For many people, the path into self-employment marks a new chapter in life. But what does it actually mean to start your own company? It means coming to grips with the costs and requirements of company formation.
Want company formation explained simply? In this guide we show you which steps matter. And we give you a set of instructions to help you clear the bureaucratic hurdles.
Key takeaways:
- Starting a company means checking your business idea, choosing a legal form, sorting out financing, registering with the authorities and setting up your bookkeeping.
- Company formation runs through nine steps. How long it takes and what it costs depends mainly on the legal form.
- Trade registration alone usually costs between 15 and 60 euros. With a notary and a commercial register entry, the fees quickly run to between 300 and 800 euros.
- A dedicated business account separates private and business finances from day one. That creates transparency and makes bookkeeping easier.
Starting a company – an overview
Anyone who wants to start their own company faces many tasks. But do not worry: the process breaks down into manageable phases. There are four big pillars. Solid planning, legal registration, financial security and tax registration. The bureaucratic requirements and individual steps vary slightly depending on the legal form.
Why start your own company?
For many, there is a desire for more independence. You choose your projects flexibly and can put personal visions into practice. The prospect of financial self-determination also drives many people. Before you ask yourself how to start a company, you should answer a far more important question: why do you need this business at all? Only once your motivation and your business model are in place do the bureaucratic steps make sense.
Who can start a company?
Some good news first: in principle, the path into self-employment is open to almost everyone. Anyone who wants to build their own business in Germany simply has to be of legal age and have legal capacity. What matters is not your nationality, but a residence status that permits self-employment.
The bad news: things rarely go entirely without hurdles in practice. Depending on the sector and profession, the German state requires special permits, master craftsman certificates or complete proof of qualification. So the bureaucracy looks closely from day one.
Full-time or side business – what makes sense?
If you want to start a company, you do not have to bear the financial risk entirely on your own straight away. A side business offers security. The fixed income from your main job keeps running while you test your business idea and build up your customer base. That said, time is tight and growth is slower. Starting full-time demands more effort and brings financial risks with it. But it offers a chance to put a lot of energy into the success of the business from the very first day.
Requirements for company formation
Before company formation begins, a few conditions have to be met. These include personal skills and a legal framework. Anyone who checks all the requirements for starting a company in advance saves a lot of time, money and nerves later on.
Personal requirements
Besides expertise, mindset counts at the start. If you want to found a company, you need a business idea. And you need the ability to plan that idea. An awareness of finances and a sense for risk are important too. As an entrepreneur, you carry the responsibility for every decision. The personal building blocks include stamina and a positive way of handling stressful moments.
Legal requirements
No formation gets by without bureaucracy. First, you have to meet all the legal requirements. Depending on your activity, that includes registering with the local trade office or notifying the tax office. Some professional groups need permits or an entry in the register of skilled trades. Tax registration with the tax office is mandatory too.
Company formation checklist in 9 steps
If you are wondering how to start a company, you might lose track among all the bureaucratic tasks. This is exactly where our checklist for founding your business comes in. It bundles all the phases of your start-up into stages you can work through one after another. If you follow these steps to start a business in order, you keep control over your budget. Use these instructions as your guide for your start into self-employment.
Your business idea has to hold its own in the market. Before you invest money, you should test your concept. At the same time, it is worth narrowing down your customer base. The more precisely you define your target group, the better you can speak to them.
A business plan covers your business idea, your marketing strategy, the current market situation and the competition. The heart of it is the financial plan: here you calculate your costs for the first years and work out your revenue. And you determine the point from which your venture pays off. If you are wondering what you actually need to start your own company, the business plan gives you a simple answer. It serves as your compass in the early phase and protects you from financial risks.
Deciding on a legal form is one of the key turning points of your formation. It sets how high your start-up capital has to be and how much bureaucracy comes your way. It also determines how your company is treated for tax. Another point is your liability: with a sole proprietorship or a GbR, you are liable with your private assets. With corporations such as a GmbH or UG, the risk is limited to the company’s assets. The legal form depends on your appetite for risk, your activity and your financial means.
