How to set up a UG step by step

Here you will find the most important facts about the UG (haftungsbeschränkt):

The UG (haftungsbeschränkt) is one of the corporations and is an independent legal entity. This type of company also includes well-known companies such as the GmbH (Gesellschaft mit beschränkter Haftung) or the AG (Aktiengesellschaft).

The UG (haftungsbeschränkt) is essentially nothing more than a GmbH, which is why it is also known as a “mini-GmbH” or “1 Euro-GmbH”. Most of the legal provisions of the GmbH are also applicable to the UG (haftungsbeschränkt). It differs primarily with regard to the share capital and the provisions on profit distribution. 

In contrast to the GmbH, the UG (haftungsbeschränkt) can be founded with a share capital of at least one euro.

Like the GmbH, the UG (haftungsbeschränkt) also offers the advantage of limited liability: in the event of claims by third parties, only the company's assets are liable; your private assets as a shareholder generally remain untouched. Personal liability only applies in special exceptional cases. It is precisely this security that makes the UG (haftungsbeschränkt) particularly interesting for many founders!

Similar to the GmbH, the UG (haftungsbeschränkt) is structured by two main bodies: the shareholders' meeting and the management. A supervisory board is also possible, but is usually optional.

At the shareholders' meeting, the shareholders make the most important decisions, including the distribution of profits, amendments to the articles of association and approval of the annual financial statements.

The management is appointed by the shareholders' meeting and is responsible for external representation and the operational business of the UG.

A supervisory board can also be set up if the articles of association provide for this or if certain company sizes are exceeded. This then assumes a supervisory and advisory function for the management.

To found a UG (haftungsbeschränkt), you need a partnership agreement that serves as the legal foundation of your company. In it, all shareholders define key points such as voting rights and the distribution of shares. You have the choice between a standard model protocol or an individually created contract, also known as articles of association. In either case, the articles of association must be notarized.

There are a few important steps that you should consider in order to set up your UG (haftungsbeschränkt) successfully. To help you keep track of everything, here is a clear list of the key points:

1. Putting together a founding team and tackling financial planning
   You can start up alone or in a team. If you are working with co-founders
   it is crucial to thoroughly discuss the future plans and ideas of everyone involved. The success of your UG depends heavily on cooperation within the founding team. Clear agreements on personal goals and financial aspects are key. These considerations are later recorded in the articles of association.
2. Draw up articles of association and list of shareholders and have them notarized
   The articles of association are the legal foundation of your UG and regulate the cooperation and relationship between the shareholders. Important points such as voting rights and the distribution of shares are defined here. You have the choice of either using an inexpensive sample protocol or having individual articles of association drawn up by your notary or law firm. Bear in mind that changes to a model protocol can only be made with notarization. To remain flexible, individual articles of association are often the better choice.

3. Open a business account and pay in share capital
   To pay in your share capital, you must first open a business account where you pay in the share capital of at least one euro. It is of course advisable to pay in more than one euro to at least cover the formation costs - because this capital can then be used for the initial expenses of the UG, such as formation costs or the salary of the management.

    

4. Entry of the UG in the commercial register and transparency register
   The entry in the commercial register is made by a notary after the articles of association have been notarized and the share capital has been paid in. You must also register the UG in the transparency register, which is a legal obligation and can be done directly after the commercial register entry on the transparency register website.
   Important: Be careful with fake invoices! Fraudulent invoices are a common sign of a successful entry in the commercial register. Always check such documents thoroughly.

5. Business registration
   If you offer services or products, you usually have to register a business. This is usually done at the relevant trade office and can often be done online.

6. Registration with the tax office
   You must also register your UG with the relevant tax office. To do this, you fill out the tax registration questionnaire and receive a tax number for your company.
7. Register with the statutory accident insurance and, if applicable, the Chamber of Industry and Commerce
   Finally, there are other registrations to be made, such as statutory accident insurance. Depending on the sector, you may also need to register with the Chamber of Industry and Commerce. If you are hiring employees the employment agency may also be relevant.

By following these steps, you are laying the foundations for a successful UG (haftungsbeschränkt).

The thing that convinces most founders is the low minimum share capital of the UG (haftungsbeschränkt). This is understandable, as it is at a minimum value of 1 euro - who wouldn't find such a low starting capital tempting? This means that you only have to prove that you have this minimum amount in your business account when you set up your company!

But be careful: Such low share capital is not well received by investors or potential customers! Your company's reputation may well suffer as a result, as your creditors want to be able to rely on one thing in particular: Your solvency. It is always advisable to at least deposit enough capital into your business account to cover your start-up costs - because the capital does not have to remain in your business account, you can use it for initial investments or start-up costs. 

The liability regulations of the UG (haftungsbeschränkt) are one of the most important reasons why many founders opt for this form of company. Understandably so: The limitation of liability protects the shareholders' private assets in the event of financial obligations - a security that hardly anyone would turn down.

If the UG (haftungsbeschränkt) is held liable for liabilities, it is fully liable with its company assets. This includes all of the company's assets, which are used to settle debts in the event of an emergency.

But be careful: a common misconception is that liability is only limited to the share capital. This is not entirely true, as the company assets with which the UG is liable include more than just the paid-up share capital.

