UG-Gesellschafter: The rights and obligations of UG shareholders

The management of a UG (haftungsbeschränkt) is done by the Geschäftsführer (managing director), who is usually also a Gesellschafter (shareholder). There may be just a single shareholder or several. In the case of several shareholders, the rights and obligations are generally based on their equity, that is the amount of the paid share capital in the company.

 

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Andreas Munck

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Distribution of shares

One of the first obligations of a shareholder before incorporating a business is the payment of capital. The share capital (Stammkapital) and the amount of the respective contribution are also used to derive the business shares (Geschäftsanteile) for several partners. For example, if the share capital of a UG (entrepreneurial limited liability company) is € 10,000, of which shareholder A has paid € 8,000 and shareholder B paid € 2,000, shareholder A holds 80% and shareholder B holds 20% of the shares of the UG.

In most cases, the shareholders are directly involved in the formation process. However, it may also happen that a shareholder later enters the company, for example by inheritance or purchase of the shares.

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It’s important in this context that partners and MDs are treated separately. The rights and obligations of the shareholders and MD differ from each other.

Above all, the shareholder acts as a lender of the UG and also appoints the MD. The Managing Director on the other hand has the task of managing the business of the company and implementing the requirements of the shareholders. If he or she neglects these duties or acts contrary to the instructions of the shareholders, the MD can be held liable. As a rule, the limitation of liability applies to any damages that may occur. This means that the liability capital (Haftungskapital) is limited to the company assets.

Only in rare cases can a shareholder also be held liable with his private assets: In the event of legal violations that damage the company, the so-called “lifting the corporate veil” (Durchgriffshaftung) can occur in exceptional cases.

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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.

 

Who has how much power in the UG? It’s all about the money!

In the case of a UG (haftungsbeschränkt) – assuming no divergent provisions have been made in the articles of association (Satzung) – the business shares (Geschäftsanteile) determine who has the power to determine what is the internal relationship of the company. A shareholder of a UG (haftungsbeschränkt) can actively influence the business activities of the entrepreneurial company. Each shareholder with at least a 10% share in the UG may, under certain conditions, convene a shareholders’ meeting. Here, the interests and rights of the shareholders are gathered. Even with a one-person company, there’s a shareholders’ meeting, but the results are considered resolutions. These have the same legal force as shareholder resolutions by several shareholders. An obligation that concerns the shareholder of a one-person company here is the preparation of a protocol after the shareholders’ meeting.

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Once the company has made a profit, the shareholders of UG decide what happens to it. Normally, the taxable profit is paid in proportion to the shares in the business. However, part of it can also be retained as revenue reserves or other costs can be paid. This reserve, unlike the legal reserve, which is mandatory at a UG and which accounts for 25% of the annual profit, is voluntary. It’s, therefore, possible to build additional reserves from the remaining 75%. Thus, the shareholders decide whether the taxed profit is paid in full to the shareholders or whether part of the profit should be used for other purposes, such as the purchase of new equipment or office space.

Further obligations of a partner include but are not limited to the appointment of the MD and his or her dismissal if necessary. Annual accounts prepared by the MD must be reviewed and approved by the shareholders. In addition, the shareholders set up measures for the audit of the Managing Director.

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