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I worry that Lukas is about to find out about the business end of the Umwandlungssteuergesetz: converting a Einzelunternehmen to a GmbH is a surprising amount o

by pudo 3y ago

I worry that Lukas is about to find out about the business end of the Umwandlungssteuergesetz: converting a Einzelunternehmen to a GmbH is a surprising amount of faff, and once you've done it you (normally) end up with a company you can't easily sell for 7 years without paying some pretty hard-core taxes. I got to do this whole dance early this year, and it took a big bite of momentum out of the little bootstrap I was trying to pull. As weird as it sounds: German founders, consider just biting the bullet and doing a GmbH straight away. Conversion is no fun. And even worse, UGs are hated by everyone with a law degree for absolutely no reason, but they will try to make your life as difficult as they can just to show who is boss.

_antix 3y ago
Author here. I appreciate your points. I started the business as a learning experience without any thought of the end game. Now that I am wiser and with some money a GmbH is the way to go for the next business.
slow_typist 3y ago
While bootstrapping, you do not know whether you would ever want to go full GmbH. So biting the bullet is a little bit like betting on the future. You have considerably higher cost and hassle from day one on and would need a tax consultant for doing your yearly balances. Of course all the cool kids have GmbHs but do you really need it? Its main advantage is that you can sell it at once or in pieces if you need financing, but even that is manageable with an Einzelunternehmen. With regard to risk, the CEO of a GmbH is still personally liable for a lot of risks and liabilities including the social insurance payments of employees. Also, all risks you can get insurance for you should get insurance for regardless of the form of the enterprise. Agree that the UG is the worst choice since you are basically announcing you have zero savings behind and can generally not be trusted. If you want to get more serious with your Einzelunternehmen, you could also consider becoming an „e.K.“ (eingetragener Kaufmann). Same tax rules but full HGB (Handelsgesetzbuch, special law that governs interactions between companies) applies.
- hnbad 3y ago
  Realistically, it's entirely possible to bootstrap without going full GmbH right away as long as you can do it quickly. There's a grace period where you can retroactively designate stuff to fall under the GmbH you created later and if you are smart about it, you can move your software project into the GmbH if it's plausible that it was created during that period. In other words: you don't need a GmbH to build a prototype but it's probably a good idea to have the GmbH in place before you're production ready. Also people are way too squeamish about UGs (micro-GmbHs): they're actually fairly normal in the startup space and end users don't care about that distinction and larger companies are more interested in knowing you have sufficient capital/insurance to cover any liability claims rather than what it says on your letterhead - a full GmbH isn't worth anything to them either because they know you can literally buy and repurpose a shell GmbH for cheap. I agree that a GmbH is not necessary if you don't consider VC investment an early/eventual goal for your product. If you can bootstrap and build a sustainable product, the biggest advantage is that having a GmbH (or UG) makes it easier to appear as a serious business but as you say, often e.K. is another viable route for that. And as you say, the managing director of a GmbH is still personally liable for anything that could be considered a neglect of their legal duties. Plus the way most people found GmbHs, the owner(s) are usually €12.5k in debt to the company as you only need to transfer €12.5k of the €25k initial capital directly to the company's bank account. That said, things get messy if you're in GbR territory, i.e. if you have a co-founder who is a co-owner. You can approximate something of a worker cooperative by having everyone individually be an Einzelunternehmen but then you'll have to structure your business in such a way to still split profits fairly while also avoiding running afoul of Scheinselbstständigkeit (fake self-employment) - there's a good example in the Premium Kollektiv[0] (and plenty of literature and research articles have been written about their approach) but this is more of a case of "bending the law" and not something the law was written to explicitly support. A GmbH has the advantage of being structured in such a way you can precisely define split ownership but the disadvantage is that by default this will mean your co-founder can just decide to quit and still retain their ownership because the ownership and the job are legally distinct concepts. Lastly an often overlooked caveat of GmbHs (although this in part also goes for all self-employment) is that German laws are written with the idea that "business owners" have access to generational wealth and are thus exempt from many aspects of the welfare state and this is even reflected in times of crisis: there were for example COVID relief programmes for solo-entrepreneurs (including solo GmbH owners with no employees) as well as COVID relief measures to allow downscaling employee hours (and thus costs) but if you were a small GmbH with more than one owner, most programmes were not available to you. Things also get nasty if you're a woman who wants to have children while owning (or co-owning) a GmbH: legally the best option for heterosexual couples looking to start a business is still for the woman to be an employee (no, not a managing director either) and own zero shares in the company and even then the German IRS may decide that the woman has a controlling influence and retroactively reclassify her as a co-owner. In short: if you're an entrepreneur in Germany, either don't be a woman or plan to abandon your company in favor of dependent employment if you try to get pregnant. [0]: https://premium-kollektiv.de/ https://premium-kollektiv.de/
Atropos 3y ago
If you are planning on VC-like returns by selling your company, you should start with a holding GmbH and an operative GmbH below (or crazier structures like a Holding GmbH & Co. KG). But: This way you have the maximum administrative costs and complexity in the beginning... I think starting as an Einzelunternehmer makes sense in certain situations. I'm not a tax lawyer, but I'm a lawyer in a firm that advises startups and I have seen a lot of "Starts as Einzelunternehmer -> Does asset sale to own GmbH" type deals... "Normal" lawyers / tax advisors will never recommend this, because it is not a "simple check the box" exercise, and "sophisticated" lawyers are incredibly expensive.

