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Setting up a company: Your step into self-employment

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Setting up a company: Your step into self-employment

The dream of owning your own business - this is cherished by countless people all over the world. In Germany alone, no less than 550,000 new companies were registered in 2019. Would you like to be a part of this number soon? Then be sure to read on! We'll show you what you should keep in mind when setting up a company and what awaits you on your journey to your own business.

Why should you start a business?

There are countless reasons why it's worth starting your own business. Have you always wanted to be your own boss? Have you always wanted to work according to your own ideas? Do you want to develop your Realize dream and leave your own footprints on the earth? Then a Company foundation just the thing for you.

However, there is one thing you should be aware of in advance: The success does not come by itself. You will have to show a lot of ambition, perseverance and steadfastness. It's your responsibility to make sure that your company makes enough money so that you can live off it.

If something goes wrong, it's up to you to sort it out. You're at the top of the company, so there's no one to blame. Are you aware of all these things and willing to invest time, nerves and heart and soul? 

How much does it cost to set up a company?

The costs you incur when setting up a company can vary greatly. The most important factor is the type of company you choose. If you set up your own business as a freelancer, for example, this is completely free of charge. If you register a business, it will cost you around 50 euros, depending on where you live.

If, on the other hand, you decide to set up a corporation, limited partnership or similar, you can expect significantly higher costs. In this case, for example, you will have to have additional articles of association drawn up, which in turn will have to be notarized. Of course, this is not free of charge. How much the services of the notary cost depends entirely on the complexity of your company.

Not to forget Property rightsthat you might want to register with the trademark or patent office.

start your own company

Who can start a business?

In principle, all citizens with German citizenship can establish a company in this country. However, thanks to the freedom of establishment and trade, other EU citizens can also set up a company in Germany. On the other hand, persons who come from a non-EU country require a temporary residence permit or an unlimited settlement permit.

Do you meet the professional requirements for starting a business?

If you want to start a company, you must of course be familiar with the industry in which you want to operate. Otherwise, you will not be successful. However, it is also possible that you will not even have the chance to become self-employed without special proof of knowledge. This is often the case in the skilled trades, for example. So be sure to find out in advance whether you need to present a master craftsman's certificate, for example, or other proof of admission.

Regardless of these requirements, you should of course have some basic knowledge of business and commercial matters - that goes without saying. You need this knowledge to keep your books correctly and not to lose track of income, expenses, profit and so on.

What legal form should I choose when establishing a company?

Probably one of the most important questions you have to ask yourself at the beginning is the legal form. There are an incredible number of them, which doesn't make the decision any easier. We will therefore present the most common 5 in the following.

1. sole proprietorship

You want to deliver a one-(wo)man show? Then a Sole proprietorship the perfect choice. This is the simplest legal form, because it is with the least effort connected. For this you do not even have to register in the commercial register, as long as your Business runs only under your real name or your job title.

2. GbR: civil law partnership

If you want to bring one or more business partners on board, a GbR is a good option. This is the simplest legal form for partnerships. You are not required to be entered in the commercial register and the formalities are comparatively low.

It is important to know, however, that you and your business partners are liable not only with your company assets but also with your private assets.

3. limited liability company: limited liability company

A GmbH is a corporation. Unlike the GbR, you are not liable with your private assets, but only with the company's assets. However, in order to be allowed to establish a GmbH, you need a capital contribution of at least 25,000 euros. In addition, you must be entered in the commercial register when you set up the company and you must also keep double-entry accounts.

4. eG: Registered cooperative society

If you join forces with at least two other people, you can form an eG. You come together in a corporation and thus jointly achieve goals that you could not realize alone.

To this end, you must draw up articles of association that specify the extent to which you are liable as a cooperative, how the legally binding general meeting is conducted and, of course, the amount of the cooperative contribution. You must also be entered in the register of cooperatives and prepare annual financial statements, which are audited by the cooperative association.

5. AG: stock corporation

If you decide to found a company as an AG, all shareholders own shares in the form of stock. Here you can expect a similarly high level of bureaucracy as with the eG. However, here you do not work with articles of association, but with a partnership agreement. You also need at least 50,000 euros in share capital.

Where must a company formation be registered?

Where you have to register after setting up your company depends entirely on the type of business you have chosen. If you operate as a freelancer, for example, you simply send an informal letter to your local tax office. You will then be asked to fill out a tax registration questionnaire and will finally be assigned your tax number. And that's it.

If you are not a freelancer, you are required to register with the trade office. Membership of the Chamber of Industry and Commerce is then also required. The trade office therefore sends your registration directly and you do not have to worry about anything.

