Boosting New Business

There is a sense of concentration in the hallway of the INiTS building, the startup incubator of the University of Vienna. The only sounds are the clicking of computer keyboards from the office rooms and murmured discussions in the shared kitchen. The 5th floor is home to a handful of startup companies that may benefit from changes in Austrian corporation law to make going into business a lot easier.

One of these companies is zoomsquare.com, developers of a new type of online property search who are currently in the process of turning into a GmbH (Gesellschaft mit beschränkter Haftung). It is at these kinds of young entrepreneurs that the new Austrian GmbH law is aimed.

 

Lower costs for new firms

Effective from 1 July, the reform mapped out by Federal Minister of Justice Beatrix Karl and Federal Minister of Economy Reinhold Mitterlehner will, among other things, substantially reduce the minimum capital requirement for launching a GmbH from €35,000 to €10,000, in line with the current EU average of €8,000. In addition, legal fees will be reduced and the minimum corporate tax (Körperschaftssteuer KöSt) will be cut from an annual €1,759 to €500.

 

 

New options long overdue

When zoomsquare.com started up early in 2012, costs of incorporation were too high for the young entrepreneurs. So they launched as an OG (Offene Gesellschaft, with the individual liability of an Anglo-American partnership) and began looking for financing. Now, after an 18-month search, they have obtained the necessary backing, and have filed for GmbH status, which will reduce the risk for the partners and allow for growth.

"Luckily, we started talking to investors early, so we did not have to rely solely on our own money," said co-founder Christoph Richter over a soda at the INiTS hub overlooking the Gürtel near Gumpendorfer Straße. But he emphasises that their case is the exception. "Many startups are in a place where a few thousand euros make a huge difference. For them, this reform is crucial to their success."

It’s an important step, he says. Austria has "finally arrived in today’s world".

According to the Ministry of Justice, Ministers Karl and Mitterlehner expect the new laws to encourage some 1,000 new startups per year. Aimed at making it easier for young entrepreneurs to turn their business ideas into reality, the reform is already much appreciated in the Austrian startup community.

"It was long overdue," said a pleased Lukas Rössler, founder of the new media marketing startup Fosbury that is located in the quaint town of Perchtoldsdorf. Unlike Richter and his colleagues, Rössler waited for the GmbH reform. "We have been thinking of reorganisation for a few years now," he explains. "Due to the new circumstances, we will finally be taking that step next year."

Structure as means to an end

Christian Wodon is head of the Gründerservice at the Wirtschaftskammer Wien, which offers startup workshops and counseling and helps entrepreneurs find the legal form that suits their needs. He knows just how much many young entrepreneurs have wanted a change in the system. "We have already had a bunch of inquiries, because potential founders are not quite sure what the reform exactly means," he said in a recent telephone interview. "Founding a GmbH only makes sense if there is a certain profit situation and income structure."

So will there be a run of enthusiastic startups taking the plunge? Richter shook his head: "I don’t think so. Not many will incorporate just because it’s cheaper. They’re simply glad to know the possibility is out there when they need it."

A GmbH is not right for everyone, Wodon points out. "People should not forget that the legal form is only a means to an end. If someone is thinking of starting a business, they should think through the ideal form for their needs." To do this, he emphasises, it is important to get advice from a neutral institution like the Gründerservice. 

Far from making a rash decision, Rössler gave much thought to Fosbury’s next step. "Even if the law had not changed, we probably would have done this someday. But it really eases the situation financially for us and for other companies," he admitted.

Some critical voices in the Austrian startup scene urged bigger changes – an even lower financial barrier, for example, and more benefits. But amidst his whiteboards and computer screens, Richter emphasises that whatever their limitations, the new regulations are a large and important step:

"One can always do more; one can make it really easy for people. But the most important thing is that many obstacles have been eliminated. It is nothing like a paved highway to roll merrily along; but it is definitely a road that can now be taken."