Definition and concept of the start-up entrepreneur
Ein Start-up entrepreneur is a natural person who is taking up self-employment for the first time and thereby founding a new commercial, freelance or agricultural enterprise. The term is used in various contexts, in particular in business, tax, and social law, as well as in provisions on subsidies. Founding a business is a central component of economic activity and a driver of innovation and employment.
Legal classification of the start-up entrepreneur
Aspects of trade law
In terms of the Trade Regulation Act (GewO), a business formation is often associated with the first-time registration of a business pursuant to § 14 GewO. Registration is required as soon as a self-employed, long-term activity intended to generate profit is performed that does not fall under the liberal professions. The law distinguishes between main and secondary business founders.
Details on business registration are regulated by trade law. The obligation to register exists regardless of the chosen legal form (sole proprietorship, GbR, UG, GmbH, etc.). For certain types of businesses, special requirements apply, such as reliability, expertise, or licensing obligations under § 34 GewO.
Legal forms for company formation
Start-up entrepreneurs can choose from various legal forms. The most common are the sole proprietorship, the civil law partnership (GbR), the entrepreneurial company (UG), and the limited liability company (GmbH). Each legal form brings specific formation requirements, liability regulations, tax obligations, and formalities.
Sole proprietorship
Founding a sole proprietorship is informal and does not require any minimum capital. Liability is unlimited and affects the founder’s entire private assets.
Limited liability company (GmbH, UG)
For the GmbH and the entrepreneur company with limited liability (UG), notarization of the articles of association and entry in the commercial register (§ 7 GmbHG) are required. With the exception of the UG, a minimum share capital of 25,000 euros is required. The liability of the shareholders is limited to the contributions made.
Other legal forms
Start-up entrepreneurs may also choose other legal forms such as the general partnership (OHG), limited partnership (KG), stock corporation (AG), or cooperative. The relevant legal provisions are found in the Commercial Code (HGB), Stock Corporation Act (AktG), Cooperative Societies Act (GenG), etc.
Tax treatment of start-up entrepreneurs
Income tax and VAT
From the start of their business activity, start-up entrepreneurs are subject to income tax obligations (§ 2 para. 1 EStG). Depending on the type of activity, they may generate income from commercial activity (§ 15 EStG), self-employment (§ 18 EStG), or agriculture and forestry (§ 13 EStG). Even in the founding year, a tax registration with the relevant tax office must take place. With regard to VAT, it is possible to apply the so-called small business regulation (§ 19 UStG).
Trade tax
Commercial start-up entrepreneurs are obliged to register with the trade office and submit trade tax returns. For sole proprietors and partnerships, an annual exemption amount of 24,500 euros applies (§ 11 GewStG).
Social insurance
By taking up self-employment, the obligation to participate in statutory social insurance generally ceases. Exceptions exist for certain professional groups, such as craftsmen, artists, or publicists. These must continue to pay into the statutory insurance systems (e.g., Künstlersozialkasse, compulsory insurance for craftsmen). Voluntary coverage in health, long-term care, and pension insurance is possible and in many cases recommended.
Provisions on public funding for start-up entrepreneurs
Start-up grant and integration allowance
Unemployed start-up entrepreneurs may apply for a start-up grant pursuant to § 93 SGB III, provided certain requirements are met, such as proof of the viability of the business concept and a minimum previous period of benefit receipt. The integration allowance according to § 16b SGB II is aimed at recipients of benefits under SGB II (basic social security) who take up self-employment (so-called “self-employment out of unemployment”).
Financing and liability
In addition to these grants, there are public funding programs such as KfW (Kreditanstalt für Wiederaufbau) development loans or low-interest microcredits. Depending on the financing option, there may be personal liability; for corporations, liability is limited to the company’s assets.
Legal requirements for business plans and funding eligibility
Applying for subsidies generally requires a funding law review taking EU state aid law into account. A viable business plan, market analysis, and financing plans must be submitted. Providing false information, subsidy fraud or misuse of funds is punishable by law (§ 264 StGB).
