Should I use the Musterprotokoll or bespoke articles of association when incorporating a UG in Germany?

When forming any UG (the German entrepreneurial company with limited liability), visiting a notary is a must. During this special notary appointment, all shareholders sign the articles of association (known as Gesellschaftsvertrag or Satzung in German), which is then certified by the notary. Only after this date can the documents for the UG be sent by the notary to the Handelsregister (commercial register). For the articles of association, founders can opt for either the Musterprotokoll (the model articles of association created by the German legislature) or customised articles of association. In this article, you’ll get to know the advantages and disadvantages of each option.

Contents

• All about the Musterprotokoll
  • How to use the Musterprotokoll 
• All about the bespoke articles of association
  • How to use bespoke articles of association 

What should I know about setting up a company using the Musterprotokoll?

Germany’s model articles of association for companies – known as the Musterprotokoll – is a cost-effective, simple and quick way to start your own UG. The Musterprotokoll conveniently combines the articles of association, the list of shareholders (Gesellschafterliste) and the appointment of the managing director in a document. However, there are certain limitations when forming the UG using the Musterprotokoll. For example, a maximum of three shareholders and one CEO may be appointed. The latter is always entitled to sole representation and exempt from the regulations of § 181 BGB (Verbot von Insichgeschäften).

When incorporating a UG, only a cash share capital (Stammkapital) is possible, ie no assets in kind may be used as contributions. However, a cash contribution of only €1 per shareholder is sufficient to form the UG. The proportionate amount of the respective contribution determines the number of votes at the shareholders’ meeting of the entrepreneurial company. The shareholders of UG are also permitted to sell their shares to third parties at any time – even without the consent of the other shareholders or the CEO. All regulations within a model protocol are set out in the Limited Liability Companies Act (GmbH-Gesetz); amendments or extensions are not provided for.

The following is needed for formation using the Musterprotokoll:

• Standard Musterprotokoll template with five points
• Commercial register application (Handelsregisteranmeldung)

What should I know about using bespoke articles of association?

If several CEOs are to be appointed directly at formation or if the founders want to have customised statues for their UG, bespoke articles of association provide the flexibility that the Musterprotokoll does not.

Regulations such as succession, sales law, etc. can be added or adjusted. At the same time, there’s the possibility of influencing the rights and obligations of the CEO. It’s also possible for the entrepreneurial company to set a fiscal year that deviates from the calendar year. This makes it possible to postpone the Jahresabschluss (annual accounts) and the resulting financial and time burden in the case of a UG formation shortly before the end of the year. A big advantage for companies who want to focus on Christmas business without distraction.

Although customised articles give founders far more flexibility, this doesn’t apply to the regulation of a UGs share capital (Stammkapital) which are static regardless of what articles are used. Thus, the UG can be formed for just €1 per shareholder but contributions in kind in the share capital of the entrepreneurial company are not allowed. However, what can be altered are the voting rights so they do not depend on the amount of the respective contribution.

The following is needed for formation with bespoke articles of association:

• Drawn up articles of association
• A list of shareholders
• Appointment of the CEO
• Commercial register application (Handelsregisteranmeldung)

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Here are the pros and cons at a glance:

Please note: The regulations within a Musterprotokoll may be amended after formation by a shareholders’ resolution (Gesellschafterbeschluss), eg if more CEOs need to be appointed. However, this comes at an additional cost, which makes the Musterprotokoll for planned adjustments often more expensive than using individual statutes from the beginning.

Tip:

If you are the sole shareholder (Gesellschafter) and CEO (Geschäftsführer) of the planned UG and there’s no reason to not use the normal financial year, the Musterprotokoll is usually sufficient. However, as soon as you start a UG together with one or more partners or wish to have special regulations, bespoke articles of association offer important adjustment options.

Want to know more?

Drafting your company’s articles of association is step #6 on the Company Formation Checklist.

The Master list of all Company Formation articles can be found here.