Contents
- What is a UG (haftungsbeschränkt)?
- The pros of the UG
- The cons of the UG
- Want to know more about the UG?
Got questions about setting up a UG (haftungsbeschränkt) company?
- 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.
What is a UG (haftungsbeschränkt)?
The UG is the entrepreneurial limited liability company form Germany. UG stands for Unternehmergesellschaft (haftungsbeschränkt) and is colloquially known as a “mini-GmbH” or “1-Euro-GmbH”. It is not a legal form in its own right, but rather a variant of the GmbH. The UG (haftungsbeschränkt) is suitable for all founders who want to limit their liability risk but want to start with a lower share capital than with the GmbH. Theoretically, the UG (haftungsbeschränkt) can be incorporated for as little as €1 (one euro), in contrast to the GmbH with a minimum share capital of €25,000.
The advantages of the UG
– Liability (Haftung)
Liability is limited to the assets of the UG, the private assets of the partners remain unaffected.
– Starting share capital (Stammkapital)
Theoretically, the UG can be formed (incorporated)with a share capital of only €1 (one euro).
– Formation (incorporation) costs
The formation costs can be made very economical with the help of the statutory model articles of association (Mustersatzung or Musterprotokoll).
– Versatility
The UG is suitable for all types of activities, services and trades.
– Taxation
The UG pays Körperschaftssteuer (corporate income tax). Compared to the income tax for natural persons (e.g. employees, sole traders, GbR partners), the UG’s tax rate is, generally, more advantageous.
– Limited liability for “solopreneurs”
Even a single person can found a UG, also known as a “one-person UG”. Here, the sole shareholder is also the managing director.
– Shareholders can be employees (or not)
The shareholders of a UG can also be employees simultaneously.
– Tax deductible business costs
The personnel costs, including those for yourself, can be tax deductible, i.e. the entrepreneur, can be claimed as business expenses and reduce the taxable profit.
– Shareholder flexibility
Shareholders can easily sell their shares.
– External managing director
Outside directors who are not shareholders can be quickly appointed.
– Ease of exiting
The UG can be easily sold by disposing of the shares.
– Can be part of a holding structure
Shareholders can be natural persons and legal entities, i.e. corporations and partnerships.
Still, 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.
The disadvantages of the UG:
– Have to build a reserves obligation
In the UG (haftungsbeschränkt) there is an obligation to save revenue, i.e. the partners cannot fully distribute the profit of the UG until the statutory reserve amount has been saved.
– Converting to a GmbH
After building €25,000 in reserves, the UG does not automatically convert into a GmbH. If you want to convert it into the more PR-friendly GmbH, the process is a time-consuming bureaucratic hassle.
– No contributions in kind
Contributions in kind cannot be made, i.e. the capital contribution must always be paid in cash and in full.
– Cannot hide the “UG” part
In legal transactions, the designation UG (haftungsbeschränkt) must always appear at the end of the company’s name. You cannot omit this part.
– Reputational problems in Germany
It is evident to everyone that the UG (haftungsbeschränkt) has a low share capital. Therefore, the reputation and creditworthiness of the UG with creditors and suppliers are rather limited.
– Low capital trap
If the share capital is too low, there is a risk of over-indebtedness and insolvency of the UG.
– Accounting obligations
Like the GmbH, the UG legal form must keep double-entry accounts and balance sheets. Publishing annual accounts (annual financial statement) is also part of the deal.
– Formation process
The formalities for setting up an entrepreneurial company are more time-consuming and expensive than those setting up a non-incorporated business such as a GbR.
– Notarisation requirements
Many transactions must be notarised, such as the assignment of company shares.
– Strict regulations
The managing director faces criminal consequences and civil liability if he violates his duties under the GmbH Act.
– Loans
Banks and other creditors usually insist on directly enforceable shareholder guarantees when granting loans. This usually removes the limitation of liability.
– Additional taxes
The UG must also pay Gewerbesteuer (trade tax) on top of Körperschaftssteuer (corporate income tax).
Want to ask an actual person about doing 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.
Want to know more about the UG?
Our UG (haftungsbeschränkt) essential reading:
The UG corporation
How to set up a UG company
How much does it cost to form a UG (haftungsbeschränkt)?
Articles of association
Should I use the Musterprotokoll?
The UG’s Gesellschaftsvertrag
Shareholders
UG-Gesellschafter: The Rights and obligations of UG Shareholders
What is the difference between a UG’s shareholder and its CEO?
Share capital
Master list
The Master list of all Company Formation articles
