Share capital of the German GmbH/UG explained: What you need to know

What is share capital?

The share capital 💬Stammkapital of a GmbH or UG is the legally required guarantee amount that defines the company’s liability limit. A GmbH is always liable up to this amount — not the private assets of its shareholders. This is what distinguishes it from a sole proprietorship or a civil law partnership, where the owners must cover business debts personally.

Because share capital provides essential creditor protection, the German Limited Liability Companies Act sets strict rules for how it must be contributed, maintained and documented.

Minimum share capital

A GmbH must have a minimum share capital of €25,000. The articles of association may set a higher amount, but never a lower one. At incorporation, at least 50% of the share capital must be paid in and proven. Each shareholder must contribute at least 25% of their subscribed share.

Until the full amount is paid, the company retains a legal claim against the shareholders for the unpaid portions of their contributions. In the event of insolvency, shareholders must pay in their outstanding amounts.

The individual ownership portions of the shareholders are referred to as capital contributions.

GmbH without share capital

It is possible to form a company similar to a GmbH with almost no share capital. This is the UG (haftungsbeschränkt) — commonly known as the UG (limited liability), “Mini-GmbH” or “1-euro GmbH”.

In theory, a UG can be founded with just €1. However, until its share capital reaches €25,000, the company must build up capital from its profits. Each year, at least 25% of the annual profits must be allocated to share capital. During this period, shareholders may only withdraw up to 75% of profits.

Once the accumulated capital reaches €25,000 and is shown on the balance sheet, the UG can distribute profits freely and may convert into a full GmbH if desired.

Cash contributions

Each shareholder must contribute their portion of the share capital in line with their ownership share. This can be done through cash contributions (Bareinlagen) or contributions in kind (Sacheinlagen). Cash contributions are typically made by bank transfer to the company’s business account.

When transferring funds, the purpose of payment should clearly state: “Bareinlage zum Stammkapital der NAME GmbH durch den Gesellschafter XY” to document the contribution correctly.

Keep in mind that a GmbH — and also a UG (haftungsbeschränkt) — is liable from day one with its entire share capital. If the company becomes insolvent before the full capital is actually available, shareholders must cover the unpaid portion up to the liability limit of €25,000.This situation may arise if too little capital was paid in or if company assets cannot be liquidated quickly or have lost value through use.

How to form a GmbH without cash

A GmbH can also be founded through contributions in kind instead of cash. In this case, assets such as real estate, vehicles, machines, rights (e.g. patents, licences) or even an existing business are transferred into the company. This is common when a partnership is converted into a GmbH to benefit from limited liability.

What counts as a contribution in kind?

Contributions in kind must:

• Have a determinable market value
• Be transferable to the GmbH
• Be usable in the long term and remain in the company

Typical examples include office equipment, vehicles, machinery, tools, intellectual property and business shares.

The asset formation report

As a founder, you must not only estimate the value of the assets but also prove it. This is done in an asset formation report, which forms part of the incorporation documents (e.g. certificate of incorporation). After the notary appointment the notary submits this report together with the articles of association to the commercial register.

The register court examines the report very thoroughly and can reject the formation if there are doubts about the valuation.

Valuation and expert opinions

For contributions in kind you must determine:

• The replacement value for tangible assets
  (the amount needed to buy an equivalent item on the market)
• The capitalised earnings value for rights and licences
  (what they are worth based on expected income or sale value)

One common approach is to record the assets in a balance sheet and show them under operating and business equipment. If the balance sheet has been audited by a tax adviser or auditor, the values are usually accepted for the asset formation report.

For rights, licences or real estate, valuation is often more complex. In these cases, it is usually advisable to obtain a professional expert opinion to support the stated values and avoid delays or rejection by the register court.

Mixed assets

The simplest way to provide share capital is through a full cash contribution. However, if shareholders cannot contribute the entire amount in cash, a GmbH can also be formed with mixed contributions — a combination of cash and non-cash assets.

For example, the shareholder agreement may specify that a shareholder contributes one-third of the total share capital, made up partly in cash and partly through a contribution in kind. However, certain limits apply: a shareholder cannot simply contribute any private asset, such as a personal car, without meeting statutory requirements.

According to § 7(2) GmbHG, each shareholder must contribute at least one quarter of their subscribed share in cash. Only the remaining portion may be provided as a contribution in kind. This ensures that the GmbH always has a minimum cash base available from the outset.

Capital increases

Once the share capital of a GmbH has reached €25,000 in the balance sheet, you and your co-shareholders may decide to increase the capital further. For a successful UG (haftungsbeschränkt), a capital increase is also a key step toward converting into a full GmbH.

A higher share capital can offer clear advantages in business transactions. Banks often view well-capitalised companies more favourably, which can improve your credit rating and lead to better financing conditions. Business partners may also prefer working with companies that have strong capitalisation before awarding larger contracts.

A capital increase can be prepared at any time — for example, by allocating reserves from retained profits. It can also be carried out by bringing in new shareholders who contribute additional capital.

Requirements for capital reductions

A GmbH can reduce its share capital through a shareholder resolution. Common reasons include downsizing the business, correcting overcapitalisation, or paying out a departing shareholder. More frequently, a reduction is considered when losses have eroded the share capital and insolvency threatens. However, the share capital may never be reduced below the statutory minimum of €25,000.

Because a capital reduction affects creditor protection, the GmbHG imposes strict requirements:

• The shareholders’ meeting must approve the capital reduction with a
  three-quarters majority.
• The resolution must be notarised.
• The managing director must publish the planned reduction in an official gazette
  (e.g. Handelsblatt).
• A blocking year begins after publication. During this period, the reduction cannot be implemented.
• Creditors must be offered a chance to request security or payment.
• After the blocking year, the capital reduction must be filed with the commercial register.

These safeguards ensure that the interests of creditors are protected before any capital leaves the company.