• Unincorporated business with one owner.
• Owner pays personal income tax on profits.
• Liable for all business debts and losses.

An unincorporated business with just one owner who pays personal income tax on profits earned. The individual is legally responsible for all aspects of the business, and any debts or losses incurred cannot be shared with other individuals. It is the cheapest and easiest business structure to establish.

Simple and inexpensive to set up, but with unlimited liability.

• Formal arrangement between two or more parties.
• Shared management and profits.

A formal arrangement between a group or association of two or more parties to manage a business and share its profits.

Suitable for businesses managed by multiple individuals sharing responsibilities.

• Often used by small businesses.
• No minimum capital investment required.

A structure often utilised by small businesses or those no longer operating business. There is no minimum capital investment required.

Ideal for small businesses with simple organisational needs.

• Shared responsibilities, assets, and liabilities.
• Unlimited liability.

A business arrangement whereby two or more individuals agree to share responsibilities, assets, profits, and financial and legal liabilities of a jointly owned business, granting unlimited liability.

Suitable for businesses with joint ownership and shared responsibilities.

• Some partners provide capital and have limited liability.
• Managing partners have unlimited liability.

In a limited partnership, some partners are not entitled to manage its affairs but provide all or part of the partnership's capital. These partners have limited liability, while managing partners have unlimited liability for the partnership's debt and losses. There is no minimum capital requirement.

Combines limited and unlimited liability for partners.

• Liability limited to initial invested capital.
• No minimum capital required initially.
• 25% of yearly earnings must accumulate until EUR 25,000 capital is reached.

The owner's liability is limited to the initial invested capital, for which there is no minimum. However, 25% of yearly earnings must be accumulated until EUR 25,000 is reached as the capital value.

Low initial capital requirement with liability protection.

• Owners protected from personal liability.
• Minimum capital investment of EUR 25,000 required.

A corporate structure which protects its owners from being personally responsible for any liabilities. A minimum capital investment of EUR 25,000 is required, and there is a limit on capital contributions paid by shareholders.

Provides liability protection and requires significant capital.

• Minimum capital of EUR 50,000 required.
• Divided into shares.
• Liability limited to invested capital.

A minimum capital of EUR 50,000 is required for this arrangement which would be divided into shares, thus limiting the liability to the invested capital.

Ideal for larger companies seeking to raise capital through shares.

• Available at the German Commercial Register.
• Information provided via the German Federal Gazette.

Corporate information is available at the German Commercial Register (Handelsregister): www.handelsregister.de.

Information is also provided via the German Federal Gazette (Bundesanzeiger): www.bundesanzeiger.de.

Access basic corporate information easily online.

• Financial state information available.
• Provided by the German Commercial Register and private agencies.

You can obtain information on the financial state of affairs for companies and industry at the German Commercial Register. There are also numerous private reporting agencies offering credit checks.

Utilize credit checks to assess financial health of potential clients.

• Information included in credit reports.

Normally you find this information in a credit report. Credit reports are offered as a service online.

Check for any legal judgments against potential business partners.

• Necessary documents for legal proceedings.

As a minimum, it is advisable to have at least the following available:

• Copies of the contract(s)
• Copy invoices and a full statement of account (including payments and credit notes that have been allocated against the outstanding invoices).

In the case of a regular lawsuit procedure, copies of the complete contractual documentation should be available starting with the contract, orders, confirmations, delivery notes and invoices. Every step of the trading relationship between the debtor and the creditor should be provable by documentation.

In case of dispute, all notes of conversations between the creditor and the debtor should be kept and given to your lawyer. In the case of verbal negotiations, you will need the visit or negotiation reports and the names of any witnesses. A signed power of attorney.

Maintain detailed records and documentation for legal proceedings.

• Provides security against buyer's default or insolvency.
• Three types: Basic, Increased, and Extended ROT.

In Germany, regulations on retention of title (ROT) are largely supplier-focused. The debtor must acknowledge any ROT clauses/terms prior to receiving the first invoice, typically through a signed contract or signature on terms and conditions.

• Basic ROT: The goods supplied remain the legal property of the supplier until full payment. The supplier can or must get the goods back.
• Increased ROT: Open account retention. In ongoing business relations, the supplied goods remain the legal property of the supplier until all outstanding amounts from the open account or business relations have been fully paid.
• Extended ROT: Assigned to the supplier in advance. An advance assignment is effective despite a non-assignment agreement between the purchaser and any third parties, according to §354a of the Commercial Code.

