From the Establishment to the Transfer of a Company
As a central component of commercial law, company law regulates the framework conditions surrounding a company. A company is understood as the name under which a merchant conducts his business and appears in legal transactions. The HGB (German Commercial Code) defines the concept of a merchant and the commercial status, thereby specifying who is considered a merchant and subject to commercial law. Commercial law is considered a special law for merchants and entails specific privileges and obligations. Besides the HGB, the BGB (Civil Code) is a fundamental legal source for company law. The most important legal sources for company law are the HGB, the BGB, and various supplementary laws. The HGB is divided into different books, each covering different subjects such as commercial status, commercial partnerships, and commercial transactions. Commercial law applies to certain commercial transactions and businesses and includes various subfields such as cheque law, bill of exchange law, and company law. Company law plays a central role in regulating types of business entities. In company law, the content of contracts and powers of attorney is also of particular significance.
While the term “company” is often equated with “business” in everyday language, it is defined much more narrowly in the legal sense. The legal definition of a company emphasizes that according to § 17 paragraph 1 HGB, the company is exclusively the name under which a merchant operates his business, signs, and under which he is registered in the commercial register. It is therefore not the business itself but its legal designation in commercial transactions, according to the law firm MTR Legal Attorneys, which advises, among other topics, on company law. The legal classification of companies in commercial law is thus of great significance. The law regulates the execution of commercial transactions and the organization of companies. There are various professions in commercial law such as merchants, commercial agents, and freelancers. The role of the commercial agent under § 84 paragraph 1 HGB is particularly noteworthy in commercial transactions.
Name and Legal Form of the Company
When establishing a company, it must be ensured that the company name is suitable to identify the merchant and has distinctiveness. Pure generic terms such as “bakery” or “IT service” are insufficient, as they do not allow clear assignment. Furthermore, the so-called prohibition of misleading applies. This means that the company name must not contain information that could deceive about essential business circumstances. Finally, for certain types of companies, a legal form suffix must be included, such as “GmbH,” “AG,” or “OHG.” These requirements serve not only transparency but also the protection of business partners and consumers.
An important aspect in establishing a company is the choice of location, as the location significantly influences the company’s success. The right location is crucial for successfully marketing products and services and can strengthen market positioning. Choosing the appropriate legal form makes great sense for the company’s long-term development and should be carefully planned. Thorough planning and preparation, especially regarding the legal form and the entire establishment project, are indispensable. Creating a business plan is a central part of this preparation and helps define financing, equity capital, and the best strategies for the company. Start-ups and freelancers face the challenge of choosing the legal form that suits them. There are different types of companies and professions, each with different requirements for establishing a company. The team plays a significant role in the establishment and choice of legal form, as collaboration and the skills of the members greatly influence success. Establishment can take place both full-time and part-time, with some special considerations for part-time self-employment. Equity capital and alternative financing options are of great importance when selecting the legal form and implementing the business idea. Marketing, products, services, and achievements are central elements to successfully position the company and its products in the market and to acquire new customers. The most important steps in choosing the legal form and establishing a company include selecting the appropriate legal form, planning financing, developing the business idea, and implementing the marketing strategy. Helpful websites and information support founders in these steps. The contents and topics to be considered in choosing the legal form range from legal aspects to economic conditions and industry-specific requirements. The best tips for selecting the legal form and establishing a company include thorough preparation, consideration of individual needs, and seeking expert advice. A practical example shows how the choice of legal form can vary depending on the business idea and team composition. A good business idea and its consistent development are the foundation for a successful company establishment. The reasons for choosing a specific legal form often lie in liability, financing, and the founders’ individual goals. The economy and current economic conditions also play an important role in deciding on the appropriate legal form.
Choosing the appropriate legal form is one of the most important decisions when founding a company. The legal form not only influences the company’s external appearance but also liability, financing options, tax treatment, and organizational structures. The liability of the shareholders is also a crucial criterion in selecting the legal form.
