Should you set up a GmbH or a UG? We lead you through the German LLC maze!

It’s not easy to decide which legal form is right for you. Learn the difference between a GmbH and its smaller sister, the UG, so you can make an informed decision about your company.

 

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Andreas Munck

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Got questions about setting up a business in Germany?

  • Startup expert
  • 10+ years experience

Hi, I’m Andreas and I’ve been advising businesses in Germany for over a decade. I’d be happy to call you and answer any questions you have in a one-on-one consultation.

 

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 the “formation of reserves” and is mandatory for the UG. The UG can then be converted into a GmbH

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.

Want to learn how to set up a GmbH or UG? This checklist will show you step-by-step. 

[BEGIN: Insert an Image between this tag]

Andreas Munck

[END insert Image]

Got questions about setting up a business in Germany?

  • Startup expert
  • 10+ years experience

Hi, I’m Andreas and I’ve been advising businesses in Germany for over a decade. I’d be happy to call you and answer any questions you have in a one-on-one consultation.

 

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