"Legal Update": Investing in Germany 101 - What you need to know

Today one cannot seriously speak about Polish investment in Germany. Some foreign trade corporations that existed under communism established companies in Germany as early as the 1970s. Now, the number of companies investing in Germany is about 200 - although proper statistics have not been compiled yet - a major part of them being branches of Polish construction companies. The latter is related to the fact that, on the basis of a bilateral agreement, a number of Polish construction workers redetermined every year may obtain a work permit for a limited period to work on German construction sites.

However, Poland and Germany being neighboring countries, it may well be expected that Polish investment in Germany, in particular on a small- and medium-sized scale, will become more relevant should Poland become a member of the European Union in 2004. In expectation of this, plans for a "House of Polish Business" in Berlin may eventually be realized in the near future. In light of that, the following information should be helpful to Poles considering establishing businesses in Germany. Essential to German law is the principle of freedom to engage in economic activity, limited, however, if public safety might be endangered. Therefore it may be necessary to acquire a permit from the administrative body to undertake certain activities. Still, unlike Polish legal regulations, German regulations did not and still do not impose restrictions on foreign subjects regarding the establishment of any form of company (whether legal person or not) or the participation in such company. The same applies to the possibility of establishing a branch of a foreign company - on the contrary, according to the legal regulations this is expressly allowed.

Limited liability companies A German company with limited liability may be established for any legally admissible purpose. The founding procedure in Germany is similar to the Polish procedure. A German company with limited liability can be established by one sole entity and, unlike in Poland, such possibility is not limited in any manner. The articles of association have to be concluded in the form of a notarial deed signed by all the shareholders and, to become a legal entity, the company has to be entered into the commercial register. In the period between the signing of the notarial deed and the registration, the company is a company in foundation.

Differences from the Polish procedure: " If a shareholder is to be represented by a representant while signing the notarial deed, the power of attorney must only be certified by a public notary.

" The application for the registration has to be made and certified by a public notary.

" If the company's activities require the prior granting of a permit, the respective document has to be provided at the time of the registration.

" The minimum share capital of the company is €25,000. The minimum value of one share is €100.

Before registration at least half of the company's share capital has to be paid in. If the company is established by one sole shareholder, he has to provide adequate security for the payment of the remaining part of the share capital. If the share capital is contributed in-kind, its value must be assessed by a certified expert. The members of the board have to be natural persons with unlimited capacity to affect legal acts. There is no requirement for them to be German citizens. However, if they aren't, they need at least a residency permit. The taking up of commercial activities has to be announced to the relevant administrative body (Gewerbeaufsichtsamt) or any other entitled institution. Other forms of German companies are joint-stock, joint-stock limited partnership, registered partnership and limited partnership. Joint-stock companies, which require a minimum share capital of €50,000 and are therefore chosen more for major undertakings, and joint-stock limited partnerships - a form rather popular in German legal circumstances - are legal persons, whereas registered partnerships and limited partnerships are not. It has to be emphasized that their founding and legal structure are not essentially different from similar Polish companies.

The German branch A branch can be conducted in the form of a so-called "dependent" or "independent" branch, not to be confused with the permanent establishment according to the regulations of the tax law and in particular as set forth in the treaties to avoid double taxation, which may apply in both cases.

Dependent branch The conducting of such a branch, for example a representative office, only has to be announced to the same authority as mentioned in connection with the company with limited liability.

Independent branch Although not being a legal entity, such a branch is characterized by a certain independence, the consequence of which, for example, is the obligation to do its own bookkeeping. The establishing of such a branch by a foreign entity is explicitly allowed by German legal regulations. Such a branch just has to be registered to exist, although the legal regulations provide for an additional procedure depending on whether the founder is a foreign company with limited liability or a foreign joint-stock company. The relevant registration court is the court of the address of the branch. The registration procedure is very similar to the procedure provided for foreign entities to register a branch in Poland. However, the application for the registration has to be certified by a public notary. If the activity of the branch to be established requires a permit under German law, the relevant document must be presented together with the application. Furthermore, the same notification obligations as mentioned above apply.

Alina Szarlak is partner and head of the German Desk at White & Case.