How can I, as an entrepreneur, limit my liability?
March 3, 2024 | 80,00 EUR | answered by Daniel Netz
Dear Commercial Law Attorney,
I am Jakob Bergmann, owner of a medium-sized IT services company. Over the past few years, my business has been steadily growing and I now have several employees and clients. With the growth of my company, my risk of being held liable also increases. I am therefore concerned about how I can limit my liability as an entrepreneur to protect my personal assets.
Currently, I operate as a sole proprietor and therefore bear the full liability risk. In the event of a liability claim, my entire personal assets could be at risk. However, as I aim to further expand my business, it is essential for me to minimize my personal risk.
I have heard of various options such as establishing a GmbH or an AG to limit liability. However, I am unsure which option would be best for my company and what legal requirements I need to consider.
Therefore, my question to you is: How can I as an entrepreneur limit my liability? What legal steps do I need to take and what are the advantages and disadvantages of the various options, such as establishing a GmbH or an AG? I want to continue developing my business without jeopardizing my personal assets.
Thank you in advance for your support and advice.
Sincerely,
Jakob Bergmann
Dear Mr. Bergmann,
Thank you for your inquiry regarding limiting liability as an entrepreneur in the field of IT services. I am glad that you are actively addressing this important issue and seeking to protect your personal assets. In the following, I will show you various ways in which you can limit your liability as an entrepreneur and the legal steps to consider.
As a sole proprietor, as mentioned before, you bear the full liability risk and are personally liable for any damages that may occur in the course of your business activities. To minimize this risk, forming a GmbH or an AG as legal entities is recommended. In both types of companies, liability is usually limited to the company's assets, thus protecting your personal assets.
Establishing a GmbH (limited liability company) is a popular option for medium-sized companies. In this case, shareholders are only liable for their contributions, ensuring the protection of personal assets. However, forming a GmbH requires a minimum share capital of 25,000 euros, which must be paid in cash or in kind. Additionally, the GmbH is a separate legal entity with its own legal personality, involving certain formalities and obligations such as registration in the commercial register and the preparation of annual financial statements.
Forming an AG (stock corporation) is another way to limit liability. In this case, shareholders are only liable for their contributions, and personal assets are also protected. However, the minimum capital requirement for an AG is higher (at least 50,000 euros) and the AG is subject to stricter legal regulations. AGs are typically suitable for larger companies with multiple shareholders.
Before deciding on a specific legal form, it is important to thoroughly consider the advantages and disadvantages of each type of company. Individual advice from an experienced lawyer specializing in business law can help you find the right solution for your company.
I hope this information is helpful and I am available to answer any further questions you may have. Good luck with the development of your business and protecting your personal assets.
Best regards,
Daniel Netz
Business Law Attorney