Without start-up capital, your business idea stays mere theory. You should know how you want to finance your company. One route is to bring in savings, so you stay independent and have no debt to repay. If there is not enough equity, you can take out a loan. State funding programmes are an option too. The KfW bank, for example, offers founder loans. The employment agency supports a start out of unemployment with a start-up grant. You can also try to convince investors with your business model.
Depending on the chosen legal form, statutory rules apply to the choice of name. For sole traders, it often makes sense to use your own first and last name in the company name. Legally, that is usually even the basis at official registration, which you can supplement with sector terms. Corporations such as a GmbH, on the other hand, have more leeway. Check the commercial register to see whether the name is taken. Take a look at the database of the German Patent and Trade Mark Office (DPMA) too. If you infringe someone else’s trademark rights, warnings can follow.
Once the foundation is in place, the official part with the authorities follows. First, you register with the local trade office. There you can officially report your business. Filling in the trade registration is simple and can be done online. Anyone working in a liberal profession registers with the tax office. All founders have to submit the tax registration questionnaire through the online portal ELSTER. The tax office assigns you the tax number you need. After that come the automatic notifications to the Chamber of Industry and Commerce (IHK) or the Chamber of Skilled Crafts (HWK). Plus a notification to the employers’ liability insurance association for statutory accident insurance.
One mistake when starting up is mixing private and business finances. A dedicated business account for sole proprietors is recommended. For corporations such as a GmbH, it is a legal requirement anyway. A dedicated business account creates transparency and saves you time when sorting receipts. Your bookkeeping becomes simpler. You no longer have to separate business income and expenses from private purchases. Your tax adviser and the tax office keep an overview too. Many providers such as Vivid offer founder plans for young entrepreneurs.
Self-employment brings freedoms, but also risks. A mistake in everyday work can threaten your livelihood. That is why protection belongs high on your to-do list. Business liability insurance is one of the must-haves for almost every company. It steps in when your business activity injures people or causes property damage. Anyone working in an advisory role should consider professional indemnity insurance. As a founder, you also have to take care of your own health insurance and a pension.
Registration does not mean the mandatory work is done. To keep track of your income and expenses, you have to set up structured bookkeeping. Accounting software helps you create legally compliant invoices. It also lets you archive your receipts digitally. On top of that, the first tax obligations come your way. Depending on revenue, you file VAT monthly or quarterly.
Which legal form suits your company?
Choosing the legal form is one of the milestones in forming a company. There is no one-size-fits-all model that suits every business. Instead, you have to weigh up different options, because they have consequences for your entire day-to-day business. The legal form determines your tax burden, your liability and the bookkeeping effort. Which one is right depends on your goals, your start-up capital and your appetite for risk.
Sole proprietorship & small business
For getting started, many solo founders choose the sole proprietorship. The bureaucratic effort is minimal. You need no statutory minimum capital. You can start a small business if you go self-employed on the side. Or if you expect low revenue. That removes the obligation to show VAT on invoices. The drawback of this uncomplicated legal form remains the liability risk. In a financial squeeze, you are liable without limit with your private assets.
Partnerships
If you want to found a company as a team, partnerships such as the GbR or the oHG are an option. The advantage lies in the combined strength. Each person brings in shared capital. You split all the tasks at hand and carry the business responsibility as a team. A formation here is inexpensive and quick to complete too. But caution applies with these models as well. In an emergency, all parties are jointly and severally liable, without limit, with their private assets for the company’s debts.
Corporations (GmbH & UG)
Anyone who wants to minimise private risk goes for a corporation such as the GmbH or the UG. The advantage is limited liability: in case of debts, creditors only reach the company’s assets. In return, the formation effort is higher because of the notary requirement, the commercial register entry and the minimum capital. In exchange, these legal forms enjoy a high level of professionalism and trust in the B2B sphere and with banks.
How much does it cost to start a company?
