Legal and financial terms

Some juridical or financial economic terms might not be comprehensible. Take a look at our glossary section. Here you can find easy and accurate explanations of the most important terms.



AG – Aktiengesellschaft: stock company

The AG (Aktiengesellschaft) is the German equivalent of a joint-stock company. Here the company's capital is divided into its shares. This type of business entity is typical for firms with a high capital demand. An AG has the following properties:

  • It is an incorporation and is therefore based on membership, yet, it is an independent legal entity. This means it is an autonomous holder of rights and can be sued in court or litigate itself.
  • It is a limited company and is therefore founded upon an initial basic capital. The liability of the shareholders is limited to the amount of said capital.
  • The capital is divided into shares.
  • The company's shares are generally transferable but may not necessarily be traded on the stock market.
Arbitration proceedings

Arbitration proceedings are for the settlement of a legal dispute in a case that is to be settled by a procedure outside of the state judicial system. These proceedings require an arbitration agreement between the parties (claimant and defendant), which precludes the rights of recourse to civil court proceedings. The legal dispute between the parties involved is settled by the arbitration award issued by one or more arbitrators. Instead of a legal ruling made by a state court, the arbitration award is a legally binding judgement on both parties.


Capital contribution

A capital contribution is the subscribed equity of a company. This is simply the amount of monetary assets a company possesses. The term capital contribution for commercial companies covers deposits in both partnerships and corporations. The amount is defined in the articles of association. Capital contributions may be effected in various ways, either as: cash deposits (the most common form), contributions in kind, transfer of use or a service to be provided, where the latter is only possible for partnerships.


GmbH – Gesellschaft mit beschränkter Haftung: company with limited liability

A GmbH is a legal form of juridical entity in German private law. It is classified as a trade firm and therefore underlies the code of commerce (Handelsgesetz). Possible co-founders may be natural or juridical entities as well as other companies, e.g. a KG. The company contract must include the following:

  • Registered office, firm as well as the GmbH’s subject.
  • The value of the initial capital, as well as that acquired from shareholder deposits.

A GmbH is not officially established until it is registered with the commercial register (Handelsregister). For this, a notarised company contract is required.

GmbH & Co. KG: company with limited liability and corresponding limited partnership

In contrast to a normal KG (see KG), the unlimited liable shareholder is not a natural person. Instead, they are represented by the corresponding GmbH in a GmbH & Co. KG. This limits and reduces liability risks for the individuals behind the company. An initially declared liability sum (Haftungssumme) in the company contract determines to what extent the limited partner (Kommandist) is personally liable. An additional advantage of the GmbH & Co. KG is the flexible equity acquisition through limited partner deposits.


Handelsregister: commercial register

The so-called “Handelsregister” is the German equivalent of the commercial register. It is a public register listing all registered merchants within the register’s district. It holds information about the company, like the registry location, the firm's official subject and legal structure as well as the initial capital and the company's owner. In Germany, the commercial register is operated by the district court.


IHK – Chamber of Industry and Commerce: IHK – chamber of industry and commerce

The IHK (“Industrie und Handelskammer”) is the German equivalent of the chamber of industry and commerce. All companies of a certain region, with the exception of craft enterprises, agricultural companies and freelancers, are mandatory members of the IHK by law. Members are therefore natural persons, commercial companies, and juridical entities which execute their business within the region of the corresponding IHK. The chamber membership comes with an annual fee. This contribution consists of a basic fee as well as a percentage of total revenue.


KG: Limited partnership: Kommanditgesellschaft – limited partnership

A limited partnership is a merger of two or more natural or legal persons or entities to conduct commercial business through a common company. At least one of the partners (the unlimited partner /Komplementär)) has unlimited liability for the liabilities of the limited partnership (KG) and at least one other partner is only liable to a limited extent (limited partner (Kommanditist)), based on their registered capital contribution or liability deposits. A limited partnership (KG) is a collection of individuals and not a corporation, and as such the partnership (KG) cannot be an independent legal entity.


Limited partner’s contribution

The limited partner’s contribution, also referred to as a liability contribution or liability deposit, is the personal liability of the limited partner of a KG as recorded in the commercial register. The value of the limited partner’s contribution in relation to the overall company assets defines the limited partner’s share of capital in the company.

Legal aid

Legal aid – in accordance with Sections 114 ff. German Code of Civil Procedure (ZPO) – a person with low income may be granted financial support for pursuing legal proceedings. Legal aid is therefore only possible if the claimant, in the eyes of the law, is considered to be in need (or considered sufficiently insolvent), i.e., they are unable to bear the court costs or attorney’s fees themselves. At the European level, such assistance is governed by the EU legal aid directive. It is important to note that the claimant may be required to repay any legal aid they are granted. This may apply once the claimant is in a better financial position. The financial authorities will then request repayment of any costs covered.

