Who's Who when Purchasing a Readymade

This page wants to introduce you to all the participants in the process of obtaining a company. There are several persons and authorities that you might like to understand the role and duties. We will introduce you to:

Handelsregister, a.k.a. Commercial Registry
Formality
Public Notary
Tax Office
Trade Office
Interpreter
Company Secretary

Handelsregister, aka Commercial Registry or Commercial Registrar

This part will introduce you to the registry when it comes to taking over a company.

Friends of ours recently bought a readymade and were absolutely stunned by all the paper and exactness produced. The court complained that we did not prove that we may represent our own non-German company. We were perplexed by the produced pickiness.

Admittedly, Germany is still very paperbound but yes, digitization of the whole notarization process is very near. Germans, and even more authorities, want it all very clear and proven. This pickiness comes with good reason! The entries in the registry enjoy public faith. Roughly described, they are guaranteed. Hand on your heart, would you too not also be picky when you were to guarantee something?

Tell me, what role does the commercial registry have in Germany?

This is the most important authority. It adds your company to the registry and so establishes the change from readymade to "your company". As long as your company is not registered, it does not exist. Pre-stadiums of a registered company exist but they are mostly important for the corporate lawyer. A useful and important detail to remember is that you may act on behalf of a not (yet) existing company. Until the company is registered, you personally remain liable for your actions. Automatically after entry into the registry, any duties and rights are with the company. Any active transfer will not be required.

How reliable are the entries in the registry? You previously mentioned something about "guarantee".

The public is supposed to and may rely completely on the published entries with legally binding force! This explains why the commercial registry wants to have all proven and distinguishes Germany from other legal orders.

How far does this guarantee of correctness go?

Anybody participating in business, be it B2C or B2B, or C2B, may rely upon the details entered to be true, correct, and up-to-date. This remains true whatever reality is.

What do you mean that reality may differ from the registered details?

Simple. For example, a shareholder transferred his shares to another person without informing the registry. The transaction itself is legal. However, if defects in the transaction occur, then whatever the registry says prevails. You will find an example in the news article "Who is Liable for Inaccuracy of the GmbH Shareholder List".

We, shareholders, fired this goofy of a director. He just got the letter of notice. Finally, we were happy he was out but only noticed the next day that he did something absolutely correct a few days back once in his lifetime. Unfortunately, after he closed the deal, a different shareholder mentioned that we kicked goofy out of directorship. Now our customer wants to retreat, but we want the deal! What is now the situation?

The deal is valid because the director was not struck from the registry. Goofy was in the registry, and your customer closed the deal, not knowing of any cancellation. The deal is closed. This is another example of a double-edged sword of the reliability of the commercial registry.

Gosh. What about false entries? Are they also binding?

Yup. If your partner was born on the 9_th of January but due to a typo, the 19_th was entered, then the official birth date is the 19_th. Whatever is correct is binding and can be relied on. It is as simple as that – however brutal. This typo can easily be remedied by the notary issuing the deed.

Formality

This part wants to tell you more about all the formalities in Germany. As typical for Germans, formalities are very fine-tuned and scrutinizingly as well as meticulously chased into the Civil Code.

Please tell me what Germans understand as a "copy"? When I produced my Xerox, the notary frowned.

Already the word "copy" will drive a typical German lawyer nuts when dealing with a foreigner! To wit:

English	German
copy	Abdruck (from a printing plate)
	Fotokopie (Xerox copy as the Americans say else machine copy)
	Blaupause (copy from blue paper, now outdated of producing copies with special blue paper to make a 1:1 copy of type-/handwriting)
	Original (original version, better understood as wet ink, hardcopy)
	Abschrift (originally handwritten copy; now generically copy)
	Kopie (= generic copy)

The notary asked for a certain form, and upon my insistence, he submitted what I provided. As the notary foresaw, the registry rejected my document because the registry wanted a certain form. Come on, this is a just bad joke and they all are against me!

Nope, they are not out against you but, pedantic as it may seem, they only have the "simple" wish from you: They get the right document and in the right form from you. No more, but especially no less!

Why all these formalities?

Well, disregarding German's genetic wish for accuracy but also the law so says. The law especially says that any transaction in the wrong form is null and void. §125 BGB rules it illegal. So, if you want something have it, then in the correct form. Among Germans, it's (still) a running "joke" that a successful application only requires that you apply with three written copies. N.B. Don't forget the original (wet-ink) copy; thus making it four copies.

I read the Civil Code but found nothing relating to "public form". What's that?

That's simple to explain. Any document issued by a notary is in public form. Some documents for incorporation, require to be notarized copies of originals.

The notary wanted a written shareholder's resolution and I scribbled down the text wanted but only to receive a scowl. Now, what's up?

Yeah, you produced the resolution in written form but it also has to be legible.

What exactly is written form?

The written form is described in §126 BGB and requires that a document is issued on a sheet of (analog) paper and signed with (wet) ink. A lot of Germans, also, mix up "written" form with "text" form. You're in best company... However, when incorporating do yourself a good favor and pay attention to the wording!

I guess I get this concept of written form. My notary complained about my email being only in "text form" and not written. Huh? Isn't that actually the same? Nowadays, a lot is written digitally into a computer. Doesn't that suffice?

No, it does not! You are saying it already yourself – "digitally". In legal understanding, this is "text form". Text form is not written form (§126b BGB).

