Which legal form suits startups?

Before starting a business, the choice of legal form should be considered by the founders. Depending on the legal form, different aspects need to be considered (eg costs of formation, tax regime, liability, taxation regime, entry of investors, etc…). This article is intended to shed light on the most relevant tax aspects and give a few tips on a subsequent tax-optimized change of legal form.


Essential aspects in the choice of legal form

Costs of formation

The minimum share capital of a limited liability company (GmbH) is EUR 35,000, whereby at least half of the minimum share capital has to be paid in. Apart from this, a foundation privilege can be claimed, whereby the minimum share capital can be reduced to EUR 10,000 (of which EUR 5,000 must be paid in).

In contrast, there are no minimum capital requirements for partnerships during the formation process, that need to be considered.

Taxation regime

In the case of a corporation, the company is taxed separately from its shareholders. A limited liability company is subject to corporate income tax. This is currently 25% and will be reduced to 24% in 2023 and to 23% from 2024. In addition to the corporate income tax, a capital gains tax of EUR 27.5% has to be paid by the startup in the event of profit distributions to its shareholders. Against this background from an overall perspective (including company and shareholder level), the total tax burden currently amounts to approximately 46%.

The taxation of a partnership is based on the principle of pass-through. Therefor the partnership is not a taxable entity, only the shareholders are directly taxed personally with the progressive income tax rate (basically max 50%). Correspondingly, withdrawals from partnerships are no longer subject to taxation.

Preparation of annual financial statements

A limited liability company is obliged to prepare annual financial statements which has to be disclosed to the commercial register. Depending on the size of the limited liability company, besides the balance sheet and the profit and loss statement, the preparation of notes could be relevant.

In the case of partnerships a simple income-expenditure statement has to be prepared. The preparation and disclosure of an annual financial statements is basically not required.


Tax-optimal change of legal form

Since experience shows that potential investors in the startup sector prefer limited liability companies, limited liability companies are also the most common legal form in the Austrian startup scene.

If, contrary to the mainstream, a startup is launched in the form of a partnership, it is possible to change the legal form in advance of an investor entry and to turn the partnership into a limited liability company.

The most tax-optimal way to change the legal form is to transfer all partnership shares to a newly founded limited liability company. In this way, the partnership ceases to exist without replacement and the limited liability company continues the business. Furthermore, IP (e.g. patents) may also be transferred as a result of the contribution.

Contribution transactions are generally possible in a tax-neutral manner. However, certain general conditions must be complied with. For this reason, a restructuring should be analysed in advance and the essential steps/responsibilities determined.



In the course of founding a startup, founders also have to deal with the legal form of their future company. Since experience has shown that investors prefer limited liability company (GmbH) structures, the limited liability company has become the accepted startup vehicle. If, however, the startup is launched as a partnership, there is still the possibility – with appropriate structuring – of a tax-neutral transfer of the company to a limited liability company.



Christoph Puchner, Managing Partner and Tax Advisor &
Bianca Habitzl, Tax Manager from ECOVIS Austria, one of the leading tax consultants in Austria in the startup sector.