Choosing the best legal form when starting or restructuring a company

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A company’s legal structure can be the difference between the success or failure of the business. A lawyer specializing in business law can highlight the pros and cons of different legal forms.

It is essential that companies adopt the most suitable legal structure for their business. The significance of this decision when establishing or restructuring a company should not be underestimated, stresses Michael Rainer, managing partner and point of contact for business law at MTR Legal Rechtsanwälte.

In Germany, stock corporations (AGs) and limited liability companies (GmbHs) are popular choices. A lawyer who specializes in business law can explain the significant differences between these two legal forms.

One of the major advantages of an AG is that it provides easy access to capital markets, making it easier to raise capital and finance company activities. Additionally, an AG’s executive board, as an organ under no power of direction, can act relatively freely. On the other hand, the complex rules of stock corporation law and the rigid articles of association of an AG can prove to be disadvantageous. All of this makes for limited flexibility. Shareholders should therefore consult a business lawyer before opting for this legal structure.

The same attorney can also enumerate the benefits and drawbacks associated with a GmbH, which, when compared with an AG, has a much clearer structure and is not subject to such strict legal regulations, allowing for greater structural flexibility. There’s also the fact that the shareholders can have much more direct influence on management and hence on the direction of the business.

A number of factors need to be taken into account when choosing the most appropriate legal form. It is important to determine which points are essential to achieving the company’s goals. An experienced business lawyer can explain which legal structure is best suited to the company’s objectives. A business partnership limited by shares (KGaA) or an “entrepreneurial company” (UG) – a kind of limited liability precursor to a GmbH designed for situations where there is insufficient capital to meet the minimum share capital requirements for a GmbH – are also possible solutions. Likewise, a lawyer who is well-versed in business law can point out the advantages and disadvantages of partnerships vis-à-vis corporations.

MTR Legal Rechtsanwälte advises on all aspects of business law, including the formation and restructuring of companies.

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