Notification, registration and licensing requirements
Commercial register entry
Corporations and certain partnerships are required to register in the commercial register (§ 29 HGB). Registration is a prerequisite for the legal capacity and business capacity of the company.
Other relevant registrations
Depending on the type of business activity, further notification obligations may exist, for example, to the relevant chamber of industry and commerce or the relevant accident insurance institution. When employing workers, registration with the social insurance (Minijob center, health insurance funds) must be made.
Licensed activities
For certain activities, obtaining a special permit or license is required (e.g., real estate agents, developers, restaurants, security services). The requirements arise from specific legal provisions.
Start-up entrepreneurs in company and competition law
Competition law provisions
Start-up entrepreneurs must comply with the requirements of the Act Against Unfair Competition (UWG), trademark law (MarkenG) and data protection law (GDPR/BDSG). For example, if they omit the imprint on commercial websites, warnings and fines may be imposed.
Founding duties and intellectual property rights
During the formation phase, company names, trademarks, designs, and patents must be protected. The registration of intellectual property rights is carried out at the German Patent and Trademark Office (DPMA). Infringements of third-party IP rights can have competition law and damages consequences.
Special legal issues in connection with business formation
Transformation and business succession
A business formation may result in a transformation into another legal form (e.g., from sole proprietorship to GmbH) or business succession. The relevant legal provisions are found in the Transformation Act (UmwG) and in the German Civil Code (BGB) with regard to heirs and successors.
Insolvency and failure of business formation
If a business formation fails economically, the provisions of the Insolvency Code (InsO) apply. Threatened insolvency or over-indebtedness may result in an obligation to file for insolvency (§ 15a InsO). For sole proprietors, consumer insolvency proceedings apply, while standard insolvency proceedings apply to corporations.
Literature and further relevant statutes
- Commercial Code (HGB)
- Civil Code (BGB)
- Income Tax Act (EStG)
- Trade Tax Act (GewStG)
- Trade Regulation Act (GewO)
- Act Against Unfair Competition (UWG)
- Transformation Act (UmwG)
- Insolvency Code (InsO)
- Social Security Code (SGB) – in particular SGB II, SGB III
- General Data Protection Regulation (GDPR)
The term Start-up entrepreneur is shaped by a variety of legal framework conditions. The specific design and implementation of formation projects is governed by the relevant legal requirements, funding options, and reporting obligations. Selecting the appropriate legal form, compliance with tax and social insurance regulations, and the protection of intellectual property are essential aspects for a legally secure start to entrepreneurial activity.
Frequently asked questions
Which legal forms are available to start-up entrepreneurs in Germany and what legal consequences result from them?
Founders in Germany can choose from various legal forms, the selection of which entails significant legal consequences regarding liability, formation effort, tax obligations, and publication requirements. The most common include the sole proprietorship, the civil law partnership (GbR), the entrepreneurial company with limited liability (UG), the limited liability company (GmbH), the general partnership (OHG), and the limited partnership (KG). While sole proprietors and GbR partners are personally and fully liable with their private assets, the liability in the UG and GmbH is limited to the company assets and the paid-in share capital. The choice of legal form also affects requirements for bookkeeping, publication of annual financial statements, notarization of the articles of association (mandatory for corporations with limited liability), and access to financing sources. There are also tax differences, for example with regard to trade tax and corporate tax. Changing the legal form later can be complex and costly and should be carefully legally reviewed in advance.
What registration and notification obligations exist for start-up entrepreneurs?
