GmbH

Definition and context

The GmbH (Gesellschaft mit beschränkter Haftung, "limited liability company") is a corporate entity with its own legal personality. In Austria it is governed by the 1906 GmbH Act (GmbHG) — one of the oldest company-law statutes still in force in Europe — and in Germany by the act of the same name from 1892. The defining feature is limited liability: in principle, only the company's own assets stand behind its debts, not the personal assets of its shareholders.

In Austria, the 2024 reform set minimum share capital back at €10,000, of which €5,000 must be paid in cash at incorporation. Before 2024 the threshold was €35,000, with a reduced "founding variant" option. Germany still requires €25,000 in minimum share capital, with the limited-liability Unternehmergesellschaft (UG) available from as little as €1. Both jurisdictions require a notarised articles of association and registration in the commercial register.

The GmbH is by far the most common corporate form for small and mid-sized businesses across the German-speaking region — Austria has around 175,000 active GmbHs and Germany more than 1.3 million.

Governance and taxation

Every GmbH has two mandatory bodies:

• Managing director (Geschäftsführer): represents the company externally and is internally bound by shareholder instructions. Can also be a shareholder (a managing-shareholder).
• Shareholders' meeting (Generalversammlung): approves the annual accounts, decides on profit appropriation, appoints and removes directors and amends the articles.

For tax purposes the GmbH is liable to corporate income tax (KÖSt): 23% in Austria since 2024 (down from 25%); 15% in Germany, plus solidarity surcharge and trade tax (an effective overall rate of around 30%). Austria also imposes a minimum corporate income tax of €1,750 per year (or €500 for new incorporations during their first five years). Distributions to shareholders are then taxed at 27.5% capital gains tax (KESt) in Austria, or at the 26.375% flat tax (including the solidarity surcharge) in Germany.

A worked example

A Graz-based marketing consultant sets up a GmbH in 2025 with €10,000 of share capital (€5,000 paid in cash). Notary fees and the commercial-register filing come to roughly €1,500. In the first full financial year the GmbH posts pre-tax profit of €80,000. Corporate tax of 23% takes €18,400; the remaining €61,600 is either retained or distributed. On a full distribution, the GmbH withholds 27.5% KESt (€16,940), and the shareholder receives €44,660 net into her private account. The cumulative tax burden works out at around 44.2%.

What clients usually want to know

When does it make sense to switch from a sole proprietorship to a GmbH? The rule of thumb: from a sustainable annual profit of around €80,000 to €100,000 the GmbH starts to pay off — particularly if a portion of the profit is retained or reinvested. Below that threshold, the recurring extra costs (bookkeeping, statutory accounts, minimum corporate tax) usually outweigh the benefits.

Are managing directors really never personally liable? They can be. Gross breaches of duty, unpaid social-security contributions, delayed insolvency filings or deliberate misrepresentation can all pierce the corporate veil. Directors can also be held liable to the company itself for breaches of their duty of care.