Germany, land of bureaucracy, paragraphs and countless limited liability company (LLC) forms. Sometimes it’s not so easy to know which legal form is the right one. Many factors must be considered when setting up a German LLC, such as the choice of the appropriate legal form. The founder’s existing capital also plays an important role.
In this article, you’ll learn the difference between the GmbH and the smaller version of the GmbH, the UG, so you can make an informed decision about your company.
UG or GmbH?
The difference between the GmbH and the UG is not so clear at first. That’s because the UG is also a form of the GmbH and is popularly called “Mini-GmbH”. Nevertheless, there are some points where the two legal forms differ.
The UG (haftungsbeschränkt) – or entrepreneurial company with limited liability in English – was created by the German government as a special form of a GmbH – the German limited liability company – for entrepreneurs who have only a small amount of capital at their disposal. Share capital of just € 1 is enough to form a UG. Therefore, it’s also often referred to in Germany as ‘Mini-GmbH’, ‘small GmbH’ or ‘1-euro-GmbH’.
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UG vs. GmbH
The first difference is the minimum share capital (Stammkapital). While a GmbH requires a share capital of at least € 25,000, forming a UG starts at one euro. The UG is therefore particularly suitable for founders without a lot of start-up capital who nevertheless wish to benefit from the limitation of liability.
In contrast to a GmbH, a UG (haftungsbeschränkt) does not allow the establishment of a company in kind, i.e. none of the share capital may consist of material value. The founder of a UG (haftungsbeschränkt) is, however, free to convert his or her company into a GmbH in the event of a capital increase to € 25,000. However, the conversion is not legally required.
A further difference between the UG and the GmbH are the formation costs, which can be significantly lower with a UG (haftungsbeschränkt) than the costs for forming a “normal” GmbH. The costs of the GmbH formation – incl. notary fee, commercial register fee, business registration, consultation – usually run between € 500 and € 1,000.
The UG formation costs are generally between € 240 and € 300, and therefore significantly lower. This is mainly due to the fact that a UG with one shareholder can usually use a Musterprotokoll instead of an individual statute for incorporation. If you decide to set up a limited liability company without a model protocol, the costs are the same as for setting up a limited liability company.
There’s also a difference between the GmbH and the UG (haftungsbeschränkt) concerning profit. The UG is obliged to retain a quarter of its annual profit as a reserve. This is mandatory until it has obtained the starting capital of a GmbH. This process is referred to as “formation of reserves” and is mandatory for the UG. The UG can then be converted into a GmbH.
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Beyond the UG and GmbH
There are many other legal forms in Germany that may align more with your ambitions, including the AG (stock company or public limited company in English), the GmbH & Co. KG (limited liability company & limited partnership) or something in the non-profit realm such as the gGmbH or gUG.
The information published on our site is all written and checked by experts with the greatest care. Nevertheless, we cannot guarantee the accuracy of this information, as laws and regulations are subject to constant change. Therefore, always consult an expert in a specific case – we would be happy to connect you with the right professional.
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