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What does GmbH mean?

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2011-10-10 14:24:52

"Gesellschaft_mit_beschränkter_Haftung" id=

"Gesellschaft_mit_beschränkter_Haftung">Gesellschaft mit

beschränkter Haftung

It basically means a Company with limited liability or limited

company.

Gesellschaft mit beschränkter Haftung (GmbH) is a type of legal

entity very common in Germany (where it was created in 1892),

Austria (adopted in 1906; legal abbreviations are GmbH, GesmbH,

Ges.m.b.H.), Switzerland, and other Central European countries. In

Germany, it is governed by a federal law called "GmbH-Gesetz" (GmbH

law)

Literally translating as company with limited liability, the

concept mit beschränkter Haftung inspired the legal establishment

of the limited liability company form in other countries,although

the concept of a limited liability company already existed in the

United Kingdom. The name of the GmbH form emphasizes the fact that

the owners (Gesellschafter, also known as members) of the entity

are not personally liable for the company's debts. Other variations

include mbH (used when the term Gesellschaft is part of the company

name itself), and gGmbH (gemeinnützige GmbH) for non-profit

companies.

The GmbH has become the most common corporation form in Germany,

since the AG (Aktiengesellschaft), the other major company form

corresponding to a stock corporation, was until recently much more

complicated to form and operate.

It is widely accepted that a GmbH is formed in three stages: the

founding association, which is regarded as a private partnership

with full liability of the founding partners/members; the founded

company (often qualified with "i.G.", meaning "in Gründung"); and

the fully registered GmbH. Only the registration of the company in

the Commercial Register (Handelsregister) provides the GmbH with

its full legal status.

The founding act and the articles of association have to be

notarized. The GmbH law outlines the minimum content of the

articles of association, but it is quite common to have a wide

range of additional rules in the articles.

Under German law, the GmbH must have a minimum founding capital

of €25,000. A supervisory board (Aufsichtsrat) is required if the

company has more than 500 employees, otherwise the company is run

only by the managing directors (Geschäftsführer) who have

unrestricted proxy for the company. The members acting collectively

may restrict the powers of the managing directors by giving them

binding orders. In most cases, the articles of association list the

business activities for which the directors must obtain prior

consent from the members. Under German law, a violation of these

duties by a managing director will not affect the validity of a

contract with a third party, but the GmbH may hold the managing

director in question liable for damages.

Because a legal entity with liability limited to the contributed

capital was regarded in the 19th century as something dangerous,

German law has many restrictions unknown to common law systems. A

number of business transactions have to be notarized, such as

transfer of shares, issuing of stock, and amendments to the

articles of association. Many of those measures have to be filed

with the company registry where they are checked by special judges

or other judicial officers. This can be a tiresome and

time-consuming process as in most cases the desired measures are

only legally valid when entered into the registry. Because there is

no central company registry in Germany but rather several hundred

connected to regional courts, the administration of the law can be

rather different between German states. Since 2007 there is an

internet-based central company register for the whole of Germany,

called "Unternehmensregister".


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