Founding a non-profit limited liability company: What founders of a gGmbH need to know

Whether promoting art and culture or protecting historical monuments non-profit Purpose makes the main object of its business requires the right legal form. The non-profit GmbH (gGmbH for short) offers founders not only the limited liability of a traditional GmbH, but also numerous tax savings. In this article, you will find out exactly how a gGmbH is structured and how you can set up such a company. You will also find answers to the questions of when a GmbH is considered a "non-profit" and how it is treated for tax purposes.

What is a gGmbH?

A non-profit limited liability company is a special form of limited liability company. It is a corporation and pursues a business purpose oriented towards the common good. Just like a regular GmbH, a gGmbH consists of three bodies:

• the shareholders, i.e. the shareholders of the gGmbH
• the management, which represents the gGmbH externally
• if applicable, a supervisory board (required for 501 or more employees).

The aim of a gGmbH is to combine the advantages of a GmbH with the advantages of non-profit status. Although a gGmbH has the same general conditions as a GmbH, it benefits from the tax advantages of non-profit status. For example, non-profit GmbHs are exempt from certain taxes in accordance with Section 5 (1) No. 9 of the German Corporation Tax Act (KStG) and Section 3 No. 6 of the German Trade Tax Act (GewStG).

When is a gGmbH a non-profit organization?

In order to benefit from the above-mentioned tax concessions, a gGmbH must pursue charitable, benevolent or ecclesiastical purposes in accordance with Section 51 of the German Fiscal Code (AO). What exactly is considered "charitable", "benevolent" or "ecclesiastical" is defined in paragraphs § 52, § 53 and § 54 of the AO.nullIn order to be classified as a non-profit organization, the company must be involved in one of the following areas:

• Science, education, training or research
• Art and culture
• Religion, monument protection, preservation of local history or customs
• Help for politically or religiously persecuted people
• Protection of marriage and family
• Nature and animal protection
• Welfare and public health services
• Youth and elderly care
• Consumer protection and consumer advice
• Sport
• Animal and plant breeding
• Model flying and amateur radio

The decision as to whether a GmbH pursues charitable purposes is made by the tax office after examining all the necessary documents, in particular the articles of association.

Tax treatment of a gGmbH

If the non-profit status of a GmbH has been confirmed by the responsible tax office, the company receives a notice of exemption. The result: numerous tax concessions and exemptions. For example, a gGmbH is completely exempt from:

• • the trade tax
  • the corporate income tax
  • the solidarity surcharge

liberated.nullFurthermore, a non-profit GmbH is not obliged to pay property tax or gift and inheritance tax.nullNo VAT is due for services provided by a gGmbH in the non-material area. Turnover from ongoing business operations is only taxed at 7 percent.nullReading tip: You can find out exactly how a classic GmbH is taxed in this article.

What is the difference between a gGmbH and a non-profit association?

The emergence of the organization

Non-profit limited company or non-profit association? Which legal form is best suited to your company depends on the individual circumstances. Both legal forms differ in terms of their company formation and their internal structure.nullA gGmbH is only deemed to be founded after entry in the commercial register. A company formation requires share capital of at least EUR 25,000, of which EUR 12,500 must be available. The company formation of a non-profit association, on the other hand, does not require share capital. The association is founded when it is entered in the register of associations.

The decision-making process

Whether investments or budget planning: Decisions have to be made in a company. A gGmbH is generally bound by the will of the shareholders. Although deviating regulations can be agreed in the articles of association, in practice the decision-making process is often based on the shares held by the respective shareholder. To put it simply: if you have a lot of shares, you have a lot of say.nullA non-profit association is organized on a grassroots democratic basis. Every member of the association has one vote and is equal to every other member.

Representation and liability

The gGmbH must be represented externally by a managing director. This is appointed by the shareholders. The non-profit association is headed by a board of directors, which is elected by the members of the association.nullThe managing director of a non-profit GmbH is generally not liable to third parties. The only exceptions are in the event of a delay in filing for insolvency and so-called tortious liability. A gGmbH managing director is only liable to the shareholders in the event of breaches of the contractual duty of care.nullThe board of directors of a non-profit association is only liable with its private assets in cases of intent and gross negligence. And only if they receive remuneration of less than 720 euros per year for their activities.

How do I set up a gGmbH?

Would you like to launch a gGbmH? We will support you with all the necessary steps.

Step 1: gGmbH - preliminary considerations and approvals

First of all, you define the non-profit business purpose of the gGmbH and its shareholders - together with your colleagues if necessary. You then need to consider how the required share capital is to be raised. The final step in the preliminary considerations is to obtain the necessary permits. A number of certificates and authorizations are required for gGmbH-companycompany formation , particularly in the areas of care and education.

Step 2: The draft articles of association precede company formation

The charitable purpose of the company must be defined in the articles of association. The company name and a beneficiary charitable organization must also be specified in the articles of association. In the event of the dissolution of the gGmbH, this organization will receive the profits generated.

Step 3: gGmbH audit by the tax office and opening a company account

The articles of association are submitted to the tax office for review. The tax office checks your company's non-profit status and grants it retroactively. If the tax office gives the green light, the articles of association are notarized by a notary. The notary will then send you the gGmbH formation documents. You take these documents to your bank to open a company account. The share capital - either in cash or as a contribution in kind - is paid into the company account.

Step 4: Registration of the gGmbH

Once the share capital has been paid in, your notary can register the gGmbH in the commercial register. Only with the registration is the company formation of your company. Now you register the gGmbH with the local trade office and the tax office. You can also register online. After a few days, you will receive confirmation of the business registration and your company's tax number.

found a gGmbH: The most important facts in brief

• • The legal form of a gGmbH is a special form of GmbH and pursues a non-profit purpose.
  • The examination of non-profit status is carried out by the responsible tax office.
  • A non-profit GmbH is exempt from many taxes and limits the liability of the shareholders to the share capital.
  • In return, economic profits may only serve the business purpose and may not be distributed to the shareholders.
  • The company formation of a gGmbH is similar to the GmbH companycompany formation and requires articles of association, share capital of at least EUR 25,000 and entry in the commercial register.