Liability of the Shareholders
While the sole proprietorship is the simplest and most cost-effective option, the owner is personally liable without limitation with all of their assets. The civil law partnership (GbR) is suitable for smaller ventures with two or more founders but also leads to personal liability of the partners. Those running a commercial business can establish a general partnership (OHG), where the partners also have unlimited liability. The limited partnership (KG) is somewhat more flexible, as the general partners have unlimited liability, while the limited partners are liable only up to the amount of their contribution.
Due to lower personal liability, the limited liability company (GmbH) is popular and widespread. The GmbH provides a clear separation between company assets and the personal assets of the shareholders. However, it requires a minimum share capital of 25,000 euros, with equity capital playing a central role in financing and creditworthiness of the GmbH. For founders with limited financial means, the entrepreneurial company (UG, limited liability) is an alternative that can be founded with just one euro of start-up capital but requires certain provisions for reserves. For larger companies with high capital requirements, the stock corporation (AG) is an option. For the AG, the contributed capital is decisive as it forms the basis for shareholder participation and company financing. Which legal form is the right one in each case depends on factors such as company size, capital structure, liability risks, growth plans, and careful planning of the respective foundation project.
Protection against Confusion
Protection against the risk of confusion is also of great importance. This means that every company name must be distinguishable from existing company names so that third parties are not misled. The company name also serves to protect the offered products and services by ensuring their distinctiveness in the market and avoiding legal conflicts. The company name must not contain information that could mislead about essential business circumstances. For example, it would be inadmissible to use the addition “Institute” or “Center” if it is merely a small sole proprietorship, as this could suggest a larger business operation than actually exists.
Risk Management for Founders and Entrepreneurs
A well-conceived risk management system is an indispensable foundation for founders and entrepreneurs on the path to successful company founding and management. Within the framework of corporate and commercial law, risk management plays a central role as it protects the company from unforeseen events and ensures its economic existence.
Already in the planning phase of a business, founders should identify and assess typical risks. These include financial risks such as payment defaults by customers, operational risks such as production failures or logistical bottlenecks, as well as legal risks, for example arising from faulty contracts or violations of legal regulations. Especially in commercial law, which applies to merchants and companies in Germany, early identification of such risks is crucial to avoid later conflicts or economic damage.
An important step in risk management is the development of strategies to control risks. This includes taking out appropriate insurance, securing against operational failures or liability risks, as well as diversifying business areas and investments. Implementing compliance measures, i.e., adherence to all relevant standards and regulations, is also an essential part of modern risk management. The Commercial Code (HGB) and other legal provisions provide the legal framework here, for example through requirements for accounting and financial reporting, which promote transparency and control within the company.
For founders and entrepreneurs, it is advisable to establish a comprehensive risk management system that is regularly reviewed and adapted to new developments. This includes not only continuous monitoring of risks but also training the team and clear communication of responsibilities. Such a system helps to identify risks early, counteract them effectively, and strengthen the trust of business partners, investors, and customers.
Especially in the area of corporate law, risk management is an important protective mechanism for the rights and interests of shareholders and the company itself. Entrepreneurs wishing to succeed in Germany should therefore keep legal requirements in mind and understand risk management as an integral part of company management.
A final tip: take advantage of the opportunities offered by corporate and commercial law to best secure your company. Professional risk management is not only a legal obligation but also a decisive success factor for sustainable growth and stability.
Continuation and Transfer
However, corporate law covers far more than just company formation and choice of legal form. It also regulates issues related to the continuation and change of a company, for example when a business is sold, inherited, or renamed; in this context, the process of transferring a company to a third party must be given special consideration. The transfer of a company to a third party also raises legal questions, particularly regarding liability and existing contracts, where the content of these contracts is decisive for the legal assessment. Additionally, there are regulations concerning publication obligations in the commercial register, which are intended to ensure transparency and legal certainty.
Corporate law is therefore of considerable importance to entrepreneurs. Even minor errors in choosing the name or legal form can have far-reaching consequences. Anyone founding a company or intending to change existing structures should therefore not forgo legal advice. It provides security, saves time, and prevents later conflicts.
Especially in the transfer of a company, it is important to obtain comprehensive information and well-founded advice on all legal, administrative, and contractual aspects.
MTR Legal Attorneys provide comprehensive advice on all essential questions of corporate law.
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