In the event of litigation, ROT may be exercised subject to agreement between the insolvency practitioner and supplier. Often, the agreed terms result in the remaining goods (of all suppliers) being compiled and sold during the continued operations of the business as part of a 'supplier pool'. A supplier will receive payment for such sales relative to their percentage of goods in the initial pool.

Use ROT clauses to secure ownership of goods until payment is received.

• Warning notice is mandatory before filing claims.
• Notice should include claim details and payment instructions.

A warning notice to the debtor is mandatory before filing any enforcement claims. The warning notice should include:

• Creditor name and overview of the claim
• The total amount of the claim, including penalties (interest)
• Payment method required
• A warning that the claim will be enforced through the enforcement authority if not settled by the required date
• Information on how to dispute the claim

If this measure has been taken and the payment still has not been made after the two-week notice period (according to the law), the creditor may file for enforcement. Note: In Germany, you may be ordered to pay court fees if you did not send a warning letter to the debtor prior to issuing proceedings.

Send a warning notice before taking legal action.

• Interest charges must be outlined in terms and conditions.
• Collection costs not chargeable unless specified in contracts.

If the contracting parties have not agreed on interest and collection costs in the contract, statutory default interest and collection costs are applicable.

Extrajudicial interest and costs can be claimed as part of the outstanding monies during legal proceedings. Approximately 60% of German courts award this additional claim, with the losing party bearing the costs of the legal proceedings.

Culturally, German debtors are accustomed to paying late payment charges and debt collections costs, although the actual amounts of interest payment are considered a matter of negotiation between debtors and creditors.

Ensure terms and conditions specify interest and collection costs.

• General limitation period is three years from the end of the year when a claim is due.
• Limitation period may be suspended in certain circumstances.

The limitation period is three years from the end of the year when a claim is due. However, there are other variations such as the obligation to notify other parties about defects, and such cases may vary for a period of up to 30 years. Given such a long period, the limitation may be suspended if any of the following arise:

• Negotiations take place between the relevant parties.
• A statement of claim is filed.
• Proceedings begin at one of the registered conciliation institutions (Gütestellen).

The statute of limitations is also suspended by the initiation of collection proceedings (Mahnverfahren) for any payment claims.

Understand the limitation periods to ensure timely legal action.

• Includes mediation and arbitration.
• Mediation expected to be out of court procedure.
• Arbitration is faster and excludes ordinary courts' jurisdiction.
• Courts may refer disputes to ADR.

Mediation is the most common form of ADR in Germany and is expected to be an out of court procedure, although this may be conducted in court too, particularly if referred to a court specialising in ADR. A mediation conducted out of court is governed by the German Mediation Act. However, the parties must first agree on how the proceedings are to be conducted.

Arbitration involves a private tribunal and is faster due to confirmed processes and dates, with no appeals. However, agreeing to arbitration means excluding the jurisdiction of ordinary courts. Arbitration in Germany is based on the rules of the UNCITRAL Model Law of International Commercial Arbitration and is run by ordinary courts, Chambers of Commerce, or a professional arbitrator, as agreed by both parties.

Courts have discretion to refer a dispute they deem suitable for ADR to a division of the court specialising in ADR that is not authorised to render a binding decision. In this case, the ADR mechanism chosen by this division is mandatory for the parties and forms an integral part of the court proceedings. If an amicable settlement cannot be reached, the case will be referred to the division of the court that is competent to render a binding decision, and the formal court proceedings must continue.

Understand the available ADR methods and their applicability.

• For traceable debtors with monetary debt.
• Berlin-Wedding court for non-German clients.

Legal dunning procedures may be applied in cases where a debtor with monetary debt is traceable. The Berlin-Wedding court is responsible for non-German clients, while various local courts are responsible for German cases.

Legal representation recommended to navigate dunning procedures.

• Court order and enforcement order required.
• Debtor may dispute and convert to regular lawsuit.

To obtain an enforceable judgment, the court order ('Mahnbescheid') and the enforcement order ('Vollstreckungsbescheid') must be served respectively to the debtor within the time frames stipulated in the German Civil Process Law. The debtor may dispute or appeal the orders, which would convert the procedure into a regular lawsuit.

Ensure proper service of court and enforcement orders.

• Initiated after failed collections or debtor appeal.
• Judge assigned to ensure fair proceedings.
• Closing date scheduled after all arguments exchanged.
• Trial hearing date set after proceedings closed.