As a rule, shareholders are not liable with their private assets, but there are some exceptions that may apply, particularly in the event of breaches of duty. But even then, the company is liable to third parties; in these cases, the shareholders are liable to the company internally with their private assets.

If you want to become a shareholder in a UG (haftungsbeschränkt), there are certain requirements and obligations that you must observe. The key points include:

• The payment of a fixed minimum deposit, which is set out in the articles of association.
• A background check may be required in certain sectors.
• Compliance with the provisions of the Money Laundering Act is also important.

However, there are no specific requirements regarding professional qualifications or the nationality of the shareholders in Germany. The number of shareholders in a UG can change at any time, especially through the transfer of shares, which can create new circumstances.

As a rule, shareholders have the following rights, unless otherwise specified in the articles of association:

• Property right: The right to participate in the distribution of profits at the end of the financial year.
• Right to information and disclosure: The right to inspect the company's documents.
• Administrative right: The right to vote on a percentage basis and to participate in decisions with their vote.

As Managing Director:in the UG (haftungsbeschränkt), you take on the legal representation of the company and act in all legal matters. You are responsible for the operational business and manage the UG strategically on a day-to-day basis.

When you take over the management of the company, you will have numerous tasks and duties. This includes, among other things:

1. Representing the UG externally.
2. Ensuring proper accounting.
3. Maintaining your duty of loyalty to the company.
4. Pursuing the company's purpose and objectives.
5. Informing shareholders about relevant company matters.
6. Convene shareholders' meetings.

Many founders opt for a UG because it offers the advantage of limited liability: The UG is only liable to third parties with its company assets, so that the private assets of the shareholders and management generally remain unaffected.

However, there are exceptions, especially if you violate your duties and duties of care as a managing director. The following behavior can lead to personal liability:

• Failure to comply with the duty to file for insolvency.
• Neglecting the duty to provide information.
• Disregard of the duty of loyalty.
• Violation of legal regulations and restrictions.
• Creation of a sham in business transactions.

Regardless of the sector in which you are active with your UG (haftungsbeschränkt), the tax obligations remain constant. As a corporation, the UG is taxed as a legal entity in accordance with the Corporation Tax Act (KStG) and the Income Tax Act (EStG). As the founder of a UG, you must expect the following types of tax:

• Corporation tax (15%): This tax is levied on the income of the UG as it is considered a corporation.
• Trade tax: 15% on your income, which can vary depending on the municipality.
• Value added tax: This is levied on the services you provide or products you sell.
• Wage tax: If you employ staff
  you are obliged to pay this tax.
• Real estate transfer tax: This tax is due when you purchase real estate or land.
• Capital gains tax: Under certain conditions, this is payable if you distribute profits to shareholders.
  to shareholders.

A good tax concept is crucial for the long-term success of your UG!

The costs for founding a UG (haftungsbeschränkt) cannot simply be quantified with a fixed figure. They depend on various factors, such as the number of shareholders, regional notary fees and your individual consulting needs.

As a rough guide, you can expect to pay around 800 to 1,000 euros (excluding the share capital).

Typical ongoing expenses include

• IHK fees
• Administration and accounting costs
• Fees for tax returns and annual financial statements
• Account management fees for your business account

A well-thought-out financial plan is essential to ensure the financial stability of your UG!

Many founders are faced with the challenging question of the right legal form: Which corporate form is right for me, my company and my individual needs and goals? This decision is indeed anything but easy. What we can say, however, is that you should be aware of the advantages and disadvantages of the UG (haftungsbeschränkt) at the very beginning of your start-up project - especially in comparison to the GmbH. 

These are the advantages of the UG (haftungsbeschränkt): 

• The minimum share capital is very low - This means that financial hurdles in particular do not stand in your way compared to a GmbH, which requires a minimum share capital of 25,000 euros.
• Despite the low share capital, you can benefit from the limitation of liability, just like with a GmbH.
• The UG (haftungsbeschränkt) is a legal form that is very flexible for many business models. 

These are the disadvantages of the UG (haftungsbeschränkt):

• The reputation of the UG (haftungsbeschränkt) compared to the GmbH is not particularly good among investors and customers. The reason for this is the lack of payment security resulting from the low share capital. 
• Your company name must always include the suffix “UG” (haftungsbeschränkt). Although this is a matter of taste, you must always make sure that it is clear that you are a UG (haftungsbeschränkt). 
• Probably one of the biggest disadvantages concerns the distribution of profits in the UG (haftungsbeschränkt): 25% of your profits must always be retained in the UG; these may not be distributed to the shareholders. This is also due to the low share capital of the UG in order to avoid the insolvency of your company.  
• Despite these disadvantages compared to the GmbH, the formation costs for the UG (haftungsbeschränkt) are similar to those for the GmbH itself. There are few differences in the formation process and the costs are very comparable - in this point you do not save compared to the GmbH.
• In contrast to the GmbH, contributions in kind are not possible for the UG (haftungsbeschränkt). 

The UG (haftungsbeschränkt) is an attractive and flexible option for founders who want to start their own business with minimal risk and low share capital. Due to the limited liability and the possibility of starting with one euro, this form of company offers a secure entry into self-employment. Nevertheless, it is crucial to be aware of the challenges and obligations associated with founding and operating a UG. With the right knowledge and solid planning, you can make the most of the advantages of this form of company and successfully realize your business idea. Take the first step towards a promising entrepreneurial future!