The scope of registration and notification obligations depends on the chosen legal form, the industry, and the intended field of activity. Generally, every business activity must be registered with the trade office, unless it is one of the so-called liberal professions, which must instead be notified to the relevant tax office. Corporations must also be registered in the commercial register, and registration often only takes place after notarization of the articles of association. Depending on the business activity, further registrations with the competent IHK or HWK, the German Social Accident Insurance (Berufsgenossenschaft), the tax office (tax number and if applicable VAT ID), the Federal Employment Agency (when employing staff), and professional chambers (e.g. Chamber of Architects) may be required. Failure to meet these obligations may result in regulatory offence proceedings, fines, and in certain cases closure of the business.
What statutory requirements apply to start-up entrepreneurs in the area of data protection?
Start-up entrepreneurs are legally required to comply with the provisions of the General Data Protection Regulation (GDPR) and the Federal Data Protection Act (BDSG) as soon as they collect, process, or store personal data of customers, employees, or business partners. Key obligations include informing data subjects about the type, purpose, and scope of data processing from the first contact, implementing appropriate technical and organizational measures to protect data, appointing a data protection officer from a certain company size or type of activity, and enabling data subjects to request information, erasure, or rectification of their data. In addition, a record of all processing activities must be kept, and in the case of data breaches, the supervisory authority must be notified, if necessary, within 72 hours. Violations of data protection requirements may lead to substantial fines.
What tax obligations and deadlines must start-up entrepreneurs observe?
Regardless of industry and legal form, start-up entrepreneurs are subject to a variety of tax obligations. These particularly include registration with the tax office and applying for a tax number. Subsequently, regular VAT advance returns (monthly or quarterly, depending on turnover), income tax or corporate tax returns and, where applicable, trade tax returns must be submitted. For corporations, submission of an annual balance sheet and profit and loss statement is also mandatory, while sole proprietors are generally permitted to prepare an income surplus statement (EÜR). When employing staff, wage tax, solidarity surcharge and, where applicable, church tax must be withheld and remitted, and notifications must be made to the social insurance. Failure to meet tax deadlines can result in late payment penalties, coercive fines, or even criminal consequences.
What special features apply to the employment of staff from a legal perspective?
Hiring employees involves numerous legal and social insurance requirements. These include the conclusion of written employment contracts in accordance with the German Act on the Verification of the Essential Conditions Applicable to the Employment Relationship (Nachweisgesetz), compliance with the Minimum Wage Act, observance of the Working Hours Act, and statutory regulations on dismissal protection, continued payment of wages in case of illness, and maternity protection. Correct registration and deregistration with the social insurance agencies as well as maintaining payroll accounts are also mandatory. Obligations also arise in the field of occupational health and safety, e.g., through regular risk assessments and, if applicable, appointing a company doctor or safety officer. Violations of these legal provisions can lead to warnings, fines, and damage claims.
What permits and licenses must be obtained depending on the activity?
Depending on the specific business activity, there may be particular licensing or permit requirements. These include, in particular, a trade license in certain regulated sectors (e.g., hospitality, security services, brokers, intermediaries, financial service providers), environmental and construction permits for manufacturing operations or retail spaces, as well as special permits for craft businesses from the Chamber of Crafts. Proof of personal reliability, professional qualification, or sufficient financial resources may also be required. Carrying out activities that require authorization without obtaining the necessary permits beforehand constitutes a regulatory offense and can result not only in fines but also in a complete prohibition of business activities.
What specific legal regulations apply to the use of business designations, company names, and trademarks?
Even at the time of founding a company, it must be legally checked whether the desired company name, business designation, or a trademark is permissible and not already protected by third parties. This is based on the German Commercial Code (HGB), the Trademark Act (MarkenG), and the Act Against Unfair Competition (UWG). Company names that are eligible for registration in the commercial register must be suitable to identify the company, possess distinctiveness, not be misleading, and must not infringe existing name or trademark rights. Trademark protection requires registration with the German Patent and Trademark Office (DPMA). Infringements of name or trademark rights can result in prohibition of use, claims for damages, and warning costs. The use of protected terms without the appropriate consent from third parties must therefore be strictly avoided.
