Investing in shares of a GmbH in Germany

Many of our clients ask us: “If I buy some shares in a limited liability company (GmbH), how will I profit from this investment and how will the value of my shares increase over time?” These questions are crucial because how the company deals with shareholder loans, retained earnings, profit sharing, and taxes can make a big difference in your investment returns. In this article from Wise Business Group, we will discuss investing in shares of a GmbH in Germany and the factors that affect its returns.

Read more at Wise Business Group: Purchasing a GmbH in Germany

How do GmbH shareholders in Germany benefit from their investment?

In the following, we explain the factors affecting the return on investing in a GmbH in Germany step by step:

1. Shareholding and profit participation rights of a GmbH in Germany

Investing in shares of a GmbH in Germany gives you two main rights:

• Voting right, based on your ownership percentage.
• The right to receive profit, also proportional to your share. It may differ if the company’s articles of association specify otherwise.

For example, if an investor acquires 40% of the shares, they will gain 40% of the distributable profits.

2. Shareholders’ loan against the registered capital of a GmbH in Germany

Most shareholders in a GmbH typically finance the company through two distinct means:

• Registered capital (Stammkapital) refers to the minimum initial capital of 25,000 euros that is formally registered with the German Companies Registration Office.
• Shareholders’ loans (Gesellschafterdarlehen). It is money provided to the company as a loan and recorded as a liability in the accounts.

Key point: The company must repay the shareholder loans regardless of its profits, and may include interest. It is separate from dividends, which are paid out of net earnings after taxes and are only distributed if the company chooses to do so.

3. Distribution of profits or retained earnings

Each year, at the general meeting, shareholders of a GmbH in Germany decide whether to:

• Distribute profits as dividends (Dividend), which go directly to shareholders, or
• Retain profits within the company as retained earnings (Gewinnvortrag), which increases the company’s equity and can benefit shareholders by raising the share value.

when investing in a GmbH in Germany, if the profit is accumulated, the value of the company’s shares will increase, and indirectly, the value of your shares will also increase.

4. Shareholders’ financial rights – Management’s salary against dividends

Shareholders of a GmbH in Germany can benefit from the following financial routes:

A. Salary as CEO (Geschäftsführer)

• It requires a real employment contract.
• This salary is an acceptable cost for the company and reduces its taxable profit.
• Paid salary is subject to personal income tax, which ranges from 0 to 45%. It is also subject to social insurance.

Can a foreign GmbH shareholder work for his company in Germany?

B. Dividends (Dividende)

• It is typically paid in relation to the shareholder’s ownership percentage.
• Dividends are subject to a flat tax rate of 25%. There is also a 5.5% solidarity surcharge. Total tax will be 26.375%.

C. Retained earnings

• The company pays about 15.8% corporate tax on retained earnings.
• Money remains within the company, both expanding capital and increasing future share value.

Common strategy: Earn a reasonable salary for personal needs. Keep most profits to grow the company. Pay dividends only when there is enough liquidity.

5. How are shares valued in a GmbH in Germany?

The value of a GmbH’s shares in Germany is not limited to its nominal amount. Common valuation methods include:

• Book value – based on equity in the balance sheet.
• Net asset value (Substanzwert) – assets minus liabilities.
• Valuation based on profit (Ertragswert) – based on annual sustainable profit × multiplier (usually 3 to 5 times for a small GmbH).

👉 Example: If a company in Germany has a sustainable profit of 50,000 euros per year, it can be worth between 150,000 and 250,000 euros. In this case, 40% of the shares could be worth between €60,000 and €100,000, not just the nominal value of €10,000.

6. Protection of the new shareholder

When purchasing shares in a GmbH in Germany, the company articles of association (Gesellschaftsvertrag) or shareholders’ agreement must include the following:

• Transparent profit distribution policy (e.g., at least 50% of net profit must be distributed).
• Rights for transparency and access to financial statements.
• Limitations on paying unreasonable salaries to the CEO.
• Rules for exiting, including the stock valuation at the time of sale.

Article of association for limited liability and partnership in Germany

✅ Conclusion

Investing in a GmbH in Germany can be very attractive, but it is essential to understand the differences between shareholder loans, registered capital, retained earnings, and dividends.

Shareholders typically benefit in three ways:

• Receiving dividends from distributable profits,
• Earning management fees if acting as CEO,
• Increasing long-term share value through retained earnings left in the company and company growth.

To sum up, by establishing the appropriate structure and contracts, investors can achieve sustainable returns and value growth from their investments.

Our consultants at Wise Business Group can guide you to start a secure and attractive investment in Germany. Contact us to learn more.

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Investing in shares of a GmbH in Germany at a glance

• In general, company decisions regarding shareholder loans, retained earnings, dividend distributions, and taxes can have a significant impact on the return of your investment in Germany.
• Receiving profit through annual profit distribution, accumulating profit, and increasing the future value of shares, or receiving a salary as a CEO, are the most common methods of earning profit from this type of investment.
• You must not limit the value of your shares in a GmbH to its nominal amount. It can increase.
• When buying shares, ensure that clear financial rules and policies are in the articles of association.

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