Gesellschaft mit beschränkter Haftung

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Gesellschaft mit beschränkter Haftung (GmbH or GesmbH) is a type of legal entity created in Germany in 1892.

Literally translating as company with limited liability, the mit beschränkter Haftung inspired the creation of the limited liability company form in other countries. With the GmbH form, shareholders are not personally responsible for the company's debts. This corporate form is extremely common in Germany, Austria, Switzerland and other Central European countries. Other variations include mbH (used when the term Gesellschaft is part of the company name itself), and gGmbH (gemeinnützige GmbH) for non-profit companies.

The GmbH has become the most widespread company form in Germany, since the AG (Aktiengesellschaft), the other major company form, was until recently much more complicated in founding and running.

It is widely accepted that a GmbH is created in three stages: the founding association, which is regarded as a private partnership with the full liability of the founding partners/shareholders, the founded company (often endorsed with "i.G." meaning "in Gründung") and the fully registered GmbH. Only the registration at the Commercial Register (Handelsregister) provides the GmbH with its full legal status.

The founding act has to be notarized as well as the articles of association. The GmbHG (GmbH Code) outlines the minimum content of the articles of association, but it is quite common to have a wide range of additional rules in the articles.

Under German law, the GmbH must have a minimum share capital of €25,000 upon which 25% but at least €12,500 has to be contributed by the shareholders (when the GmbH has only one shareholder the law is even stricter on the required capital contribution). There is no board as such: the company is run by the managing directors (Geschäftsführer) who have unrestricted proxy for the company. The shareholders acting collectively may restrict the powers of the managing directors by giving binding orders to them. In most cases, the articles of association list the business activities for which the directors must ask prior consent from the shareholders. Due to German law, a violation of these duties by a managing director will not affect the validity of a contract with a third party, but the GmbH may hold the managing director in question liable for damages.

Because a legal entity with liability limited to the share capital was regarded in the 19th century as something dangerous, German law has many restrictions unknown to common law systems. Quite a few business transactions have to be notarized such as the transfer of shares, issuing of stock, and amendments to the articles of association. Many of those measures have to be filed with the company registry where they are checked by special judges or other judicial officers. This can be a tiresome and time-consuming process as in most cases the desired measures are only legally valid when entered into the registry. Because there is no central company registry in Germany but rather several hundred connected to regional courts, the administration of the law can be rather different from Bavaria to Lower Saxony or to Mecklenburg-Vorpommern.