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August 3, 2021 | Establishment of a GmbH in Austria

August 5, 2021 | Holding in Austria – Advantages and disadvantages

1. October 2021 | 2022 comes the new exit tax – what changes does it bring?

16. November 2021 | Taxes in Cyprus: Is the country a tax haven?

16. December 2021 | Setting up a foreign company – but which one? Company forms and their founding requirements (USA | Malta | UAE)

It may be useful to set up a foreign company, for example a subsidiary or a holding company abroad. Then, of course, the question arises as to which country has which legal forms and which structures these foreign companies have. This article provides an overview of foreign social forms, their structures and founding requirements.

Especially when setting up a subsidiary abroad, it must be clarified which legal form the foreign company should have. Of course, you have to know the different international legal forms and how they are structured, established and how the company or the shareholders are liable. The latter can of course also become important in international traffic if a foreign company with which your company trades becomes insolvent. In addition, of course, you must also have knowledge of the company form if you want to participate in a foreign company and receive dividends, for example.

2.1.1. General Partnership

The foreign company of the General Partnership is rarely encountered. This foreign company is an association of at least two persons who conduct business for profit. It is not necessary for them to engage in commercial activity. Therefore, the partnership cannot be compared with a German OHG. In contrast to a GbR, the shareholders of a general partnership must necessarily aim at generating profits.

The partners of a partnership are liable without restriction and personally with their private assets. Therefore, the central importance of the partnership is limited to professions for which the professional law prohibits the formation of a limited company with limitations of liability. In some countries, such as the UK, this includes lawyers or auditors. A company creditor may sue either all the partners together or the company itself.

2.1.2 Limited Partnership

The Limited Partnership is a foreign company in which individual shareholders only participate as investors in the company. They are then limited in their liability to the deposit made. This form of company can therefore be compared with a limited partnership in the context of liability.

In some countries, for example in the UK, the limited partner can also participate in the management. Then he is often liable for liabilities incurred during this activity, such as a personally liable partner. The shareholder can also predominantly be a corporation. Consequently, a limited partnership can be designed in individual cases like a German GmbH & Co. KG.

2.2.1 Public Company / Corporation

The Public Company is suitable for large companies whose shares are to be traded on the stock exchange. The Public Company can therefore be compared with a German stock company. For debts and liabilities of the Public Company solely the company assets are liable. The shareholders, on the other hand, are not liable. This applies in principle even if they have not yet made their deposit. Only in the event of liquidation of the company are the shareholders liable for the amount of the contribution not yet provided.

In exceptional cases, for example, English law provides for liability for the shareholders. The addition Company is used especially in the UK.

In the USA, on the other hand, these companies are called corporations. This form of company is abbreviated to Crop. or Inc. (incorporated). A corporation is the foreign company itself and the Incorporation the act of incorporation. Both terms may be used as an addition. This is therefore a purely aesthetic decision.

The Private Company is also called Limited Company or Limited. These are in the UK. It is suitable for smaller companies with low capital requirements if the liability of the shareholders is to be limited. Liability is as regulated by the Public Company. Unlike the Public Company, the shares of the Limited are not traded on the stock exchange. It is therefore a non-listed corporation. Consequently, the Limited can be compared with a GmbH.

In the USA, this foreign company is again called Corporation and more precisely Limited Corporation.

2.3.1 Limited Liability Company

Limited Liability Company (LLC) is a hybrid form of company. This means that it can be both a corporation and a partnership. The LLC is an association of persons for profit and has independent legal personality. The shareholders are not entitled to participate in the management. In the case of an LLC, only the company assets are liable. The shareholders, on the other hand, are only liable for the provision of the promised contribution.

Compared to German law, the LLC contains both elements of the GmbH and OHG or KG. Consequently, the LLC is part of a type comparison of a German legal form. This comparison must therefore be applied in particular in the context of taxation. This applies, for example, to check whether the principle of separation or transparency applies.

2.3.2 Limited Liability Partnership

The limited liability partnership (LLP) works in the broadest sense like a partnership. However, it has the advantage of a certain limitation of liability for the shareholders. Unlike the LLC, however, the shareholders can carry out the management directly. Therefore, LLP in Germany can be compared well with a Einheits-GmbH & Co. KG.

Since the Limited in Great Britain – unlike the German GmbH (§ 5 I GmbHG) – does not have to have a minimum share capital and the legal requirements for the establishment are only low, it is the most numerically widespread form of company in Great Britain. In particular, the establishment does not require a notary. Therefore, a limited company can already be founded for the equivalent of three euros. It shall acquire legal capacity by handing over the instrument of incorporation by the registrar. After that, it can start its business directly. Consequently, no further certification is required. The establishment of a limited company is therefore fast and cost-effective. In addition, the company name can be chosen almost freely. Thus, it is possible to use advertising names. There are no restrictions on the nationality of shareholders and directors. Consequently, no British citizenship is required.

