Corporation Explanations

Corporation or partnership – when setting up a company, the founders must choose a legal form . This can be a partnership or a corporation, depending on the capital base, the number of people involved and liability issues. In partnerships, the focus is on the people involved. In the case of corporations, the capital employed is particularly relevant. There are different types of corporations, the most common being the public limited company (AG) and the limited liability company (GmbH) . The legal regulations on corporations can be found in the Commercial Code (HGB), while the regulations of the BGB and HGB apply equally to partnerships.

Features of the corporation


Capital is the defining characteristic of society. The profit generated is due to the owners of the corporation according to their capital shares. The owners do not have to work for the company or run the company. This is particularly evident in public companies, which often have millions of owners. The resignation or death of shareholders does not affect the existence of the corporation, because the corporation is a legal person and continues to exist independently. In the case of a corporation, liability relates to corporate assets; liability to private assets only applies in exceptional cases. In contrast to a general partnership or the general partner of a Limited partnerships , which are also obliged to be liable to private assets, generally do not affect the private assets of the shareholders of a corporation.

Capital contribution

In a corporation, society and shareholders are strictly separated from each other. As a legal person, the corporation can conclude management and employment contracts with the shareholders. The minimum capital depends on the type of corporation; it must be paid in due to the limitation of liability. For a GmbH the minimum share capital is 25,000 euros, for a stock corporation (AG) the minimum capital is 50,000 euros. In the case of a GmbH, the contribution does not have to be made in cash; contributions in kind in the form of cars, machines or other material goods are possible and common. No contributions in kind can be made in an entrepreneurial company. In a stock corporation (AG), the minimum capital is paid by the shareholders, by acquiring shares as shares in the company. The corporation is a form merchant. This means that due to her legal form she is a businessman although she is not a natural person. The activity does not matter. For the GmbH as a merchant, the regulations of the Commercial Code apply in addition to the laws for the GmbH or the stock corporation.

Foundation of the corporation

Short for C by abbreviationfinder, a corporation is created when it is entered in the commercial register. The limitation of liability begins with the entry in the commercial register. Before registration in the commercial register must be a social contract be closed and a managing director must be named. The articles of association must be notarized. In the time between the notarial certification and the entry in the commercial register, a GmbH exists as a pre-GmbH or GmbH in formation (GmbH iG), a stock corporation exists as a pre-AG. The pre-founding company is a company under civil law (GBR) . A GBR arises from an informal contract or implied action. The regulations of the BGB apply.

Accounting requirements for corporations

Corporations have high requirements for bookkeeping and annual financial statements; Corporations are obliged to keep double bookkeeping with a balance sheet, profit and loss account and a management report. This should protect investors and shareholders alike from losing their capital. In contrast to smaller partnerships, the shareholders of a corporation have no right to participate in day-to-day operations. The detailed and public reporting in the form of business reports is intended to make the company and its business development transparent for all interest groups.

The small corporation

According to the German Commercial Code, the small corporation offers relief for companies that are dependent on the size of the company. Whether it is a small corporation is regulated in paragraphs 274a, 276 and 288 of the Commercial Code. For small corporations, there are simplifications for the annual financial statements. You don’t have to write a management report. This saves the small corporations a lot of work and time. The background to this is that small corporations only endanger capital to fewer people even when their business is poor.

Types of corporations

A distinction is made between several types of corporations:

  • Joint-stock company)
  • Limited partnership based on shares (KGaA)
  • Limited liability company (GmbH),

In the case of an AG, the decisive factor is the equity participation, which is provided by the shareholders. The shareholders who acquire shares are known as shareholders. Company law in shares is securitized. Large stock corporations often have several major shareholders. In the case of an AG, the company profits are usually distributed to the shareholders through dividends. The stock exchange price, on the other hand – if the shares are publicly traded at all – has nothing to do with the operating profit of the stock corporation (AG). Although the actions of the AG influence the price of the share, this is only of a speculative nature.

The stock corporation (AG) can be less capitalistic than a GmbH. In the case of a GmbH, the transfer of shares can be made more difficult, the managing director is often a partner. Before founding a company, company founders should think very carefully about which corporation to choose. The IHK or founder pools provide assistance here. A “change” of the company form afterwards is only possible through a closure and a complete re-establishment of the company. This causes high costs and contradicts the principle of company continuity.