Timing is everything: When to form a UG or GmbH

Contents

• Reduce your workload
• The pre-company partnership
• The ‘pre-GmbH’
• The GmbH or UG
• Worth the wait

Reduce your workload: Wait until the new year

Regardless of whether you’re planning to form a GmbH or UG (haftungsbeschränkt), you’ll save yourself quite a bit of work if you incorporate as early in the year as possible.

It all boils down to a matter of accounting regulations. The formation process involves preparing an opening balance sheet (Eröffnungsbilanz) which then ‘opens’ the company books. This means that if you incorporate your company in December, you will still find yourself preparing annual accounts (Jahresabschluss) for the current fiscal year, which in Germany ends on 31 December.

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. A company has to produce one as soon as business activities commence – but when exactly does that take place? It depends on which stage your company is in.

Below we explore what stages a company undergoes before it enters into the Handelsregister (commercial register), including the one that triggers the Eröffnungsbilanz.

NB: 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 pre-company partnership

As soon as you decide to form a GmbH or UG, a Vorgründungsgesellschaft (a pre-company partnership) is established. Here, the intention to draft articles of incorporation (Satzung, the statutes of a company) is key. The legal form is usually that of an Einzelunternehmen (sole proprietorship) if you are forming the company alone or that of a GbR (civil law partnership) when multiple partners are involved.

Don’t forget: If your business starts operating during this stage, you are personally liable for anything that goes wrong, putting your 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. It’s best to avoid doing business this early (e.g., signing rental agreements) and instead focus on tackling the company incorporation process first.

Stage two: The ‘pre-GmbH’

During this stage, your company’s articles of incorporation are notarised. This document contain the most important provisions and arrangements, such as the company’s headquarters, its share capital (Stammkapital) and its shareholders (Gesellschafter). They also define regulations for general meetings, profit appropriation and dissolution.

When a maximum of three shareholders are on board, you can use the standardised formation documents (Musterprotokoll) instead of drafting customised articles of incorporation, and enjoy lower notary costs.

This company agreement (called a Gesellschaftsvertrag or Satzung in German), must be notarised by a notary. The day this takes place is of particular importance because it is the effective date for which your opening balance statement (Eröffnungsbilanz) 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 share capital will be deposited.

In the case of a GmbH, €25,000 in share 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 share capital has been deposited, the notary will transfer the registration to the Handelsregister.

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 registration, 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 here.

Worth the wait

If you form your company despite the year drawing to a close, right after creating an opening balance statement (Eröffnungsbilanz) for the ‘pre-GmbH’, you’ll be closing your books with a year-end Jahresabschluss (annual accounts – a balance sheet/annual financial statement that includes the year’s profit and loss accounts).

If you enter your GmbH or UG into the Handelsregister the year after, you can save yourself quite a bit of work (and most likely tax adviser fees) by avoiding having to prepare a Jahresabschluss for only a micro period of time.