How do I choose the appropriate legal form for my start-up?
April 5, 2022 | 40,00 EUR | answered by Karl Albrecht
Dear tax advisor,
I am about to start my own business and am facing the important decision of choosing the legal form for my company. I have already done some research, but I am still unsure which legal form is the right one for me and my project.
As for the starting situation: I plan to open a small café where I will offer homemade cakes and freshly brewed coffee. My goal is to create a cozy atmosphere and spoil my guests with high-quality products. I expect a moderate turnover in the first years and want to grow slowly.
Currently, I could start as a sole proprietor, but I am also considering the options of a GmbH or a UG (limited liability company). I have concerns regarding liability, tax burden, and the formalities associated with the different legal forms.
My main worries revolve around personal liability as a sole proprietor and the tax aspects of the different legal forms. Naturally, I want to choose the most advantageous option that will make my business successful in the long term.
Therefore, my question to you is: How do I choose the right legal form for my business start-up? What are the advantages and disadvantages of the different legal forms in terms of liability, taxes, and flexibility? Is there a form that is particularly suitable for small businesses like my café? And how can I ensure that I can adapt the chosen legal form in the future if my situation changes?
Thank you in advance for your help and support.
Sincerely,
Emma Höfer
Dear Emma Höfer,
Thank you for your question regarding the choice of the appropriate legal form for your start-up as a café operator. It is understandable that you are considering the liability, tax burden, and formalities, as these aspects can have a significant impact on the long-term success of your business.
First and foremost, I would like to emphasize that there is no one-size-fits-all answer to which legal form is best for your café. The decision depends on various factors, such as your revenue, your willingness to assume liability, and your long-term goals. It is important that you carefully weigh all the pros and cons of the different legal forms in order to make the right choice for you.
As a sole proprietor, you have the option to start quickly and easily, as no complex founding formalities are required. However, as a sole proprietor, you also bear the full personal liability risk, meaning your personal assets are at risk in the event of the company's insolvency. This may be a risk you may not want to take.
The GmbH (limited liability company) and the UG (limited) offer the advantage of limited liability, meaning your personal assets are typically protected. However, these legal forms also involve more formalities, such as registration in the commercial register and the preparation of an annual financial statement. Additionally, the tax burden with a GmbH or UG is usually higher than with a sole proprietorship.
For small businesses like your café, the UG (limited) could be a suitable legal form, as it requires less initial capital than a GmbH. It offers you the opportunity to start with minimal capital investment and limit liability. However, you should also carefully consider the tax aspects, such as the taxation of profits and the possibility of carrying forward losses.
It is important to consider how flexible the chosen legal form is and whether you can adapt it in the future if your situation changes. While changing the legal form is possible, it involves a certain amount of effort and cost. Therefore, I recommend that you consult with a tax advisor or lawyer early on to choose the optimal legal form for you.
I hope that this information has been helpful to you. If you have any further questions or require individual advice, I am at your disposal.
Sincerely,
Karl Albrecht
