According to the Federal Statistical Office, there were about 2.05 million sole traders (59%), 417,500 partnerships (12%) and 833,900 corporations (24%) in Germany in 2023. Of these nearly 3.5 million ventures, around 3 million in Germany had fewer than 10 employees. This diversity shows how differently business models can be framed, depending on size, capital requirements and risk tolerance. Choosing the proper structure has a direct impact on your liability, tax burden, financing options and reputation.

This article presents the most important forms of businesses in Germany, from the widespread GmbH to the limited partnership and the registered merchant. It will help you better understand the legal fundamentals and tax implications, enabling informed decisions for shaping an enterprise.

What's in this article?

• What types of businesses are there in Germany?
  
• Tax implications for each business
  
• Which form suits which business model?
  
• How Stripe can help
  

What types of businesses are there in Germany?

Germany offers a variety of business types with different criteria, rights and obligations.

There are three main categories:

• Partnerships (e.g. GbR, OHG, KG, PartG)
  
• Corporations (e.g. GmbH, UG, AG)
  
• Sole proprietorships (e.g. freelance sole trader, small business according to Section 19 of the German VAT Act [UStG], classic commercial sole trader or registered merchant)
  

Here is an overview of the key forms in detail:

Partnerships

Partnerships are ideal for smaller teams or family-run businesses where the partners are personally liable and actively involved in the industry. Setting one up is straightforward and usually requires no minimum capital.

Civil law partnership

While the civil law partnership (GbR) might appear less prominent, it is one of the most common legal forms for part-time startups, project cooperation and freelance professions. It's simple to establish and is especially popular with partners who do not require a large amount of equity. The only requirement is an informal partnership agreement between at least two individuals or legal entities. GbRs are not obliged to enrol in the Commercial Register, keeping start-up costs low.

Characteristics of the GbR:

• No entry in the Commercial Register
  
• No minimum share capital required
  
• Personal, joint and several liability of all partners
  
• Particularly suitable for freelancers, start-up projects or temporary cooperation
  

As turnover or commercial activities increase, a change to a general partnership (OHG) could be necessary.

Partnership company

The partnership company (PartG) is a specific type of working relationship designed for freelancers such as doctors, lawyers or architects. It serves as an alternative to the GbR when two or more individuals jointly practise a liberal profession. Registration in the partnership register (PartGG) strengthens external representation, while the partnership company with limited professional liability (PartGmbB) variant also allows for limited liability.

Key characteristics of the PartG:

• Only available to liberal professions (e.g. doctors, architects, lawyers)
  
• Registered not in the Commercial Register, but in the PartGG (pursuant to Section 4)
  
• No minimum share capital required
  
• Personal liability of partners; liability can be limited via the PartGmbB variant
  
• Not subject to trade tax
  

General partnership and limited partnership

The OHG and limited partnership (KG) are classic partner-run entities with low barriers to entry and great contractual flexibility. They allow for close operational cooperation between shareholders and are well-suited for traditional ventures or family businesses with a clear division of roles.

Characteristics of the OHG:

• All partners have unlimited liability, pursuant to Section 105 ff. of the German Commercial Code (HGB)
  
• No duty to enrol the business in the Commercial Register
  
• Appropriate for smaller operations with active partners
  

Characteristics of the KG:

• Combination of general partner and limited partner
  
• A limited partner is exclusively liable to the extent of their contribution, pursuant to Section 161 of the HGB
  
• Often chosen as a GmbH & Co. KG, where the GmbH is the general partner
  

Corporations

These independent legal entities provide limited exposure and clear structures. Corporations are ideal for growing businesses with higher capital requirements.

Limited liability company

The limited liability company (GmbH) is by far the most popular type of corporation in Germany. It offers solid liability protection, presents a professional image to the outside world and is fit for both owner-managed small and medium-sized enterprises (SMEs) and scaling startups with an investor framework.

Characteristics of the GmbH:

• Minimum share capital: €25,000
  
• Registration in the Commercial Register is mandatory
  
• Notarised partnership agreement required
  
• Double-entry book-keeping, pursuant to Section  238 ff. of the HGB and annual financial statements
  
• Liability limited to company assets
  
• Flexible share structure
  
• Good image among banks and investors, as this legal form is considered a reliable and
  professional business partner
  

Stock corporation

The stock corporation (AG) is designed as a legal formation for businesses with high funding criteria, growth prospects and potential stock market listing. It provides a clear separation of ownership and management but involves increased transparency and control duties, pursuant to Sections 76–118 of the Stock Corporation Act (AktG).

Characteristics of the AG:

• Minimum capital: €50,000
  
• Bodies: Board of directors, supervisory board, annual general meeting
  
• Strict reporting duties under both commercial law provisions on accounting and publication, pursuant to Section 264 ff. of the German Commercial Code (HGB), as well as stock corporation law requirements regarding capital resources, loss notification and transparency towards shareholders, pursuant to Sections 150–160 of the AktG
  
• Access to the capital market via share issuance
  
• Limitation of liability as with a GmbH
  
• Possibility of a broad ownership structure
  

Limited liability entrepreneurial company

Introduced in 2008, the limited liability entrepreneurial company (UG) extends the limited liability of a corporation to those with very little start-up capital. It is particularly suitable for digital business models, independent services and minimum viable product (MVP)-based startups.