All merchants must also be entered in the commercial register. This is taken care of by a notary. Do you employ EmployeesIn addition, you must register with the employers' liability insurance association (Berufsgenossenschaft). If, on the other hand, you are setting up a craft business, don't forget to register in writing with the relevant Chamber of Crafts.

Your social insurances

Of course, as a self-employed person you also have to take care of your social insurances yourself. You are obligated to inform your health insurance company about your activity and you also have the option of paying voluntary contributions to the German pension insurance. In some cases you even have to do this, for example if you are classified as a pseudo-self-employed person, or to the

group of artists and publicists.

If the latter applies to you, you register with the Künstlersozialkasse (artists' social insurance fund), because then you are subject to a social insurance obligation there. They will pay half of your social security contributions, just as an employer would.

What subsidies are available when starting a business?

The state offers you various options for financial support if you decide to set up a company.

  1. ERP start-up loan: "Enterprise Resource Planning", loan with very low interest rates.
  2. Start-up subsidy as start-up support: Subsidy from the employment office for all those who aim to start a company from unemployment with ALG1.
  3. Start-up money: Subsidy from the employment office for recipients of ALG2 who want to start a company.
  4. Support program Invest: Acquisition and business subsidy for the promotion of young and innovative companies
  5. Consulting support for founders: subsidies for consulting services regarding financing, marketing and more

8 steps to start a business

You don't start a successful business overnight on a whim, that's for sure. If you're serious about starting a business that promises a long-term future, you should follow these 8 steps.

1. find and check business idea

At the very beginning, there's the idea, of course. What other basis could you have for founding a company? So do some soul-searching and think carefully about what you enjoy doing, what you're passionate about, and what you want to do every day from now on. The business idea forms the basis for your success and also your personal happiness. Because hand on heart: if you're going to found a company, you should also be passionate about the idea behind it.

As part of a market analysis, you then get an overview of the competition and also take a close look at the target group. In this way, you can check whether your business idea has any chance at all on the market and whether you can hold your own. All the information you need for this is provided by the industry associations or the chambers of industry and commerce.

2. planning and preparation

Good planning is half the battle. So ask yourself important questions right at the beginning like:

  • Do you need permits to start your business?
  • Where do you have to register?
  • What insurance do you need?

Make a detailed plan of when you need to take care of what. That way, you won't miss any important deadlines that could throw a wrench in your plans.

3. general conditions for founding a company: Full-time or part-time?

Numerous new entrepreneurs first decide to start a business on a part-time basis. In this way, they continue to draw their fixed salary from their employment relationship and can build up their company without any financial pressure. Especially in the beginning, expenses are often high and cannot yet be covered by income. If you still receive a fixed salary during this time, it is an enormous relief.

However, this also means that you can invest significantly less time in your own business.

4. clarify business plan & financing

Speaking of finances: How are you doing with your reserves? What funding opportunities might you be able to take advantage of? You must always keep a close eye on your finances, otherwise the dream of founding a company can quickly be over.

Creating a business plan helps you figure out what capital you'll need, when you'll need it, and how much you're likely to bring in. It also lays out your Business model It includes a competitive analysis and shows how your company stands out in the industry. The business plan thus provides an important basis with which you can approach potential financiers.

5. brand names

Almost as important as your business plan is your brand name. Your company will be known by this name for all time. Therefore, on the one hand, it should fit naturally, but on the other hand, it should also be catchy and have a high recognition value.

Before you commit yourself, take a look at the commercial register and check which names are already taken. Also find out whether there are already companies with a similar brand name. Otherwise, there is a high risk of confusion and, in case of doubt, prospective customers who were actually looking for your company will end up with the competition.

Once you have decided on a name, register it with the German Patent and Trademark Office and secure the corresponding domain.

6. check applications, permits, etc.

Before you can really get started, you may first need a few permits and licenses. Check whether you are carrying out an activity that is subject to a permit requirement. The Trade, Commerce and Industry Regulation Act (Gewerbeordnung) defines which activities are subject to a permit. The list includes, for example, the operation of gambling halls or activities in the travel trade.

If you have a job that does not require a permit, you can easily register with the Trade Licensing Office.

7. company formation: find legal form

We have already introduced you to some of the legal forms you can choose from. When choosing, it is important to know whether you will be working alone or as part of a team. It is also important how much start-up capital you have available and whether you choose limited liability or not.

8. positioning

Congratulations, you have completed your company formation! Now you need to make profits and establish yourself successfully in the market. So always stay up to date on what the Needs and wishes of your target group, work diligently on customer acquisition and place your products or services on the market with a coherent marketing concept.

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Reviewed by Dr. med. Stefan Frädrich

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