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What is a model protocol?
The model protocol is designed to make establishing a GmbH or UG more affordable by removing some of the bureaucracy. Among the things it exempts you from are:
- Partnership agreement.
- A list of shareholders.
- A resolution on the appointment of a managing director.
Parameters of the model protocol
However, it is only designed for the smallest of businesses. And there are strict guidelines in Germany on the definition of ‘small’. In order to use the model protocol you must have:
- Only up to three shareholders.
- Only one managing director.
- The director must be and be allowed to make contracts between himself and the company. (Normally this isn’t allowed.)
Is it right for me?
If you do meet the above requirements, and choose the model protocol, you stand to save 500-800 EUR.
However, that really is the only advantage. Using the model protocol exempts you from the need for a partnership agreement. But partnership agreements are not just window dressing. They can be important to a company’s ability to function well, or even survive at all.
In extremis, they are important for:
- Avoiding disputes between founders.
- Providing a protocol in times of difficulty.
- Preparing for events such as divorce or death.
They are also useful for:
- Management (representation rules and approval requirements, exemption from the prohibition of self-contracting (§ 181 BGB)).
- Appropriation of profit (reserves vs. distribution).
- Convening, carrying out, passing out and rescinding resolutions at the shareholders’ meeting.
- Disposal of shares, redemption of shares, and the exclusion and termination of shareholders.
- Severance payments (good leaver, bad leaver).
- Non-compete obligations.
- Conflict resolution procedures (e.g. mediation).
Is it worth establishing with no protection?
If you use the model protocol, there is no legal agreement governing these things. So you have no blueprint, or, more worryingly, protection, if things go wrong. So even the savings you make with the model protocol might end up being a false promise for 2 reasons.
Firstly, as you can imagine, not having a partnership agreement can turn out to be far more expensive in the long run when disputes turn into legal battles.
Secondly, companies founded with a model protocol can’t use more than their maximum share capital (300 €) to establish themselves. The rest must be paid directly by the shareholders.
If you still feel unsure about whether you feel you need a partnership agreement, ask yourself the following questions:
How would you feel if your co-partners simply sold their GmbH shares without asking you? How would you feel if you were suddenly managing a business with complete strangers?
This is something that only a partnership agreement can protect you from.