gUG in Germany explained: The non-profit version of a UG

Introduction

gUG or 💬gemeinnützige Unternehmergesellschaft (haftungsbeschränkt) is a German non-profit limited liability company. This legal form is particularly attractive for entrepreneurs with little share capital who do not want to waive the limitation of liability when setting up their company.

• Capital: You can establish a gUG for as little as €1 of share capital. That is the main differences to the regular non-profit limited liability company gGmbH, which requires a minimum share capital of €25,000.
• The non-profit corporate purpose 💬Gesellschaftszweck is the defining feature of this legal form. This distinguishes it from the UG (haftungsbeschränkt), which does not pursue charitable purposes but primarily economic interests.
• The Limited Liability Companies Act 💬GmbHG provides the legal framework for both the regular and non-profit variants
• No contributions in kind.

How does a UG become non-profit?

In order to be recognised as a non-profit, the UG must specify certain features in its articles of association. Only if your articles are compliant the company will be  provisionally recognised as a non-profit by the tax office.

Provisional recognition of charitable status

When you establish your gUG, you will initially receive a provisional recognition of charitable status 💬vorläufiger Status der Gemeinnützigkeit from the tax office. This allows you to operate as a non-profit land manage your day-to-day business accordingly.

However, final recognition of charitable status is only granted after your annual tax declaration. If your organisation does not sufficiently fulfil its charitable purpose, the tax office may revoke your non-profit status . In the worst case, this could result in retrospective tax payments.

Non-profit purpose

Under the Limited Liability Companies Act, a gUG must have an exclusively charitable, non-profit, or ecclesiastical purpose. When the company is registered, the tax office reviews this corporate purpose to ensure it qualifies as charitable under German tax law.

Asset commitment

When setting up your gUG, you must name a beneficiary organisation in your articles of association. If the gUG is ever dissolved, this organisation will receive any remaining funds or assets. The beneficiary must itself be non-profit, such as a charitable association, foundation, or another non-profit LLC.

Avoiding pitfalls

In a non-profit organisation, altruism means that only those directly involved in achieving the company’s charitable purpose may benefit from its activities. In other words, profits cannot be distributed to the shareholders of a gUG.

Any salaries or wages paid must be reasonable and performance-based. For instance, if your non-profit language school for migrants generates a strong surplus, you cannot simply distribute profits to partners, raise salaries excessively, or transfer funds to unrelated individuals.

This doesn’t mean that employee pay rises are prohibited—they just need to remain proportionate and justifiable. Ultimately, all profits must serve the common good, not private gain.

Direct use of funds

A non-profit UG must use its income and profits directly to achieve its charitable purpose. This means the organisation must actively carry out charitable work itself, not simply support another business that does.

For example, a cleaning company that services a non-profit sports club, or a landlord renting property to charitable organisations, would not automatically qualify as non-profit.

Only activities that directly serve the charitable purpose can be recognised as such. Because the rules can be complex and exceptions exist, it’s wise to consult a tax advisor or lawyer before defining your company’s purpose or operations.