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What is the right legal form for you?
You are gradually approaching your big goal - starting your own business. You know what it means to become self-employed, you know the market, you've got a good business model and you've come up with a plan for marketing and finances.
Before you can really start your own business and generate revenue, you need to take care of the legal aspects of setting up a company. The first step is to choose the best legal form. This is important because not every legal form is suitable for every company.
6 important criteria for choosing the right legal form for your business
The following six points summarize the most important criteria for choosing the legal form for you:
1.Revenue & capital
How much turnover will your company generate per year? This is always difficult to estimate, especially at the beginning, but at this point you can refer to the figures and estimates from your business plan. The capital requirements should also be taken into account when choosing the legal form, because the start-up phase in particular entails many additional costs.
2. Company form & type of trade
If you want to issue shares in your start-up or shares, then of course you have to form an AG. However, if you want to start small and alone, then a sole proprietorship is usually sufficient. If you are founding together with others, a GmbH might be a good choice. Don't just focus on the here and now, but also plan for the future: take your growth plans into account when choosing the legal form. Another crucial point is the type of business: as a service provider you usually have no stock (and thus little capital commitment), as a production company or processing/manufacturing business you usually have to pre-finance your stock of goods and merchandise (and thus have a high level of capital commitment). This can have tax implications as well as liability implications.
3. Risk & liability
Liability is also one of the really important aspects when choosing the right legal form. As a sole proprietorship, for example, you are liable with your private property. Therefore, you should always be aware of the liability risk and then, if necessary, establish a corporation. Often this selection criterion is also decisive for participating persons and companies when granting loans and financing.
4. Taxes
Depending on the type of company, the income and assets of the company and the individuals involved are taxed separately or together. Especially in the case of high profits, corporations offer lower taxation than a sole proprietorship.
5. Independence
Depending on the legal form, your personal room for maneuver is more or less flexible. If you found a company together with other participants or have capital providers on board, then you cannot make many entrepreneurial decisions alone.
6. Social security
Depending on the legal form chosen, some social insurances are mandatory, some are voluntary and others are not available. Founders of a sole proprietorship, for example, are not automatically insured against unemployment and payment into the pension fund is voluntary. In corporations, on the other hand, managing directors are employees and therefore also insured against unemployment.
Do you have questions about which legal form is the right one for you or would you like to start your business? The initial consultation with Foundera is free of charge and without obligation:
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