Okay. This reliance on written form seems somewhat antiquated nowadays with the degree of digitization existing. Is there a way to legally circumvent the written form?

Yes, you can legally work around the written form and maintain this requirement as well. You can apply the "electronic form" pursuant to §126a BGB. It is really that easy – almost.

Cool. So, I just need some kind of digital signature and compliance with the "electronic form"?

Almost. You need a qualified digital and not just a digital signature (§2 SigG). Look for an authorized provider! Ask a potential provider whether their offer meets §2 SigG to replace the written form. If the salesperson has a blank face, best move on to the next.

Why all this fuss that I have to visit a notary?

Certain documents need to be in notarized form. The law on limited liability companies requires that certain documents are in "public" form – as worded in legalese.

Public Notary (aka "Notar")

This section wants to introduce the participant "public notary". In civil law countries (like continental Europe) in contrast to Common Law countries (mainly represented by the U.S.A. and the UK with Commonwealth countries) notaries enjoy a high level of reputation and reliability. A notary is in Germany an attorney with another state examination. In order to provide reliability, becoming a notary requires not only special training in documentation law but also must have significant professional experience as a solicitor with a well-going office. Currently, Germany has a lack of notaries. This means they have a saturated business and are in no hurry. Their fees are mandatory and determined by law. The fee rules do not know the subject matter "expedited processing" or alike.

Why do we have to visit a notary to submit our application to open a company?

The law on limited liability companies requires that a notary issues the articles of association and submits notarized copies of accompanying documents to the commercial registry.

Can I not directly apply to the registry and so circumvent such an "obstacle" as a notary?

Sorry, no chance – none whatsoever.

Cannot the notary consult on my needs?

The notary's role is strictly neutral as a public office wanting to implement an applicant's wish. An office has the only consulting function to make sure that an application is complete and nothing evident is missing (§25 VwVfG). Latest when to shareholders start quarreling on who "deserves" more shares, the notary is out of the picture to discuss this issue. He may and will say that it is legal that one person has more shares than a different but no more. If he starts arguing to the favor of one shareholder then he is abandoning his duty of neutrality.

Tax Office (aka "Finanzamt")

This part will introduce you how the tax office participates in the process of opening a company.

What role does the tax office play during the opening of a company?

As a rule, the tax office plays no role in founding a company. It is not consulted at all.

You said as a rule... What are the exceptions where the tax office plays a role in opening a company?

The rule as such stands and there is no exception. However, when opening a limited liability company for charitable purposes, it would make sense to first get an "okay" from the tax office on the charitable status of the intended company. This approach saves time and costs.

Trade Office (aka "Gewerbeamt")

This section intends to introduce the role of the trade office (Gewerbeamt) during incorporation.

What function does the trade office fulfill during incorporation?

Actually, none. Some lines of business require permission.

In some seldom cases, the company may only be registered after permission to run the business has been granted. N.B. In some federal states, this permission-granting authority will be the chamber of commerce or a special office.

What objective does this office have in general?

Whoever wants to run a trade business and is not a free professional requires to register his or her business with the trade office (§14 GewO). Limited liability companies are by their form already considered as trades – regardless of their line of business. This registration is called "Gewerbeanmeldung" or "Gewerbeanzeige" and is to take place at the local office. This registration is not only needed for opening a business but also for any internal changes or relocation.

Interpreter

Why is an interpreter needed to register a company?

By the word of the law, an interpreter is not considered at all. The law typically assumes that German registers. However, the notary has the duty to make sure that the involved parties understand what is happening. So, if you do not speak German, you will need an interpreter.

Well, my German is far from perfect but I have no issue understanding most situations. How well does my command have to be?

It suffices if your ability is at least B1. No, you do not have to prove it. If the notary is not satisfied with your knowledge, he will postpone the founding until you reappear with one.

Who is eligible to interpret for me?

There is no formal requirement – with the exception of a participant in opening the company. We are thinking of co-shareholders or directors.

May I bring my best friend along?

Formally, no issue. You may take your best friend. However, the required language abilities also apply to him. The interpreter may be a professional one but this is not necessary. The next question is how much does this person really understand what the notary is talking about? In the assumption, you have your best friend with you and this person understands even less than you, how much will this help you?

I saw that some notaries also speak a foreign language and are willing to interpret. Why is an interpreter required?

Admitted. Some notaries understand so much English that they could issue documents in a different language than German. Some notaries will even actively discuss this with you. Caveat! The surcharge for this interpretation will be easily beyond € 300.

Company Secretary

What functions does a company secretary have?

German law does not know this office! However, if you insist to have such an officer in your company you are free to adapt your company's articles of association to have such position.

No secretary? Oh, gosh. Who then takes care of the corporate records? Do you not have to submit annual reports to the registry?

Nope, in Germany, there is no legal duty to submit to the commercial registry an update of the corporate details. In general, the German authorities do not expect annual reports but only when the structure of the company's setup changes. When a new shareholder joins the company or a director leaves, the commercial registry must be informed – as a rule by the notary. Well, actually a duty for an annual report does exist but not as is in common law countries. The director of a company is responsible to publish the company's annual closing with the Federal Gazette. The Bundesamt für Justiz (The Federal Office of Justice) monitors the filing and issues fines in cases of disregard. This fact is a theory. In reality, your tax consultant takes care of this for a minor fee.