Nevertheless, after Brexit, special consideration must be given to the establishment of a Limited and check whether a foundation is still appropriate. It could possibly be more useful to set up an entrepreneurial company in Germany, as it is also subject to less conditions.

3.2.1. LLC

Corporate law is regulated by the individual states in the USA. Therefore, the schemes may differ significantly from one State to another. In the USA, the LLC is usually represented. The founding requirements depend on the individual states. Some states exclude legal entities as shareholders or require several shareholders. Others, on the other hand, stipulate that a shareholder is sufficient for incorporation. It is customary that no deposit has to be made for formation. Even for breaches of duty by managers and shareholders which give rise to liability, personal liability may be excluded or limited in the articles of association according to most national laws. You therefore need to check exactly in which state you set up the LLC.

3.2.2. LLP

Also in the case of the LL P, liability issues regularly depend on the regulations in the states. Under the LLP laws of some states, partners enjoy full protection against liability of any kind. Other states, on the other hand, only provide partial protection for the shareholders of an LLP. In some states, this foreign company is mainly founded by freelancers. This is due to the fact that in California, for example, the LLP is only open to certain freelancers. Still, there are mistakes when starting a business in the US that you can easily avoid. We explained these in one of our contributions.

We explain what happens if you have assets in Germany when emigrating to the USA and what you need to pay attention to.

3.3.1 Limited Company

The minimum share capital of a Limited in Malta is EUR 1,64,69. In the case of the limited company, only one shareholder is required to set up the company. Holding companies are particularly popular in Malta.

3.3.2. Public Company

The Public Limited Company is more difficult to set up compared to the Limited in Malta. In this case, at least two shareholders are necessary for the foundation. Nevertheless, the permitted total number of 50 partners may not be exceeded. In addition, the Public Limited Company requires a minimum capital of 46,600 euros. 25 percent must be paid out at the time of registration.

3.4.1. General Partnership

Originally, the company law of the United Arab Emirates for foreign companies was considered very complicated and cumbersome. The establishment of a General Partnership will continue to be exclusively for UAE nationals. Therefore, at least two shareholders are required who must also be nationals of the United Arab Emirates. Consequently, unlike in other states, this legal form is not considered for foreigners.

3.4.2 Limited Partnership

As part of the Limited Partnership, foreigners in the United Arab Emirates can only assume the position of limited partner. The managing and at the same time the personally liable shareholders, on the other hand, can only be citizens of the United Arab Emirates. Therefore, partnerships are rather irrelevant for foreigners.

3.4.3. Public Company

For a public company, the minimum capital is 10,000,000.00 dirham (equivalent to about 2,000,000.00 euros). The formation of a public company requires at least 10 founding partners, with the shares corresponding to the same parts and freely transferable. Management consists of a board of directors of at least three and a maximum of 15 members, who must be majority citizens of the United Arab Emirates. The public company is mandatory for banks and insurance companies as a form of company. Consequently, the Public Company is not particularly suitable as a foreign company.

For a private company, the minimum capital is 2,000,000,00 Dirham. This corresponds to about 400,000.00 euros. In addition, at least three shareholders must found the company, who are equally involved in the company assets. Nevertheless, the liability of the shareholders may be limited to the amount of the participation.

3.4.5. LLC

The most chosen corporate form in practice in the United Arab Emirates is the Limited Liability Company. The reason for this is that it is the only one that is suitable as a foreign company. Foreigners can hold the management here. A limited liability company must have at least two shareholders. A Supervisory Board is required if there are seven partners. The participation of a legal person is also possible. For the management, at least one and a maximum of five partners must be appointed. However, the powers of management are not regulated by law and should therefore be specified in the articles of association.

The share capital in Dubai must be at least 300,000.00 dirham (equivalent to approximately EUR 60,000.00), in the rest of the United Arab Emirates at least 150,000.00 dirham (equivalent to approximately EUR 30,000.00). It is assigned to the respective shareholders in equal parts. They are only liable for the amount of the capital attributed to them.

In the case of the LLC, it is also possible to regulate the distribution of profits and losses independently and differently from the shares of the respective shareholders in the articles of association. In particular, use of

made to compensate for the position of the local partner as majority shareholder. Consequently, this can be beneficial and interesting for foreign entrepreneurs and investors.