If you have 25k€ of capital but get flustered because the state wants to make sure that you are not opening a shell company for someone else and that your articles of incorporation are legally valid, then maybe you need to rethink something.
I had my first LLC in grade school over a summer. I didn’t make a ton of money, but I did earn enough for my first real computer, which launched my interest in programming.
When my wife started her current business as a consultant, she was living off her savings from teaching high school. If you think every entrepreneur has €25k of capital, you need to reevaluate what your country thinks of entrepreneurship.
It’s unlikely you’ll lose it all, but suppose you write a clever app — maybe a cvs editor.
Suppose you find out your cvs editor infringes on a patent and you’re liable. Suppose some business suffers data loss and sues. These things do happen in Europe too.
Also, it’s just a matter of professionalism. A sole proprietor isn’t very professional and many medium-size businesses won’t do business with sole proprietorships.
The discussions is not about setting up an LLC in the EU, but specifically in Germany. Subsequent to that we are comparing this with other developed countries in the world, not all of which are in the EU, which is fine, and does not undermine the comparison.
As explained in the article, if you don't have 25k€ of capital, then you open an Einzelunternehmen (sole proprietorship), not a GmbH (LLC). It's a much simpler process.
Delaware is a popular state for incorporation in the United States due to its favorable corporate laws and established legal precedents. A C-Corporation (C-Corp) is a type of business structure that is a separate legal entity from its owners (shareholders). Shareholders have limited liability, and the corporation itself pays taxes on its profits. This is different from an LLC, where the owners report the profits and losses on their individual tax returns.
You can also create an UG (haftungsbeschränkt) which is basically a GmbH with the 25k€ requirement removed.
The only drawback is that this can make the operation look less trustworthy, depending on whom you are dealing with.
If you are selling Hot Dogs, nobody will bat an eye if it’s a UG, but if you apply for a big software contract, people might be wary.
I'm skeptical that an at most 25k€ recovery would alleviate weariness of a big software contract without additional due diligence.
It seems to me that a sole proprietorship would do more to protect against counterparty risk, i.e. more of the person's assets would be available to satisfy the debt.
My guess is that counterparties prefer a limited liability partner to arguably insulate themselves from employment liabilities.
Presumably the UG is still preferable to being a sole trader when dealing with much larger customers. Is that right? Or does providing services in your own name come across as more trustworthy to those parties?
I disagree. 25k euro is simultaneously a large and not a large amount of money. It's big enough to lock out many potential small business founders. But also many ordinary inexperienced people can have that amount of money up front, yet still be deterred by the complexity of a 6 week long incorporation process as described in this article. Especially in the early days of a company when your stress level is already through the roof dealing with the actual problems of your new business.
I am generally suspicious of rhetoric like "you're a little well off, so we can heap arbitrary amounts of bullshit on you and you shouldn't complain".
> It's big enough to lock out many potential small business founders.
They can open an Einzelunternehmen (sole proprietorship) instead. You shouldn't (and cannot) go all the way to the complexities of a GmbH (LLC) if your company is that tiny.
> But also many ordinary inexperienced people can have that amount of money up front, yet still be deterred by the complexity of a 6 week long incorporation process as described in this article.
Back to my point then. If they're not ready to put up with okay-ish bureaucratic friction in the founding phase, they're not ready to open a company. Because if you think opening the company is hard, wait until payroll or tax season is upon you.
> I am generally suspicious of rhetoric like "you're a little well off, so we can heap arbitrary amounts of bullshit on you and you shouldn't complain".
You're completely mischaracterizing what I said. Don't do that.
>They can open an Einzelunternehmen (sole proprietorship) instead.
Sole proprietorship doesn't have liability protection. That's not a small thing.
>You shouldn't (and cannot) go all the way to the complexities of a GmbH (LLC) if your company is that tiny.
"[Thing] is too complex, don't bother with it" is not an argument against making [thing] less complex. It's actually just a restatement of the problem!
Other countries make it easy to set up a limited company. UK, US, Singapore, they're all just a token fee and a handful of forms. I see no reason for Germany to make it so difficult as described in the article.
A lot of successful companies were started by broke college grads out of their dorms; they would never have gotten off the ground if they had to scrounge together the equivalent 25k euros before even getting started. Hell, I don't have a spare 25k lying around and I've been working full time for 4 years.
> If they're not ready to put up with okay-ish bureaucratic friction in the founding phase, they're not ready to open a company.
With this mentality, it's actually a miracle a German startup scene exists at all.
The _last thing_ a founder wants is to wade through useless bureaucracy when there's a product to push and Vacs to talk to.
But Germany never really was a founder's country, and much more ruled by big conglomerates it seems or small family business who did non-innovative things (the bakery at the corner - necessary&nice, but not innovative), than startup culture.
Most self-employed people in Germany operate as "Kleinunternehmer" and therefore lack the liability protections provided by the LLC equivalent discussed in the article. It's apples to oranges.
That depends how they defined self-employed. It could vary widely based on which vehicle was used, LLC, LTD, sole-proprietor. And LLC and LTD is ambiguous, yet easy to attain outside Germany.
