Legal matters

When setting up a business in Germany as a foreigner, you can choose between different types of company. The two most common are a subsidiary and a branch.

The main difference is that setting up a subsidiary requires the creation of a new legal entity, whereas setting up a branch does not.

In this overview we outline the main features of each type of company. For further information please also check Make it in Germany.

Note: The decision as to which legal structure you want to use to run your business has far-reaching consequences - for example, in terms of how much equity you need and whether you are personally liable for your business. It is highly recommended that you consult a lawyer or tax advisor before making your decision. We are happy to help you find one in Cologne. 

Subsidiary

A subsidiary is a company that is dependent on a parent company. Its assets are legally independent and separate from the personal assets of the shareholder. The natural person who represents the company or conducts its business is therefore relieved of personal liability.

GmbH, KG or AG are the most commonly used legal forms when setting up a subsidiary. Many foreign companies opt for a UG or GmbH because of their relatively low capital requirements and simple formalities.

At the bottom of this page you will find a quick guide on how to register a GmbH or UG.

Branch

A branch does not require the creation of a new legal entity. Instead, a physical business presence of the head office is registered. Legally, a branch always remains part of the head office, even if it operates as an independent enterprise. There are two types of branch, which differ mainly in the degree of independence from the head office. Information on each type is given below.Note: For both forms, the local trade office generally requires a local representative of the company to be resident in Germany.

A branch in Germany must be registered with the commercial register of the district court responsible for the area where the business is located and bear the name of the parent company. A notary will register the entry in the commercial register and draw up the articles of association for the German branch.

Representative office or dependent branch

If your company does not yet have many business contacts in Germany, setting up a dependent representative office (also known as a connection office) is a cost-effective solution. A representative office only needs to be registered with the Cologne Trade Office. However, the representative office cannot sign any contracts; a legally binding contract can only be signed by the foreign parent company.

The representative office may not issue invoices or demand payments on behalf of the parent company. It may only carry out preparatory or ancillary activities, such as establishing and maintaining contacts and gathering information.

Independent or autonomous branch

The independent branch is a branch that is physically separate from the parent company, but is still subordinate to the parent company and is only financially and organisationally independent. The foreign parent company and its German branch form an integrated business of the same entity.

The German branch is therefore subject to the laws of the parent company, but usually has its own management, separate bank account and accounts.