Although the UG is a special form of the GmbH (often referred to as the 'mini-GmbH'), there are, however, some critical points in which the two differ.
First, the regulations around share capital (Stammkapital) deviate significantly. While a GmbH requires a share capital of at least €25,000, a single euro is sufficient to establish a UG.
The UG is thus particularly well suited for founders without much start-up capital who nevertheless want to get started with a limited liability company. Founders of a UG may convert it into a GmbH in the event of a capital increase to €25,000 later down the track.
The GmbH does allow for non-cash formations are possible, ie the share capital may consist of non-cash assets. This option is not available when forming a UG.
Secondly, the UG can have significantly lower establishment costs that the GmbH. The costs of setting up a GmbH (including notary fee, commercial register fee, business registration, consultations) usually amount to €500-1,000.
On the flipside, the UG start-up costs can be significantly lower ranging €240-300, if the UG has one shareholder, which allows the founder to use the standardised incorporation document (called the Musterprotokoll in German) for the formation process. If a founder establishes a UG without a Musterprotokoll, the costs are comparable to a GmbH formation.
Finally, the regulations regarding profit vary between the GmbH and UG. The UG is obliged to retain a quarter of its annual profit in its reserves until it has accumulated the starting capital of a limited liability company. This process called Rücklagenbildung (accumulation of reserves) and is mandatory for the UG.
Once a UG has reached the limited liability capital threshold (€25,000) it has the option to convert into a GmbH.
Want to learn more? Check out our article Should you set up a GmbH and a UG? We lead you through the German LLC maze!