Founding a gGmbH or foundation - what you need to consider

“I want to start a foundation. Or would a gGmbH be better? Or is a trust foundation enough? And what about an association?”

Those who want to do good often think of starting their own organization - and are encouraged by role models and sometimes also by experts such as tax consultants or lawyers (who make money from it).

This article is about when this is actually worthwhile and how to decide between the options. To begin with, we have a brief presentation of the eligible legal forms and their comparison along decision-relevant criteria.

📚 Contents

1. The legal forms to choose from - a brief introduction

2. A comparison of the legal forms along decision-relevant criteria

3. A decision-making aid

4. Conclusion

The legal forms to choose from - a brief introduction

📌 What is a gGmbH?

Limited liability company that exclusively and directly pursues non-profit purposes.

The non-profit GmbH (gGmbH) is a limited liability company under § 1 GmbHG, whose corporate purpose is exclusively geared towards promoting the general public (§§ 51 ff. AO, § 4 GmbHG). Like any GmbH, it is only liable with its corporate assets, but may not distribute profits to shareholders. Profits may only be used for the non-profit statutory purpose (§ 55 AO). The articles of association must clearly meet the requirements for non-profit status and be checked by the responsible tax office. Compliance with all specifications must be proven regularly. Non-profit status enables tax advantages. The gGmbH is particularly suitable for social entrepreneurial projects that combine professional management with a commitment to the common good.

📌 What is a non-profit foundation?

Legal foundation under civil law that pursues a tax-recognized non-profit purpose with permanently bound assets. An asset is permanently dedicated to a good cause.

A non-profit foundation is a legally capable foundation under civil law (§§ 80 ff. BGB) that permanently pursues a non-profit purpose defined in the German Fiscal Code (§§ 51–68 AO). It has its own earmarked assets, the proceeds of which are used to realize the statutory purpose. The foundation acts through its board of directors, does not require members or shareholders and is subject to state foundation supervision. It is an independent legal entity. Its non-profit status is reviewed and recognized by the responsible tax office, resulting in tax benefits (e.g. deductibility of donations, exemption from corporate income tax). The foundation's charter bindingly regulates the purpose, commitment of assets, bodies and principles of the use of funds.

📌 What is a trust foundation?

Non-legally capable foundation, which can be non-profit and whose assets are held in trust by a trustee in accordance with the articles of association on behalf of the founder.

A (non-profit) trust foundation is not an independent legal entity, but is managed by a natural or legal person (the trustee) on the basis of a civil law contract. The donated assets remain legally with the trustee, but are managed separately from their own assets and are used exclusively in accordance with the foundation's charter. In the case of a non-profit purpose, the trust foundation can also be recognized as tax-privileged in accordance with §§ 51 ff. AO. Trust foundations are regarded as a flexible and administratively lean alternative to legally capable foundations.

📌 What is a digital foundation?

A so-called foundation fund in an existing non-profit foundation or trust foundation with digital establishment and management.

A digital foundation is usually a foundation fund within an existing non-profit foundation or trust foundation. It is established entirely online, mostly automated and without notary certification or minimum capital. As a foundation fund, the digital foundation has no legal personality of its own. Unlike a legally independent foundation under civil law, it is not fixed to a single foundation purpose and is therefore highly flexible with low administrative costs. An example of this is a digital foundation on bcause.

📌 What is a registered charity / non-profit association?

An association of at least seven people who pursue a charitable purpose with a democratic structure.

An association is a permanent merger of at least seven people to pursue a common purpose, which is governed by a constitution. The registered association (e.V.) obtains legal capacity by registration in the association register (§ 21 BGB). Decision-making is carried out democratically via general meetings and elected bodies. If non-profit status is recognized (§§ 51 ff. AO), the association enjoys tax advantages and can issue donation receipts. The non-profit association is particularly suitable for joint commitment in fields such as education, culture, environment or social issues. In contrast to a foundation, an association is not asset-bound, but person-based.

📌 What is a gAG?

Stock corporation with a non-profit purpose according to its articles of association and no distribution of profits.

The non-profit stock corporation (gAG) is a stock corporation that, however, pursues exclusively non-profit purposes. Its legal basis is the AktG, in particular §§ 1 ff., supplemented by the regulations of the German Fiscal Code (§§ 51–68 AO) on non-profit status. In contrast to the classic AG, profits may not be distributed to shareholders, but must be used for the purpose defined in the articles of association. The gAG is suitable for organizations that want to combine entrepreneurial structures with social impact while utilizing access to capital markets. The articles of association must be adapted accordingly and recognized as non-profit by the tax office.

Still unsure which legal form is the right one for your project?

We are happy to help you assess to what extent bcause can help you, or happily connect you with lawyers from our network.

👉 Arrange an initial consultation now

A comparison of the legal forms along decision-relevant criteria

Each of the legal forms presented here has its own special characteristics.

In the following overview, a comparison is made along the criteria that are relevant when facing the question of how to best shape one's commitment to the good cause.

Table with a comparison of legal forms according to decision criteria

Still unsure which legal form is the right one for your project?

We are happy to help you assess to what extent bcause can help you, or happily connect you with lawyers from our network.

