Planning for the best and the worst case

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This post is part of a series in which we are sharing our experience of founding a company in Germany. We hope that it will help others working their way through the foundation process. Read the first post in the series for more details.

Creating foundation documents

Creating legal documents for the foundation of our company was one of the biggest downers over the past year! Why? Because it forces you to consider the worst-case scenarios. With that, I don’t just mean a lack of financial success of the company, but also what happens if there is a dispute between the founders or one of them dies suddenly. At this stage in creating our company, we were imagining all the great things our product would one day be able to do. There was an exciting and optimistic atmosphere. But all this talk of dispute, divorce, and death certainly made the atmosphere tenser.

Initially, I thought we could create our foundation documents ourselves using some templates provided by LegalStrasse — a cooperation between The Family (a support group for entrepreneurs) and Streiff Law. To learn more about creating this type of document, I researched founding documents of companies that I believed to be similar to ours by downloading them from the commercial register for a small fee. This was insightful and I recommend this step to anyone creating a company. But I quickly noticed that we had too many questions and particularities to get by without some form of legal help. There are lawyers who will help you found a company for a fixed fee. We paid around €500 for a foundation package that included advice and the finalization of the documents to bring to the notary.

The documents we’re talking about here are:

  • Articles of association: This is the defining document for the company that defines what the business exists to do, the responsibilities of the directors, the shareholders and invested share capital etc. It is public and will be included in the commercial register.
  • Shareholder Agreement: A confidential contract between the shareholders of the company included clauses they don’t necessarily want to be public (we put everything into the articles of association and avoided creating one of these).
  • Managing Director Contracts: Individuals chosen to legally represent the company need to have a contract that defines their responsibilities.

So what were the big questions for our lawyer?

  • How much share equity should we bring into the company?
  • Protection for the minority shareholder
  • Social insurance requirement for the director
  • Avoiding unwanted shareholders
  • Vesting of shares
  • Choice of business entity for the holding companies (GmbH or UG)

Note: this is not an exhaustive list of what to think about when creating foundation documents, just our list of most important topics to clarify in our specific circumstances.

Read the other posts in this series:

Disclaimer: We’re not lawyers or tax advisors, to stay on the safe side consult an expert before doing anything 😉