Setting up a business can take many different forms. Do you want to set up a business by yourself, or do you want to team up with others? Are you planning to acquire an existing company? Have you thought about the legal structure your business will take? Below, we will outline the various ways of setting up a business in Germany, and why some people are “freelancers” and others are “self-employed”.
In Germany, there are two ways of setting up a business: Either you are self-employed (Gewerbetreibender), or you are a freelancer (Freiberufler). You don’t get a choice in this matter – it depends on your profession. Being self-employed or a freelancer makes a difference with regard to certain formalities and also has an impact in your company’s legal structure.
Working as a freelancer
In Germany, numerous professions are known as “liberal professions” (“Freie Berufe”). If you set up a business in one of these professions, you usually work as a Freiberufler. These include:
An overview of the liberal professions is available on the Startup Portal. Some professions can only be allocated to the liberal professions following a case-by-case analysis. Your local tax office will decide whether your profession is considered freiberuflich or gewerblich, once you register your business at the latest four weeks after you started your activities. Bear in mind that for some professions, you will need to provide evidence of certain qualifications and vocational credentials.
Comprehensive information on requirements, tax aspects and legal structures for freelance businesses is available on the service pages of the State of Baden-Wuerttemberg. The information they provide is valid for all of Germany.
Working on a self-employed basis (Gewerbliche Tätigkeit)
If you would like to set up your own crafts or retail business, you will need to register your business. You need to do that in the town or municipality where your business headquarters will be.
For some occupations, you will need to fulfil certain admission requirements. These kinds of occupations are subject to prior authorisation (“erlaubnispflichtiges Gewerbe”). This applies to handicraft businesses, financial service providers and nursing services, as well as many others. For a list of occupations which are subject to authorization, please refer to the service-bw homepage. Subject to authorisation may mean that you will need to obtain certain approvals, apply for a licence or prove that you hold certain professional qualifications. The Authority Finder will tell you which authorities you will need to contact in your region.
Each business in Germany has its own legal structure. The legal structure provides a framework for dealing with legal matters. The decision on the legal structure of your business has significant implications – it will, for example, determine how much equity you need and whether you are personally liable for your business.
The Startup Portal contains an overview of common legal structures. Detailed information for freelancers is available on the service-bw homepage. Before you choose a legal form for your business, it may make sense to consult a lawyer or tax advisor. You can also turn to information centres for entrepreneurs.
Most people who decide to work on a self-employed basis found a new company. This offers the advantage of allowing the founder to implement his or her own ideas. It means, however, that you will need to think about your business very carefully. Make sure to assess whether your business idea really is promising. Also, make sure to give an honest answer to the question of whether setting up a business really matches your personality.
You may decide to initially work on a part-time basis only. As an employee, you have the right to do additional work in your spare time – but depending on your contract, you may need to consult your employer first. Setting up a part-time business is an interesting approach for students, too. Additional information on this kind of startup is available on the Startup Portal.
You might plan to set up a new business with one or more partners. Working in a team means that the founders can support each other in the startup phase and develop ideas together. As an added bonus, you’re likely to have more equity for financing your business. Bear in mind, though, that teamwork requires everyone involved to work together. Especially if more than three people are involved, decision-making processes can prove challenging. It is important that you allocate the responsibilities for individual areas right from the start, and that you choose the right legal structure for you. On the Startup Portal, you’ll find additional tips for setting up a business as a team.
Instead of founding a new company, you may choose to take over an existing business. Every year, about 22,000 German companies are looking for a successor. In this case, you can benefit from the established structures and the existing customer base, and maybe even from your predecessor’s knowledge. At the same time, however, you will be taking on responsibility for your employees.
The nexxt – Initiative Unternehmensnachfolge (succession initiative) will support you in planning and implementing the process of taking over an existing company. The initiative even offers a succession exchange. The exchange will let you look for businesses for sale in various industries and regions. You may also leave a search request in the succession exchange.
Information for women: On the pages of the Startup Portal for Female Entrepreneurs, you will find additional information on company succession for women (Information in German only).
Franchising represents a different approach to setting up your own business. It is used especially by food and retail trademarks who want to expand on their sales area without setting up their own branches. Instead, they rely on entrepreneurs dealing on their own account as franchise holders. In return for a fee, they are given permission to use the business model of the franchisor.
The benefit for entrepreneurs is that the concept has usually been tried and tested, and many people are familiar with the brand name. Starting up a new business is also aided by the fact that the franchisors will normally train their franchise holders and employ experts for technical or organisational questions. You can find out more about the opportunities offered by franchising on the Startup Portal and the German Franchise Association.
Here, you will find comprehensive information on setting up your own business (PDF) (English, German, Spanish, Polish, Turkish, Russian)
Overview of German legal structures for businesses (English, French, German, Italian, Russian, Turkish)