Profit distribution and corporate form
April 29, 2013 | 25,00 EUR | answered by StB Patrick Färber
Good day, I am planning to start a business (with two people) - specifically a gastronomic operation. I am not sure yet whether a UG or GmbH is the more suitable form and how profit distribution could look like. The situation is as follows:
1.) Each partner contributes 50% of the investment (which will be a total of approximately 12,000 euros, so each 6,000).
2.) The ongoing costs (rent, raw materials, insurance, etc.) are also split 50% to 50%.
3.) However, the work is carried out by one partner at 70% and the other at 30%.
Now the question arises: How can profits and losses be distributed fairly? And which legal form (UG or GmbH) is more suitable? A tax advisory association recommended a GmbH to us - we should deposit the 12,500 and could immediately reinvest it?! But I wonder, what about the remaining 12,500?
Thank you in advance.
Dear questioner,
first of all, I have to unfortunately tell you that the situation and question you have presented cannot be comprehensively and appropriately answered within the fee you have set. I would recommend personally booking a lawyer/tax advisor (e.g. for an initial consultation) who has experience in advising start-ups.
However, I would like to give you some hints regarding the situation:
- UG or GmbH = corporation
From your explanations, it seems that the company to be founded "belongs to you" or is managed like a GbR or OHG, where the costs are somehow "shared". This is not the case with a corporation: the GmbH is an independent legal entity with its own sphere of assets, separate from yours as a shareholder. You would own 50% of the share capital of the corporation. Profits can only be distributed through separate resolutions (the corporation incurs about 1.5% tax on the distributed amount). Relationships between you and the GmbH must be structured fiscally as they would be between unrelated third parties.
- The UG/GmbH is required to prepare balance sheets and determine the annual surplus/deficit. Unless specified in the articles of association, distributions can only be made according to the share ratio!! A different (disproportional) profit distribution must be specified in the articles of association and will only be recognized by the tax authorities if it reflects the work performance (which seems to be the case for you). However, this must be proven to the tax office!
Additionally, there is a risk that this deviating profit distribution could currently trigger a gift between the shareholders!
- Regarding the advice from the legal aid association: The EUR 12,500 means that when registering the GmbH, at least half of the minimum share capital (EUR 25,000) must be paid in. The other half must also be paid in!! Until then, the company is "indebted".
And while the immediate use of the paid-in EUR 12,500 is generally possible since 2008 (MoMiG), it requires that the claim of the GmbH against the shareholder (i.e. you) from this loan is also valuable, meaning that you are able to repay this money. The restaurant industry is tough, as I know from my own experience.....:-)
As you can see, the question of the right legal form depends not only on the deviating profit distribution, but also on liability criteria and your personal circumstances.
If you are considering the legal form of a partnership (OHG), for example, you would not be bound by the minimum capital requirement, could withdraw funds more flexibly for private purposes (corporation: only through salaries, loans that comply with the arm's length principle), claim and offset start-up losses on your personal income tax (corporation: not possible), etc.
Consulting with a lawyer/tax advisor is essential!
I hope I could provide some clarifying hints!
Best regards,
Patrick Färber
Tax Advisor
patrickfaerber@arcor.de