Such a lawsuit could be initiated immediately after failed amicable collections, or directly after a debtor appeal. Once the writ of summons is filed, a judge is assigned to ensure fair proceedings, including tracking and managing evidence and documentation. Once the supervising judge decides that the parties have exchanged all relevant arguments in their pleadings, a closing date is scheduled after which no additional filings are authorised. After the proceedings close, the trial hearing date is set.

Prepare for regular lawsuits following failed collections or appeals.

• Legal dunning process: 8-12 weeks.
• Court procedure: Over 12 months.

The average legal dunning process may take between eight to twelve weeks, with a court procedure generally taking longer than twelve months.

Plan for potential delays in legal proceedings.

• Costs subject to unpaid debt value and case details.
• Costs allocated pro-rata based on case outcome.
• Value of court fees may be reduced if proceedings terminate early.
• Creditor may be required to pay court fees if obligations not fulfilled.

Costs are subject to the outstanding unpaid debt value and different fees may be applied subject to the case details. The costs arising from the lawsuit are allocated between the parties on a pro-rata basis according to the case outcome. Often, the losing party bears the total costs, except when a settlement is agreed, in which case each party pays for their respective costs. The value of court fees may be reduced if proceedings are terminated early through withdrawal or settlement. In some cases, a creditor may be required to pay court fees if they have not fulfilled their obligations when filing the claim with the court, or if the debtor acknowledges the claim instead of submitting a defence (sofortiges Anerkenntnis).

Budget for the costs associated with court proceedings.

• Judgment becomes enforceable immediately after being declared successful.
• File application for garnishment measures or enforcement against tangible personal property.

A judgment becomes immediately enforceable once a successful party is declared.

The successful party can then file an application for garnishment measures with the local court that has jurisdiction over enforcing the judgment (Vollstreckungsgericht). The application must identify all rights of the debtor, such as deposits in bank accounts, or claims against third parties.

Alternatively, the judgment creditor can file an application with the bailiff (Gerichtsvollzieher) to enforce against the debtor's tangible personal property. Such an enforcement may take between four to eight weeks.

Understand the procedures for enforcing domestic judgments.

• Recovery of assets enforced by bailiff.

The enforcement of non-monetary judgments, such as the recovery of assets, is enforced by the bailiff and may take between six to twelve months.

Plan for potential delays in enforcing non-monetary judgments.

• Settle debts of creditors equally.
• Halt all individual pursuits with the start of preliminary proceedings.
• Preliminary liquidator checks for sufficient assets.
• Creditors may lodge claims and reclaim assets under ROT clauses.
• Insolvency proceedings in Germany are lengthy and can take over ten years.

Insolvency proceedings aim to:

• Settle the debts of creditors equally and with the same quota through the liquidation of the assets of the debtor company, or through collection of any income of any bankrupt individuals.
• With the start of the preliminary proceedings, all individual pursuits are halted.

After an insolvency filing:

• The preliminary liquidator is appointed to check whether there are sufficient assets to cover the costs of court proceedings.
• If so, the insolvency proceedings begin, and a liquidator will be appointed; usually this is the preliminary liquidator.
• Otherwise, the court will reject the declaration of bankruptcy due to insufficient assets.

At this point:

• Creditors may lodge their claims and reclaim any assets protected under retention of title clauses.
• In some cases, the liquidator may opt to settle the original price to creditors rather than returning the product.

For the extended retention of title:

• The insolvency practitioner liquidates the goods or claims and pays out these creditors the retaining VAT and a commission of 9% of the revenues.

Upon closure of the proceedings:

• All creditors with confirmed outstanding debt values receive a settlement of the original claim, with non-preferential creditors likely to receive very small amounts.

Insolvency proceedings in Germany are much longer than the majority of other markets and can take over ten years in certain cases.

Understand the lengthy nature and detailed process of insolvency proceedings in Germany.

• Allows rescindment of payments made prior to insolvency announcement.
• Covers a period of 10 years prior to insolvency announcement.

The 'Clawback Law' in Germany allows an insolvency administrator to rescind payments made by the insolvent party to creditors prior to the insolvency announcement. Such rescindable transactions cover those made with the intention to disadvantage the debtor's creditors through preferential treatment. The clawback law covers a period of 10 years prior to the date of announcement of insolvency.

Be aware of the clawback law and its implications on past payments.