by pudo 3y ago

_antix 3y ago

Author here. I appreciate your points. I started the business as a learning experience without any thought of the end game. Now that I am wiser and with some money a GmbH is the way to go for the next business.

slow_typist 3y ago

While bootstrapping, you do not know whether you would ever want to go full GmbH. So biting the bullet is a little bit like betting on the future. You have considerably higher cost and hassle from day one on and would need a tax consultant for doing your yearly balances. Of course all the cool kids have GmbHs but do you really need it? Its main advantage is that you can sell it at once or in pieces if you need financing, but even that is manageable with an Einzelunternehmen. With regard to risk, the CEO of a GmbH is still personally liable for a lot of risks and liabilities including the social insurance payments of employees. Also, all risks you can get insurance for you should get insurance for regardless of the form of the enterprise. Agree that the UG is the worst choice since you are basically announcing you have zero savings behind and can generally not be trusted. If you want to get more serious with your Einzelunternehmen, you could also consider becoming an „e.K.“ (eingetragener Kaufmann). Same tax rules but full HGB (Handelsgesetzbuch, special law that governs interactions between companies) applies.

hnbad 3y ago
Realistically, it's entirely possible to bootstrap without going full GmbH right away as long as you can do it quickly. There's a grace period where you can retroactively designate stuff to fall under the GmbH you created later and if you are smart about it, you can move your software project into the GmbH if it's plausible that it was created during that period. In other words: you don't need a GmbH to build a prototype but it's probably a good idea to have the GmbH in place before you're production ready. Also people are way too squeamish about UGs (micro-GmbHs): they're actually fairly normal in the startup space and end users don't care about that distinction and larger companies are more interested in knowing you have sufficient capital/insurance to cover any liability claims rather than what it says on your letterhead - a full GmbH isn't worth anything to them either because they know you can literally buy and repurpose a shell GmbH for cheap. I agree that a GmbH is not necessary if you don't consider VC investment an early/eventual goal for your product. If you can bootstrap and build a sustainable product, the biggest advantage is that having a GmbH (or UG) makes it easier to appear as a serious business but as you say, often e.K. is another viable route for that. And as you say, the managing director of a GmbH is still personally liable for anything that could be considered a neglect of their legal duties. Plus the way most people found GmbHs, the owner(s) are usually €12.5k in debt to the company as you only need to transfer €12.5k of the €25k initial capital directly to the company's bank account. That said, things get messy if you're in GbR territory, i.e. if you have a co-founder who is a co-owner. You can approximate something of a worker cooperative by having everyone individually be an Einzelunternehmen but then you'll have to structure your business in such a way to still split profits fairly while also avoiding running afoul of Scheinselbstständigkeit (fake self-employment) - there's a good example in the Premium Kollektiv[0] (and plenty of literature and research articles have been written about their approach) but this is more of a case of "bending the law" and not something the law was written to explicitly support. A GmbH has the advantage of being structured in such a way you can precisely define split ownership but the disadvantage is that by default this will mean your co-founder can just decide to quit and still retain their ownership because the ownership and the job are legally distinct concepts. Lastly an often overlooked caveat of GmbHs (although this in part also goes for all self-employment) is that German laws are written with the idea that "business owners" have access to generational wealth and are thus exempt from many aspects of the welfare state and this is even reflected in times of crisis: there were for example COVID relief programmes for solo-entrepreneurs (including solo GmbH owners with no employees) as well as COVID relief measures to allow downscaling employee hours (and thus costs) but if you were a small GmbH with more than one owner, most programmes were not available to you. Things also get nasty if you're a woman who wants to have children while owning (or co-owning) a GmbH: legally the best option for heterosexual couples looking to start a business is still for the woman to be an employee (no, not a managing director either) and own zero shares in the company and even then the German IRS may decide that the woman has a controlling influence and retroactively reclassify her as a co-owner. In short: if you're an entrepreneur in Germany, either don't be a woman or plan to abandon your company in favor of dependent employment if you try to get pregnant. [0]: https://premium-kollektiv.de/ https://premium-kollektiv.de/

Atropos 3y ago

If you are planning on VC-like returns by selling your company, you should start with a holding GmbH and an operative GmbH below (or crazier structures like a Holding GmbH & Co. KG). But: This way you have the maximum administrative costs and complexity in the beginning... I think starting as an Einzelunternehmer makes sense in certain situations. I'm not a tax lawyer, but I'm a lawyer in a firm that advises startups and I have seen a lot of "Starts as Einzelunternehmer -> Does asset sale to own GmbH" type deals... "Normal" lawyers / tax advisors will never recommend this, because it is not a "simple check the box" exercise, and "sophisticated" lawyers are incredibly expensive.