Timing is everything: When to form a UG or GmbH

updated on 12. December 2019 8 minutes reading time

When is the best time to form a company (i.e. a UG or GmbH)? Any time. The only instance where you might want to exercise patience is near the end of the year.

Is forming a company at the top of your to-do list this year? Timing is everything! If you haven’t followed through on your plans by the end of the year, there are plenty of reasons to postpone those steps until next year, especially when forming a limited liability company (German article).

 

Reduce your workload: Wait until the new year

Regardless of whether you’re planning to form a GmbH or UG (haftungsbeschränkt) (a limited-liability UG that doesn’t require as much share capital/Stammkapital), you’ll spare yourself quite a bit of work if you wait until next year to form the company.

This is not due to incoming legal changes; it is strictly a matter of accounting regulations. In any case, there’s no way around preparing an opening balance sheet (Eröffnungsbilanz). If you decide to register your company in December, you’ll also have to prepare annual accounts – known as Jahresabschluss in German – a year-end financial statement for the current fiscal year, however short it may be. You do, however, have the option of specifying a different fiscal year when forming your company. By doing so, you can choose to prepare your company’s first annual financial statement later.

The Eröffnungsbilanz provides a precise report of the company’s financial circumstances at the time of its incorporation, forming the basis of its future bookkeeping. It must be prepared as soon as business activities commence – but when exactly does that take place?

Before your company is entered into the commercial register (Handelsregister) as a GmbH or UG (haftungsbeschränkt), it undergoes multiple defined stages. The formation of a UG (also known as the ‘one-Euro GmbH’/’Ein-Euro-GmbH’) follows the same steps as that of a ‘real’ GmbH, with a few simplifications.

Stage one: The Vorgründungsgesellschaft

As soon as you decide to form a GmbH or UG, a Vorgründungsgesellschaft (a pre-company partnership) is established. This plan does not have to be defined in writing. Here, the intention to draft articles of incorporation (Satzung) is key. The legal company form is usually that of a sole proprietorship if you are forming the company alone, or that of a GbR when multiple partners are involved.

Don’t forget: If you have already begun performing business transactions during this stage, then you are personally liable for any claims that arise, putting your complete personal assets at risk. Your rights and obligations stemming from your Vorgründungsgesellschaft cannot be simply transferred to the GmbH later. You must also personally fulfil contracts that originate during this early stage at some point. Carefully consider whether you truly wish to begin conducting business this early, for example by signing rental agreements. It might be best to concentrate on tackling the company formation with your notary.

 

Stage two: The ‘pre-GmbH’

During this stage, your company’s articles of incorporation are notarised. These articles contain the most important provisions and arrangements, such as the company’s headquarters, its seed capital and its shareholders. They also define regulations for general meetings, profit appropriation and dissolution. When a maximum of three shareholders are on board, you have the option of taking advantage of a formation process with a standard protocol instead of with articles of incorporation unique to your company, which involves reduced notary costs (German article). This contract (called a Gesellschaftsvertrag or Satzung in German), must be certified by a notary. The day this takes place also becomes the effective date for which your opening balance statement must be prepared.

Once you sign the certificate of incorporation (Gründungsurkunde), the ‘pre-GmbH’ stage begins. Unlike the Vorgründungsgesellschaft, the ‘pre-GmbH’ is not legally considered separate from the soon-to-be GmbH – it simply transitions into it. At this stage, you can enter into engagements and obligations.

Keep in mind, however, that you should only be conducting business that is necessary for the GmbH’s formation. This includes opening a business bank account into which the starting capital will be deposited (German article). In the case of a GmbH, €25,000 in starting capital is required, at least half of which must be provided as cash contributions. A UG can be formed with as little as €1, but doing so is not recommended. Every future contribution must be individually notarised.

Once the seed capital has been deposited, the notary will transfer the registration to the Handelsregister

Once the share capital (Stammkapital) has been deposited, the notary will transfer the registration to the commercial register.

Stage three: The GmbH or UG

It takes one to three weeks for your company to be entered into the Handelsregister. Now it’s time to register your trade (Gewerbeanmelden) and register your GmbH or UG with the tax office (Finanzamt). Once you have your Handelsregister entry, the formation of your GmbH or UG is complete, and your company attains full legal status. We’ve outlined the differences between UGs and GmbHs separately.

 

Worth the wait

If you still wish to form your company despite the year drawing to a close, you’ll have to prepare a complete year-end Jahresabschluss (annual accounts – a balance sheet with the year’s profit and loss accounts) right after preparing an opening balance statement (Bilanz) for the ‘pre-GmbH’. If you enter your GmbH or UG into the Handelsregister the year after, you can save yourself quite a bit of work preparing statements for the current fiscal year.

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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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