The Federal Statistical Office of Germany reported nearly 834,000 corporations in Germany at the end of 2024, with the most popular legal formation being the limited liability company (GmbH). But despite its popularity, the GmbH is a German construct that doesn’t have an exact equivalent in other countries. Therefore, German entrepreneurs looking to do business in the US and establish a US company must find alternatives.

This article explains the different types of companies in the US, including which is the closest equivalent to a GmbH. We also explain tax and liability regulations that apply to US businesses, how to choose the right US legal formation for you, and how you can incorporate a company in the US.

What’s in this article?

• Types of US companies
  
• Which legal formation in the US is equivalent to the German GmbH?
  
• How is a limited liability company (LLC) different from a GmbH?
  
• What liability do companies in the US have?
  
• How are US businesses taxed?
  
• How do I choose the right US legal formation for my business?
  
• How do I set up a company in the US?
  
• How Stripe Atlas can help
  

Types of US companies

A German citizen looking to start doing business in the US will encounter a different legal system with its own types of companies. The options vary by industry, residency, and goals. Not all US company types are suitable for German founders, especially those who aren’t domiciled in the US. Below, we explain the most common company types:

Sole proprietorship

A sole proprietorship is the simplest way of setting up a business in the US. There is no legal separation between the person and their business, meaning the owner bears full liability, and their personal assets are at risk. Earnings are taxed directly as personal income. For the most part, only persons who reside or have legal residency in the US can set up a sole proprietorship.

General partnership

Two or more persons can come together to establish a general partnership. In this type of company, all partners bear liability, which is tied to their personal assets. Profits are divided proportionately, with each partner paying their own individual taxes. This type of company usually requires US residency.

Limited partnership (LP)

A limited partnership in the US is similar to a limited partnership (Kommanditgesellschaft, or KG) in Germany. It also requires at least two people to set it up: a general partner (Komplementär) and a limited partner (Kommanditist). The general partner manages the business and bears full liability, which is tied to their private assets. The limited partner’s liability is limited to their capital contribution, and this partner is not usually involved in day-to-day operations. Profits are taxed proportionately at the partner level. For the most part, a limited partnership also requires residency or presence in the US.

Limited liability partnership (LLP)

An LLP is best suited to freelance professionals, and in some states, it is reserved for businesses such as attorneys, architecture firms, tax advisors, and audit firms. The partners in an LLP are only liable for their own errors and obligations, not those of their fellow partners. All partners share the profits proportionately and pay taxes on their income directly. Entrepreneurs residing in Germany can also set up an LLP—but only with a registered agent in the state of incorporation.

Limited liability company (LLC)

LLCs are particularly flexible. They combine safeguards against personal liability with tax flexibility. For example, LLCs can be treated as either partnerships or corporations, and they can be managed either internally by their members or by external managers. LLCs are not reserved for specific groups of professionals and are useful for a range of business objectives. German entrepreneurs also need a registered agent in the US to set up an LLC.

Incorporated company (Inc.)

Incorporated companies—which use the abbreviation “Inc.” in their company names—are corporations that are roughly equivalent to public limited companies (Aktiengesellschaft, or AGs) in Germany. They are considered legal entities with their own taxability, and they protect shareholders from personal liability. At the company level, they pay corporate income tax, and any profits paid out as dividends are taxed at the shareholder level. German entrepreneurs can set up an incorporated company without residing in the US, provided they have a registered agent in the state of incorporation to ensure that the company receives communication from public authorities.

Which legal formation in the US is equivalent to the German GmbH?

The German limited liability company (Gesellschaft mit beschränkter Haftung, or GmbH) combines manageable setup requirements with a limitation of liability to the assets of the business. A similar construct under US law is the limited liability company (LLC). The US LLC also provides a limitation of liability, meaning members’ personal assets are usually protected.

How is a limited liability company (LLC) different from a GmbH?

Although an LLC can be viewed as a US version of a GmbH—especially in terms of their limitation of liability—there are differences between them.

What liability do companies in the US have?

The issue of liability is a key criterion when selecting your legal formation. Lots of founders opt for an LLC because it has the closest structure to a GmbH among US companies and allows you to separate business and personal assets. However, this liability safety net has its limits.

This is particularly evident when it comes to product liability. In the US, manufacturers and distributors of a product are, in general, liable jointly and severally for damages incurred as a result of manufacturing errors, bad workmanship, or insufficient warning labels. This liability applies regardless of the legal formation. Therefore, LLCs are not automatically protected against product liability suits. In such cases, US law gives customers extensive rights, which can lead to significant risks, especially for companies handling physical products.

Therefore, when making your choice, it’s important to consider all company types and not look at any one type in isolation. It’s also important to seek legal advice as early as possible. A US legal advisor can help German entrepreneurs starting businesses in the US implement suitable protections, such as contractual safeguards or additional insurance coverage.

How are US businesses taxed?

The way businesses are taxed in the US is determined by the business’s legal formation and tax classification. Tax law differentiates between transparent and opaque companies:

Transparent companies

Transparent companies are taxed as partnerships and pass on their profits directly to the partners. This means the company’s founders—rather than the company itself—pay tax on their income under the US income tax regime. Partnerships include LPs, LLPs, and LLCs, which are transparent for tax purposes.

Opaque companies

Opaque companies are taxed as corporations and are liable for US corporate income tax. Tax is only collected at the partner or member level in the case of dividends. The precise tax burden depends on factors such as the shareholders’ taxability in Germany. The US double taxation agreement between Germany and the US governs which taxes are payable and where. Corporations include incorporated companies and LLCs, which are the closest equivalents to German GmbHs in the US.

