How to use GmbH share capital wisely

The share capital of a GmbH is the total equity capital that the shareholders of a GmbH or UG must contribute when the company is formed. You may have heard the term subscribed capital, which is a generic term for share capital. Basically, this capital serves as security for creditors, i.e. other companies or people to whom your company owes something. The share capital plays a special role for a limited company because the shareholders of a limited company are not liable with their private assets. Only the company as a legal entity is liable for debts within the company with its entire assets. 

Please note: The share capital should not be confused with the concept of company assets. Share capital is part of the company's assets. Company assets include all the assets of your company. In practice, this means that in the event of liability, the company is liable not only to the extent of its paid-up share capital, but to the full extent of the company's assets! 

As mentioned above, the minimum share capital for a limited company is €25,000. The good news is that you don't have to put up the whole amount at once. This means that you can start your company with as little as €12,500. Just remember that you will have to pay in the rest at a later date. Otherwise, all shareholders are liable for the difference up to €25,000 with their personal assets. 

In principle, the share capital is paid into the GmbH's business account. However, there are alternatives: it is possible to pay the share capital as a contribution in kind. Contributions in kind are capital contributions that are not made in cash. A mixture of cash and non-cash contributions is also possible.
For example, the following assets can be contributed in kind

• Land and property
• Goods and stocks
• Machinery, vehicles and tools
• Claims against other creditors or mortgages (mortgages, land charges)
• Licences, patents and trademarks  

Important: In order to prove that the contributions in kind have a certain replacement value or capitalised earnings value, and that the value has been correctly estimated and is appropriate, the shareholders must draw up a so-called contribution in kind report. This is recorded in the articles of association so that the type and nominal value of the shares given as consideration in kind can be clearly allocated. 

Paying in your share capital does not affect the liquidity of your company. Of course, the money you use for your GmbH is not lost. You can invest it in the further development of your company. You are not bound by any specific limits. This means that you can budget with the entire €25,000. Many entrepreneurs invest part of their capital in shares.

Did you know? You can use the share capital to cover your start-up costs! There are a lot of costs involved in setting up a company: You need to think about notary and registration fees, legal fees and much more. You can also use your paid-up share capital to cover these costs. The share capital is not an asset to be left untouched in your company account! 

By increasing the company's share capital, you can improve your creditworthiness with lenders and put yourself in a better position with your creditors. At the same time, you are increasing your company's assets and thus indirectly increasing your company's liability. This can increase the confidence of your creditors. 

But what do you need to increase your share capital? The first thing you need to know is that you need to pass a shareholders' resolution to increase the share capital. You will also need to amend your articles of association accordingly. It must be clear which shareholder will receive which shares from the capital increase. This in turn must be notarised. 
The procedure for reducing the share capital is similar: the reduction requires a shareholders' resolution, which must be published. In addition, all creditors of the limited liability company must agree to the reduction. If the creditors do not agree, the claims to which they are entitled must be satisfied first. The reduction is then still possible.

In principle, the following applies: Both the reduction and the increase of the share capital must be notarised. The minimum share capital of the GmbH of EUR 25,000 may never be reduced. If the minimum share capital is not reached, the GmbH would have to file for insolvency. 

Would you like to benefit from the limited liability of a GmbH, but don't have the necessary funds to cover the minimum share capital? That's no problem: there are alternatives to a GmbH. The Unternehmergesellschaft (UG haftungsbeschränkt) might be of interest to you. It is often referred to as the little sister of the GmbH or the mini GmbH. Basically, the UG (haftungsbeschränkt) works like a GmbH, with the only difference that there is almost no minimum share capital required to set it up - it can be set up with a nominal value of as little as €1.

Things to bear in mind: The UG (haftungsbeschränkt) sounds very tempting at first. After all, who wouldn't want to enjoy all the benefits of a GmbH without having to shell out €25,000 to set it up? There are three points to consider: 

• Firstly, you should bear in mind that the reputation of a UG with investors, lenders or customers is much lower. Your company has fewer assets, which means less liability for your creditors. Many investors are therefore reluctant to invest in a UG.
• In addition, the costs of setting up a UG are not significantly lower than those of setting up a GmbH. In most cases, you will need to raise money during the formation and start-up process anyway, and if you have already raised the share capital for a GmbH, you can use it for this!
• Finally, you should also bear in mind that there will be costs involved if you decide to convert your UG into a GmbH. A conversion can be complicated and costly, especially if you already have more assets in the UG (haftungsbeschränkt).

When the GmbH is dissolved, the shareholders receive the remaining share capital back. It is important to note that any outstanding claims arising from the GmbH's liabilities must be paid before any amount can be returned to individual shareholders. If there are any outstanding creditors' claims, these must be satisfied first. In the event of insolvency, the paid-up share capital is usually used to settle outstanding claims. 

The share capital of a limited company can be used more flexibly than most company founders believe. It can be used to cover start-up costs or to invest further in your company.

Do you have any questions about share capital or setting up a limited company?  Our team will help you with all the important steps. On our website you can book different start-up packages to suit your needs. You will also find helpful tools and resources in the Members Area to help you get started.