The push for a new form of enterprise reflected three overlapping themes in the 1870s and 1880s. First, the introduction of general incorporation in 1870 had led to a stock market bubble, partly because of the abuse of the form of society. The reform law enacted in 1884 made the form of company suitable only for the largest companies. Second, Germany acquired colonies from 1884. Existing commercial law made it difficult to exploit colonial business opportunities; Several of the early proposals for a new form of enterprise focused on settlements. The debate on forms of business for colonial enterprises sparked discussions on new forms of business for domestic enterprises. Finally, the debate on colonial societies and discussions on more general corporate law took place in a context of growing rivalry with Britain. German critics argued that Britain`s more flexible approach to doing business amounted to an abuse of the form of business that gave British entrepreneurs an unfair advantage. Two major changes in the early twentieth century changed the way the form was used. GmbHs had initially treated income tax as a partnership: the owners of the company paid taxes on the company`s income, but the company itself did not pay income tax. This privileged status changed as CLL became more common. Prussia, for example, began taxing GmbHs as units in 1906.

Footnote 72 This new tax treatment has resulted in an important legal innovation. In the late nineteenth and early twentieth centuries, attempts were made to combine business forms (mixed types) so that a company could partner with an OHG. The law was not clear on this; The language of the ADHGB implied that a partner could be a legal person as opposed to a natural person, but companies that tried to establish themselves in this way were rejected by the commercial register. The taxation of limited liability companies made the issue even more urgent because there were now many more taxable corporations. If a GmbH is a general partner in a limited partnership, the company can allocate most of the profits to the limited partnership and thus reduce or eliminate corporation tax. The resulting “GmbH & Co KG” reduces taxes. However, combining shapes in this way has other uses. The owners of the GmbH and the partnership are not always identical. A single GmbH can act as a general partner in several GmbH & Co KG, with different limited partners who, for example, invest in different but related projects. The Supreme Court of Bavaria declared this combination of forms lawful in 1912. The Imperial Court upheld this judgment in 1922.Footnote 73 A limited liability company ([ɡəˈzɛlʃaft mɪt bəˌʃʁɛŋktɐ ˈhaftʊŋ], abbreviated GmbH [ɡeːʔɛmbeːˈhaː] and in Austria also GesmbH), which means “limited liability company”, is a very common legal form in Germany, Austria, Switzerland (where it is equivalent to a limited liability company) and Liechtenstein.

It is an entity that largely corresponds to the limited liability company in the United Kingdom and many Commonwealth countries and the limited liability company (LLC) in the United States. The name of the form GmbH emphasizes the fact that the owners (shareholders, also called shareholders) of the company are not personally responsible or credible for the debts of the company. [1] [2] The GmbHs are considered to be legal entities under German, Swiss and Austrian law. Other variants are mbH (used when the term company is part of the name of the company itself) and gGmbH (non-profit company) for non-profit companies. The government initiated a formal consultation process in April 1888 and sent a circular to individual chambers of commerce asking whether German companies needed an additional form of enterprise. Of the thirty-eight chambers of commerce that issued an opinion, thirty-one “more or less” called for a new form of business. Footnote 44 Only two said this would be a bad idea. However, the overwhelming support for something new didn`t clarify what the new form should look like.

Most chambers of commerce approved something based on the bG, while Berlin`s Aeltestenkollegium Oechelhäuser argued that Germany needed a variant of the ordinary limited liability company. The most common legal entity in Germany and Austria is the Limited Liability GmbH. Under German law, the minimum capital required for setting up a GmbH is 25,000 euros, half of which must be available before the company is registered in the commercial register, the central platform for storing legally relevant company data. In this way, the country guarantees that only solvent entrepreneurs are able to set up new businesses. The concept of a limited liability company existed in the United Kingdom before the German-speaking world. In 1892, the GmbH laws were enacted in Germany and in 1906 in Austria. [6] In the 19th century, a legal person whose liability was limited to the capital contributed was considered dangerous. As a result, German law has many restrictions unknown to common law systems.

[5] The fear that the GmbH would supplant the company was part of the resistance to the new form (Articles 78 and 79 provide for a mechanism for converting a company into a GmbH). Goldschmidt considered this fear exaggerated; the GmbH could not compete with companies that wanted to list their shares on the markets. Unfortunately, no systematic source allows us to answer this question directly, but it seems that transformations from companies to LLCs have been rare. Footnote 62 Many other GmbHs had seen an earlier incarnation as a sole proprietorship. 20 In its observations on the possibility of a new form, the Saarbrücken and Schweidnitz Chamber of Commerce drew attention to that problem and to the greater social benefits of maintaining family businesses. Deutscher Handelstag, Mittheilungen 28, 1888 Nr. 18, 10–11. The term “quota” reflects the character of the new company: The GmbH is a contract between certain people, like a partnership. The company`s shares had to be transferable, some were publicly traded.

On the other hand, the transfer of ownership of a GmbH from one person to another required a notarized contract and quotas could not be listed on the stock exchange. This provision reflects the desire to bind owners more closely to the business and is at the heart of the “individualistic” aspect of the new form. On the other hand, the law required that the shares of GmbH be alienable and heritable. Articles could restrict transferability in a variety of ways, such as requiring the consent of other owners if a share were to be sold to someone who is not currently the owner. 9 The German legislation prohibiting the participation of the limited partner in the management is weaker than its French consideration, the defence of interference. See Röder, Erik, “Die Kommanditgesellschaft im Rechtsvergleich: Hintergründe der unterschiedlichen Karriere einer Rechtsform”, Rabels Zeitschrift 78, Nr. 1 (2014): 109-54Google Scholar. Several published sources reported financial information about the GmbH and the company, allowing some comparisons of these two forms. Table 3 summarizes a particularly detailed report from 1909. This year, operating companies organized in GmbH exceeded those of companies by more than three to one.

The GmbHs were much smaller; 21% had the minimum capitalization of twenty thousand marks, compared to only a handful of companies of this size. Only 3% of the GmbHs had a capital of one million marks or more, compared with almost half of the companies. The largest stock exchanges (Berlin and Frankfurt) each required a minimum capitalization of half a million marks for local companies and one million marks for others; only a few GmbHs could have been listed, even if they had adopted the form of company. Footnote 63 The smallest GmbHs existed in all sectors, and even in the textile industry, the sector with the most GmbH, the capitalization of companies dominated the GmbH. 47 “Justification”, Verhandlungen des Reichstag, vol. 125, annex 660, 3737. Section 13 of the GmbH Articles of Association is identical to Section 213 of the Companies Act of 1884 and Section 17 of the Cooperatives Act of 1889. It differs from § 111 ADHGB (on partnership) in that the phrase “as such has its independent rights and obligations” is added. Werner Schubert suspects that the justification of the GmbH was timid; Most people thought the corporation was a legal entity, so the use of section 213 of the Business Corporations Act suggested the same for the LLC.