👉 Arrange an initial consultation now

A decision-making aid

How do you best decide whether founding your own organization is actually worth it and, if answered in the affirmative, which legal form is best suited?

For this purpose, we have developed a simple decision-making aid.

The central question here is that of the motive.

📍 I want to collect and forward money.

Anyone who turns to their trusted tax advisor with this wish is often advised to set up an association, a gGmbH or even their own foundation. The reason: many assume that this is the only legally sound way in Germany to collect donations from third parties, issue donation receipts and subsequently forward these funds to other non-profit organizations.

This is indeed correct: because according to § 10b EStG and the Application Decree to the German Fiscal Code (AEAO), only legally recognized non-profit organizations that have been corresponding exempted by the tax office are allowed to issue tax-effective donation receipts.

Private individuals or non-charitable enterprises, on the other hand, are not allowed to issue donation certificates (donation receipts).

A solution that is still rather unknown, but is enjoying growing popularity due to its low complexity, high flexibility and low costs, is to set up a digital foundation for this purpose - for example via bcause. The digital foundation at bcause is part of a legally recognized non-profit trust foundation that can issue donation receipts in accordance with § 10b EStG. Through an individual landing page, donations can be collected in this way and easily forwarded via the web interface to selected non-profit organizations of choice. Fixing a foundation purpose or annual financial statements, as required when setting up your own association, a gGmbH or a foundation, are not necessary.

➡️ digital foundation

📍 I want to implement non-profit projects with my own staff.

Particularly when it comes to long-term projects, it makes sense in this case to consider setting up your own non-profit organization. Because anyone who wants to hire staff or buy materials for non-profit purposes needs their own non-profit organization, as only this is legally authorized to sign contracts, use donations tax-free and receive funding. Without this structure, neither wage payments nor earmarked expenses are legally compliant or permissible under tax law.

When it comes to a short-term project, for example in the context of crisis emergency relief, an organization like WeAid can help, which provides an existing, recognized non-profit structure through which donations can be collected quickly and legally, donation receipts issued, relief funds forwarded, deployments financed and staff or materials funded – also internationally.

This saves foundation effort, enables an immediate response to acute events (e.g. natural disasters, conflicts, displacement) and ensures that donations are used transparently, for the specified purpose and correctly in terms of tax. WeAid takes over the legal and administrative responsibility, so that the initiators can concentrate on operational aid.

➡️ gGmbH

➡️ association

➡️ linking to an existing non-profit structure

➡️ if applicable, combination with a digital foundation via bcause

📍 I have assets that I want to bind permanently to a good cause.

If you want to permanently commit assets to a good cause, a non-profit foundation or a foundation fund is best suited. Both ensure that the assets remain legally protected and bound to their purpose. Foundation funds – for example via platforms like bcause – allow for a simple, digital entry without much effort and yet offer the same tax effect as a classic foundation.

➡️ Trust model, e.g. via bcause, is faster and cheaper than an own legally capable foundation and moreover especially simple, transparent and scalable.

➡️ own legally capable foundation (Caution: only to be considered for complex assets and long-term commitment)

📍 I want to actively involve many people.

If you want to actively involve many people, it depends on what this participation should look like. For purely financial commitment, a digital foundation or a foundation fund is ideal – this keeps the assets permanently bound, and many can give together. If you want to enable codetermination beyond this, a non-profit association or even a non-profit stock corporation (gAG) is appropriate. And if joint business activities are in the foreground, for example through the sale of products or services, a non-profit cooperative can be the right choice.

➡️ for purely financial commitment: digital foundation

➡️ for shared ownership: association or gAG, for business activities possibly cooperative

📍 I want to save taxes or at least not get actively involved in the long term.

If you want to save taxes without committing yourself in the long term or becoming active yourself, a donation to an existing non-profit organization is the simplest and most effective way. Via platforms like bcause you can support specific projects, receive a donation receipt and remain completely flexible – without any registry or obligations of your own.

➡️ donate to an existing organization, e.g. via bcause

📍In the case of a combination of these motives, the following applies

When several motives come together – such as the desire for tax benefits, active shaping and permanent impact – it is worth combining flexible structures instead of prematurely committing to a classic foundation. A digital foundation for the capital, complemented by an association for participation or a gGmbH for operational work, enables impact with breathing room.

➡️ prefer to combine legal forms rather than tying yourself down forever with a foundation.

Conclusion

Anyone who wants to commit to the common good – whether with time, money or both – has many legally secure options in Germany. Which legal form is the right one depends on whether you want to collect donations, commit assets permanently, work together or simply give with tax benefits. Instead of prematurely committing to a classic foundation, a modular approach is often worthwhile: digital foundation funds, associations, gGmbHs or cooperatives can be combined flexibly – depending on the goal, level of engagement and desired level of participation.

Are you sure after reading this article that a digital foundation is the right thing for you?

Try it out, the set up takes 5 minutes and is completely free of charge:

For everyone who wants to make a bigger difference together

To become socially active as a company

Still unsure which legal form is the right one for your project?

We are happy to help you assess to what extent bcause can help you, or happily connect you with lawyers from our network.

👉 Arrange an initial consultation now