When you take the step into self-employment, you have to keep financial transparency from the start. If you want to start your own company, the costs depend heavily on your chosen legal form and the respective sector. There is no fixed figure in advance. Freelancers can get going almost without start-up capital. Opening a skilled-trades business requires investment in machinery and initial equipment. On top of that, you should reckon with fixed fees for notaries or the entry in the commercial register.
Formation costs at a glance
Anyone who wants to start their own company should budget firmly for the start-up costs. Trade registration alone usually costs between 15 and 60 euros, depending on the city. It gets considerably more expensive when a notary and an entry in the commercial register are needed. Here the fees quickly move between 300 and 800 euros. On top of that come special permits, licences or chamber membership, depending on the sector. Alongside these fixed costs sit the individual investments. For the first technical equipment, software licences, the website or the first marketing material.
Costs for a small business
Starting as a small business comes with the lowest costs. You need no statutory minimum capital and neither notary costs nor fees for the commercial register. The formation costs come down to the trade registration. In ongoing operations, the financial effort stays manageable too. Double-entry bookkeeping is not required. A simple cash-basis accounting (EÜR) is perfectly enough for the tax office.
Starting a company without capital – is it possible?
Starting your own company without capital is absolutely realistic in certain sectors. If you offer a pure service, you often need no more than a laptop and a stable internet connection. Typical examples are virtual assistance, consulting, coaching, web design or content creation. Because office rent or expensive stock fall away entirely here, such digital services can be set up almost without a starting budget. If, on the other hand, you are planning a classic commercial business, it gets harder without an initial budget. In such cases, you have to fall back on external financing options. State subsidised loans or grants can help finance the start without savings.
Which taxes apply after formation?
Which charges the tax office demands when you want to start your own business depends on the legal form and the type of activity. Anyone who starts as a classic sole trader, for example, deals with three central types of tax. Income tax applies to your personal profit above the statutory basic allowance. On top of that comes trade tax for your municipality, once the profit exceeds the limit of 24,500 euros per year. The third pillar is VAT, which you add to your products and pay over. The last pillar falls away if you use the simplified small business regulation at the start.
Conclusion
If you now want to start your own company, you need a capable partner at your side. With the Vivid business account you separate private and business spending. You manage sub-accounts flexibly in real time and simplify your bookkeeping.
Get started now
Open your Vivid business account today, digitally in just a few minutes, and manage your finances in one place from the start.
Frequently asked questions (FAQ)
Which type of business makes a lot of money?
The question of which sector earns the most money cannot be answered simply. If you want to start a successful business, it depends less on a particular field. Success depends on your skills, market demand and your business model. The best business solves the problems of a target group with spending power, and plays to your strengths.
Can you work full-time and run a business?
Yes, in Germany it is possible to run your own business alongside full-time employment. As a sideline, you test your idea without financial risk. Your salary and your social insurance stay in place.
Can anyone start a company?
In Germany, the principle of freedom of trade applies in general. That means: almost anyone who is of legal age and has legal capacity may build their own business. How you can successfully start your company, and what to watch out for in practice, however, depends on your qualifications.
How long does it take to start a company?
How long a formation takes depends on the chosen legal form. A sole proprietorship or GbR? Simply go to the trade office, fill in the registration, and you can get going the same day. The process is more time-consuming for corporations such as a UG or GmbH. In practice, this route usually takes between two and six weeks.
Can you start a company for free?
A formation with no costs is almost impossible in reality. Even as a solo founder, registration fees apply. For a GmbH or UG, notary and register fees of several hundred euros are added on top, in order to build your own business.
What do you pay monthly in business costs?
Fixed costs include insurance, a business account, software and tools. If you work away from home, rent is added. Also budget for tax advice and monthly tax prepayments.
Please note: the content of this blog is for general information only and does not constitute legal, financial, investment or tax advice. It is not a recommendation or a basis for financial decisions. Before taking action based on the information provided, you should always seek the advice of qualified professionals who can take your individual circumstances into account.