LiFi: Ligitation financing / Ligitation cost financing


LiFi offers the possibility of financing and enforcing litigation even if the claimant does not have adequate funds available to do so. The body financing the litigation assumes the overall costs of enforcement (including court costs and attorney fees) and receives, in the event of a successful court case, a share of the profit received. The claimant can therefore avoid any cost risk.

Additional information can be found here.




M & A (Mergers & Acquisitions) – Advisor

Mergers & Acquisitions refers to corporate transactions such as mergers, company acquisitions, company transfers and out/insourcing. Advisors and service providers in this sector include attorneys, business consultants or investment banks.


Recovery claim

A claim that can result after withdrawal from an agreement in the event of rescission is called a recovery claim. The grounds for the withdrawal and thus the recovery claim may be of a contractual or legal nature. A recovery claim may not only be in the form of a monetary amount, but may also be for services or a return of assets.


Shell company

One possible form of a corporation is a shell company. This type of company does not have any direct business operations. It can be created in one of two ways:

  • An existing corporation suspends its business operations yet maintains its status as a legal entity.
  • A new corporation is established but without initiating any business operations.
SE: Societas Europaea - European joint-stock company

Societas Europaea (SE) describes a legal form of limited liability companies within the European Union. These companies are based on a quasi-uniform legal principle across the EU. The company has its own legal identity; it is a corporation with minimum equity of EUR 120,000; its share capital must be divided into shares and its registered offices must be located within the territory of a member state of the EU or within the European Economic Area (EEA). The management of the company can be carried out in one of two ways, either through a board of directors that runs business activities and which is controlled by a supervisory board, or through an administrative board that is obligated to appoint managing directors. The shares of the company can be transferred in compliance with the relevant national regulations.

Special right to succession (for former limited partners)

The special right to succession is meant to avoid any subsequent liability for a withdrawing limited partner. It comes into force if the capital contribution of a former limited partner is acquired by or transferred to a new limited partner. The transfer of the holding does not change the liability conditions, as the assets of the partnership (KG) remain unaffected. Any prior limited partner contribution is then attributed to the new limited partner.

Share capital

Share capital describes the capital contribution of shareholders in a limited liability company (GmbH) or an entrepreneurial company (UG). The level of the share capital is defined in the articles of association. The term Stammkapital for share capital in Germany is used exclusively in the German Private Limited Liability Companies Act (GmbHG). Since the liability for company debt is limited to the company's assets – i.e., the shareholders' private assets cannot be called upon – the share capital acts as the recoverable assets that provide the creditors of a company with a certain degree of security. In addition, the share capital provides information on the financial status of a newly established private limited liability company (GmbH).

Settlement or settlement negotiations

A settlement is an agreement between the parties in a legal dispute in which the matter in dispute is resolved by making mutual concessions. The parties involved (claimant and defendant) agree on a compromise concerning the matter in dispute based on a mutual, voluntary agreement. The compromise or settlement of the dispute may take place before a judge or out of court. An out of court settlement prevents a (potentially lengthy and expensive) litigation process with an uncertain outcome, and this solution may be advantageous for both parties. However, experience shows that the claimant may obtain better results in the case of an out-of-court settlement, the more serious the threat of court action is to the defendant. Litigation financing can therefore also be an effective tool in ensuring the claimant’s success in an out-of-court settlement where he or she only has to pay attorney's fees and not court costs.

Shelf companies

A shelf company is company that has already been established and is available for immediate acquisition. The company is already recorded in the commercial register (at various locations) and has not yet carried out any business activities. By acquiring a shelf company, the purchaser avoids additional expenses and risks during the start-up phase.

Additional information can be found here.



Unlimited partner

The unlimited partner is the partner who is personally liable for the partnership (KG). Unlimited partners are liable to creditors for the liabilities of their partnership (KG) to the extent of their entire personal assets. A creditor is therefore entitled to demand that the unlimited partner pay any liabilities in full. In addition, the unlimited partner is required to act as the manager of the company. Either a natural or a legal person may take on the role of an unlimited partner (i.e. a limited liability company (GmbH) may be listed as the unlimited partner).

UG: Entrepreneurial company (UG)

An entrepreneurial company (UG) is a legal corporation governed by German law. It is a smaller version of the German private limited liability (GmbH) and the German equivalent to an unlisted UK limited company. As with a GmbH, an entrepreneurial company (UG) is established by registration in the commercial register. (Additional information on founding a company can be found here in the glossary under “GmbH”.) An entrepreneurial company (UG) is essentially a private limited liability company (GmbH) with lower share capital (a UG can be established with a share capital starting at EUR 1) and has a specific legal form. An entrepreneurial company (UG) is a legal person and as a rule is subject to corporate and trade tax.

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Contact - we are there for you
Your contact person
Nadja Schulz
Nadja Schulz Legal Assistant