Characteristics of the UG:

• A minimum of just €1 is required for start-up
  
• Reserve formation up to €25,000 is mandatory (obligation to retain funds)
  
• Same statutory framework as GmbH
  
• Fully-fledged GmbH
  
• Popular with startups and solo self-employed people due to low entry barriers
  
• Moderate trust among partners and banks, as the low starting capital is seen as a sign of limited creditworthiness
  
• Duty to change the business name after reaching GmbH minimum equity
  

Sole traders

Sole traders are the most common legal form in Germany. They serve various formations, including small business owners, freelancers and registered merchants. Different requirements apply based on activity scope. So-called small-scale entrepreneurs, according to Section 19 of the UStG, also belong to this group – they benefit from value-added tax (VAT) relief, but are not a separate legal entity.

Freelance sole trader

This option is especially popular for activities within the "liberal professions", such as medical, consulting or creative work. It allows for direct establishment without Commercial Register entry and offers fiscal advantages.

Characteristics of being a freelance sole trader:

• No trade tax, pursuant to Section 18 of the German Income Tax Act (EStG)
  
• No entry in the Commercial Register
  
• Cash-basis accounting permitted unless a book-keeping duty arises under Section 141 of the German Fiscal Code (AO)
  
• Favoured by doctors, architects, copywriters or lawyers, among others
  

Classic sole trader

Targeted at commercial founders on a smaller scale – solo service providers, brick-and-mortar retailers or part-time startups – this route is quick and straightforward to structure.

Characteristics of the classic sole trader (small business):

• Business registration required
  
• No entry in the Commercial Register
  
• Cash-basis accounting allowed, book-keeping only above the limit according to Section 141 of the AO
  
• Popular with agencies, online retailers, service providers, among others
  

Registered merchant

The registered merchant (e.K.) suits sole traders with larger volumes. It offers visibility and duties similar to corporations, without their limited liability.

Characteristics of the registered merchant:

• Registration in the Commercial Register is mandatory
  
• Accounting obligation after registration according to Section 141 of the AO
  
• No separation between private and business assets
  
• For commercially active individuals with predictable risk and growing operations, such as traders, tradespeople and agencies
  

The following overview summarises the most important business types based on key criteria:

Tax implications for each business

Tax treatment varies significantly based on the legal structure, especially regarding VAT which applies to nearly all types of operations. The requirements for VAT can quickly become complex as the size of the business increases.

Taxes for sole traders and partnerships

Profits are subject to income tax at the level of the partners or the owner. Depending on the location, there might be an obligation to pay trade tax, with an exemption of €24,500 under Section 11 of the Trade Tax Act.

Taxes for corporations

These are subject to corporate income tax (15%) plus solidarity surcharge and trade tax. Distributions to shareholders incur a further flat-rate tax (25%), which can result in so-called double taxation.

VAT liability

In principle, all businesses fall under VAT unless the small-scale entrepreneur rule (Section 19 of the UStG) applies. Corporations are often subject to standard taxation from the outset. VAT liability concerns the declaration on invoices, as well as the regular submission of preliminary and annual VAT returns.

Accounting obligations

While corporations are legally obliged to maintain double-entry book-keeping and prepare financial records, an income statement (cash-basis accounting) is sufficient for many partnerships and sole traders – until the business reaches certain revenue or profit limits (Section 141 of the AO).

Which form suits which business model?

Selecting the proper structure for your business depends mainly on the concept and risk tolerance. Consider growth plans, capital resources, desired liability framework and fiscal criteria. Each option has distinct pros and cons:

• Freelance professions: Medical practices, law firms and copywriters usually benefit from the uncomplicated framework of being a freelance sole trader, which has no trade tax and simple, cash-basis accounting.
  
• Small enterprises: Local service providers, self-employed individuals and small online retailers often choose the classic sole trader model or small enterprise to keep administration and fiscal burden low.
  
• Growth-oriented founders: People who start with little capital often choose a UG intending to later convert into a GmbH.
  
• Family business: Family-run operations with a clear division of roles often use the KG or OHG to develop operational responsibility and maintain legal flexibility.
  
• Capital-intensive business models: Businesses with greater investment needs, for example in production or the financial sector, often opt for an AG, which provides access to external capital and investors.
  
• Startups and SMEs: For technology-oriented or fast-expanding teams, the GmbH offers a balanced mix of liability protection and reliability.
  
• Project-based cooperation: The GbR is suitable for loose associations without funding needs, for instance in the creative industries or for temporary projects.
  
• Sole traders with growing businesses: The registered merchant fits individuals who want Commercial Register visibility without forming a corporation as their customer base or turnover rises.
  

An early discussion with a fiscal advisor or startup consultant is a good idea, both legally and tax-wise.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Stripe Tax helps you monitor your obligations and alerts you when you exceed a sales tax registration threshold based on your Stripe transactions. In addition, it automatically calculates and collects sales tax, VAT and GST on both physical and digital goods and services – in all US states and in more than 100 countries.

Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful API.

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration or add tax collection with the click of a button in the Stripe Dashboard.
  
• Register to pay tax: Let Stripe manage your global tax registrations and benefit from a simplified process that pre-fills application details – saving you time and simplifying compliance with local regulations.
  
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Learn more about Stripe Tax or get started today.