). If a managing director later changes (you hire a new CEO or a founder leaves, for example), that change also needs to be notarized and filed with the commercial register. Keep in mind that any change in directors or articles requires a notary and registry update in Germany – one of the ongoing formalities to budget time and cost for.

In summary, the managing director is the legally responsible helmsperson of the GmbH. Choose the individual(s) for this role with care, ensure they are informed about their duties, and if you are the MD, know that while you have broad authority to run the company, you also carry the responsibility to do so lawfully.

Conclusion: Ready to Launch Your German GmbH?

Forming a GmbH in Germany as an international founder may seem bureaucratic, but with the right preparation it can be a smooth process. You’ve seen the key steps: picking a solid name and business plan, gathering the required capital, navigating the notarization, and completing the necessary registrations. Germany offers a stable legal environment and a strong reputation for businesses – once your GmbH is established and all formalities are done, you can fully focus on growing your startup in Europe’s largest market.

Need assistance with your GmbH formation?

The process involves many formal steps and careful attention to detail. At pikepartners., we specialize in helping both EU and non-EU entrepreneurs establish companies in Germany’s startup ecosystem. Our experienced legal team can guide you through each stage – from drafting your Articles of Association and liaising with notaries, to opening bank accounts and handling post-registration filings – ensuring your new GmbH gets off to a strong start. Contact us today for tailored legal support in launching your business in Germany. We’re here to make your GmbH formation as straightforward and stress-free as possible, so you can focus on what you do best: building your venture’s success.