How do I choose the right US legal formation for my business?

Entrepreneurs who want to do business in the US from Germany should consider which legal formation is right for them as early as possible. It’s a decision that will affect questions around liability, taxation, admin, and your business’s image.

Many factors can determine the legal formation that is right for you:

• Number of partners or members: Are you setting up the business by yourself or with others?
  
• Acceptance of liability: Should the founders’ private assets be at risk or not?
  
• Capital structure: Are you planning to bring on external investors?
  
• Industry and business model: Are there specific regulatory requirements or specifications?
  
• Tax objectives: Will the business be treated as transparent or independent?
  
• Planned size: Is this a small or growth-oriented project?
  
• Admin: What’s the maximum ongoing admin you’re willing to take on?
  
• US presence: Is there a branch or residency in the US, or do you have a registered agent in the state of incorporation?
  
• Long-term strategy: Are you planning a sale, flotation, or onboarding of partners?
  

For larger projects—especially regarding external capital or a potential exit—an incorporated company might be appropriate. Those looking for a variant of the GmbH in the US should consider an LLC.

How do I set up a company in the US?

The specific requirements for setting up a company in the US can vary depending on the state and legal formation. However, the process can generally be broken down into the following steps:

Select state and company name

Start by choosing the state where you want to set up your business. Then, check whether your chosen company name is available in that state. The name should be clearly distinguishable from existing company names.

File incorporation documents

Establish your company by filing the necessary documents with the Secretary of State. These documents include articles of incorporation for an incorporated company and articles of organization for an LLC. The incorporation documents outline basic details about the company and individuals doing business. In most states, you can file online. It’s a good idea to hire a legal advisor licensed in the US to handle incorporation for you. This can help you avoid issues with formalities or legal ambiguities.

Appoint a registered agent

Every US company must have an official mailing address and appoint a registered agent. The registered agent can be an individual or a company. It receives legal notices and communication from public authorities on behalf of the business. The registered agent must be domiciled in the relevant state.

Apply for an Employer Identification Number (EIN)

Once you’ve successfully set up your business, apply for an EIN from the US Internal Revenue Service (IRS). This is roughly equivalent to a tax ID in Germany and is required for nearly all commercial activities, including opening a business account, filing tax returns, or hiring employees.

Open a business account

As soon as you establish your business and receive an EIN, you can open a business account. Although there is no prescribed minimum capital requirement in the US under corporate law, it can be advisable for tax purposes to provide the company with sufficient equity, especially if shareholder loans are planned. Insufficient capitalization can have a negative impact on your tax bill, both in Germany and the US.

Settle residency issues

Setting up a business does not automatically entitle you to take up residency or work in the US. If you’re planning to work or permanently live in the US, then you should apply for a suitable visa ahead of time. Consult a specialist visa advisor or an attorney if you need assistance.

Clarify tax liabilities

Businesses with a connection to Germany should clarify tax issues as early as possible, both in the US and Germany. For example, despite having a US company, you can create a permanent establishment in Germany, which will trigger tax obligations. The way you handle profits, losses, and dividends also differs by legal formation and tax system. It’s important to seek out qualified tax advice to sort out these issues.

How Stripe Atlas can help

Stripe Atlas sets up your company’s legal foundations so you can fundraise, open a bank account, and accept payments within two business days from anywhere in the world.

Join 75K+ companies incorporated using Atlas, including startups backed by top investors like Y Combinator, a16z, and General Catalyst.

Applying to Atlas

Applying to form a company with Atlas takes less than 10 minutes. You’ll choose your company structure, instantly confirm whether your company name is available, and add up to four cofounders. You’ll also decide how to split equity, reserve a pool of equity for future investors and employees, appoint officers, and then e-sign all your documents. Any cofounders will receive emails inviting them to e-sign their documents, too.

Accepting payments and banking before your EIN arrives

After forming your company, Atlas files for your EIN. Founders with a US Social Security number, address, and cell phone number are eligible for IRS expedited processing, while others will receive standard processing, which can take a little longer. Additionally, Atlas enables pre-EIN payments and banking, so you can start accepting payments and making transactions before your EIN arrives.

Cashless founder stock purchase

Founders can purchase initial shares using their intellectual property (e.g., copyrights or patents) instead of cash, with proof of purchase stored in your Atlas Dashboard. Your IP must be valued at $100 or less to use this feature; if you own IP above that value, consult a lawyer before proceeding.

Automatic 83(b) tax election filing

Founders can file an 83(b) tax election to reduce personal income taxes. Atlas will file it for you—whether you are a US or non-US founder—with USPS Certified Mail and tracking. You’ll receive a signed 83(b) election and proof of filing directly in your Stripe Dashboard.

World-class company legal documents

Atlas provides all the legal documents you need to start running your company. Atlas C corp documents are built in collaboration with Cooley, one of the world’s leading venture capital law firms. These documents are designed to help you fundraise immediately and ensure your company is legally protected, covering aspects like ownership structure, equity distribution, and tax compliance.

A free year of Stripe Payments, plus $50K in partner credits and discounts

Atlas collaborates with top-tier partners to give founders exclusive discounts and credits. These include discounts on essential tools for engineering, tax, finance, compliance, and operations from industry leaders like AWS, Carta, and Perplexity. We also provide you with your required Delaware registered agent for free in your first year. Plus, as an Atlas user, you’ll access additional Stripe benefits, including up to a year of free payment processing for up to $100K in payments volume.

Learn more about how Atlas can help you set up your new business quickly and easily, and get started today.