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There are many factors to consider when deciding on the right legal form, including your company's objectives. To get this right, seeking expert advice is essential.

A UG is a type of limited liability company introduced in Germany in 2008 to better serve the needs of entrepreneurs.

The UG is not a separate corporate structure to the GmbH, as is often assumed, but was created by legislation that modernised limited liability company law in Germany.

As such, the UG is also colloquially referred to as "Mini-GmbH" or "1-Euro-GmbH".

In addition to the classic UG, there are other hybrid forms to consider such as the UG & Co. KG, and the gUG, a not for profit UG.

A GmbH is particularly advantageous if you want to protect yourself from personal liability and have the necessary share capital of €25,000.

If you wish to enjoy tax advantages as well as project the image of a legitimate enterprise, then the GmbH is the right corporate form for your business.

In addition to the 'classic' GmbH is the GmbH & Co. KG, a corporate structure that may be beneficial for certain founders.

Although the UG is a special form of the GmbH (often referred to as the 'mini-GmbH'), there are, however, some critical points in which the two differ.

First, the regulations around share capital (Stammkapital) deviate significantly. While a GmbH requires a share capital of at least €25,000, a single euro is sufficient to establish a UG.

The UG is thus particularly well suited for founders without much start-up capital who nevertheless want to get started with a limited liability company. Founders of a UG may convert it into a GmbH in the event of a capital increase to €25,000 later down the track.

The GmbH does allow for non-cash formations are possible, ie the share capital may consist of non-cash assets. This option is not available when forming a UG.

Secondly, the UG can have significantly lower establishment costs that the GmbH. The costs of setting up a GmbH (including notary fee, commercial register fee, business registration, consultations) usually amount to €500-1,000.

On the flipside, the UG start-up costs can be significantly lower ranging €240-300, if the UG has one shareholder, which allows the founder to use the standardised incorporation document (called the Musterprotokoll in German) for the formation process. If a founder establishes a UG without a Musterprotokoll, the costs are comparable to a GmbH formation.

Finally, the regulations regarding profit vary between the GmbH and UG. The UG is obliged to retain a quarter of its annual profit in its reserves until it has accumulated the starting capital of a limited liability company. This process called Rücklagenbildung (accumulation of reserves) and is mandatory for the UG.

Once a UG has reached the limited liability capital threshold (€25,000) it has the option to convert into a GmbH.

Want to learn more? Check out our article Should you set up a GmbH and a UG? We lead you through the German LLC maze!

A Holding is a parent company with at least one subsidiary that it holds shares in. In Germany, a holding structure is known simply as a Holding. In many cases, the parent company owns 100% of its subsidiary.

In recent years, holding companies have increased in popularity as a corporate model, introducing innovative corporate structures to startup ecosystems around the world.

For example, if there is more than one founder, it may be feasible for each founder to set up their own holding company that holds shares in different subsidiaries.

The Aktiengesellschaft (AG) - the German stock company - is a corporate structure with limited liability via share ownership, in which these shares are tradeable on the stock market.

If you want to grow your company as quickly as possible, the AG could be your best option. By selling company shares in the form of equity, you can raise capital without bureaucratic hassle.

An AG does not necessarily need to list on the stock exchange, but the listed AG is the more common variant.

The share capital

The required capital investment for a GmbH is €25,000, while the amount for an AG is € 50,000.

As the AG's starting capital is substantially higher than the GmbH, so is its perceived legitimacy.

The corporate bodies

The corporate bodies of the GmbH are the shareholders' meeting (Gesellschafterversammlung) and the management (Geschäftsführung).

GmbH shareholders are responsible for monitoring the company's management, and can intervene in its operations. To do this, one or more shareholders who hold the majority of the shares must support the decision.

The AG's corporate bodies include the supervisory board (Aufsichtsrat), the executive board (Vorstand) and the general shareholders' meeting (Hauptversammlung).

The executive board manages the company and reports to the supervisory board. The general shareholders' meeting brings together all shareholders to make any extraordinary decisions.

In contrast to the GmbH, the AG has a strict separation between management and shareholders, which prohibits the shareholders from directly controlling the company.

Transferability of these shares

For an AG shares are easily transferable, except in the case of registered shares.

The transfer of shares for a GmbH need notarisation, which costs time and money.

Set up costs

The German Stock Corporation Act (Aktiengesetz) regulates all matters relating to the legal form of the AG, while the German Limited Liability Companies Act (GmbHG) governs the GmbH.

The stricter provisions of the Stock Corporation Act means that the AG formation process is a lot harder to navigate. The majority of the processes and documents involved in its formation require notarisation which costs time and money.

Liability

The executive board and the supervisory board of an AG are liable under some circumstances for business decisions if they have violated their duty of care or acted illegally. The shareholders of the AG are only liable for company debts with the value of the shares they hold.

The managing director of the GmbH may be liable for the damage caused by or within the GmbH and may even be subject to imprisonment or fines if he or she acts negligently.

The gGmbH is a non-profit company with limited liability. The abbreviation stands for gemeinnützige Gesellschaft mit beschränkter Haftung.

Non-profit GmbHs are centred around a charitable corporate purpose and accordingly benefit from tax exemptions.

Both the gGmbH and gUG are special forms of regular limited liability companies and are both subject to the GmbH Act.

The preceding "g" serves to differentiate entrepreneurially active GmbHs, which are for-profit organisations.

The GmbH & Co. KG is a special form of the Kommanditgesellschaft (KG) (limited partnership).

Typically, KGs are joint partnerships of at least two natural or legal persons, comprising at least one general partner - whose liability is unlimited (Komplementär) - and a limited partner (Kommanditist).

In the case of a GmbH & Co. KG, the GmbH itself functions as a general partner (Komplementär) and is fully liable. However, thanks to its legal structure, liability is limited to company assets.

Shareholder partners of the GmbH & Co. KG, are accountable only with their share capital - akin to a KG corporate structure.

The gUG stands for gemeinnützige Unternehmergesellschaft and is a non-profit company with limited liability.

Non-profit UGs have a charitable corporate purpose and thus benefit from tax exemptions.

Both the gGmbH and gUG are special forms of the GmbH and are therefore regulated by the same German Limited Liability Companies legislation.

The corporate form UG & Co. KG is similar to a GmbH & Co. KG with the main difference being a much lower capital required for formation.

The UG & Co. KG is a combination of two corporate forms: a Kommanditgesellschaft (KG) - a type of limited partnership - and a UG (haftungsbeschränkt) - a special form of GmbH.

As with the GmbH & Co. KG, the UG is the Komplementär (unlimited partner or general partner) within the KG structure. This KG also has unlimited liability, but only through its corporate form.

The Kommanditisten (limited partners) of the UG & Co. KG are liable for damages only with their share capital.

As a sole proprietor, you receive 100% of your profit, but you are also 100% liable for your business's operations.

Depending on your circumstances, establishing a sole proprietorship may be favourable. There is no minimum share capital and there are fewer formalities, i.e. registering for the commercial register (Handelsregister) or getting certificates notarised.

This legal structure also offers many accounting exemptions, which can make running your business a lot more straightforward.