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What is a social contract?

The UG partnership agreement, also known as the articles of association, sets out the rights and obligations of the individual shareholders within the UG. This agreement contains all important provisions relating to the individual situation of the company and the relationship between the shareholders. You can find out below which specific areas the articles of association regulate and what they must contain.

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Contents of the UG shareholders' agreement at a glance

There are many ways in which the articles of association can be structured. If you meet the requirements, you can also use a so-called standard record. The standard record is a simplified document that regulates the necessary framework conditions for the foundation. The disadvantage is that you have no scope for individual regulations on the rights and obligations of the shareholders. So if you want to set up a more complex UG, it is advisable to formulate individual articles of association with the help of a lawyer.

You can find an overview of the information contained in these articles of association here:

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All important basic data of the UG (haftungsbeschränkt) are recorded.

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Regulations on the organisation and representation of the UG must be recorded.

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The precise extent of the rights and obligations of the individual shareholders is determined.

The basic data of the UG

The UG articles of association usually contain all the necessary information on the structure of the UG.

These are:

  • The company name of the UG
  • The registered office of the UG
  • Determination of the object of the company
  • Information from the shareholders
  • The amount of the share capital
  • Information on the amount of the share capital and the shareholders’ shares
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The organisation and representation in the UG

The organisation and representation within the UG is of great importance for the trading business. Therefore, the necessary regulations should be made to ensure the functionality of the UG.

These include:

  • The planned duration of the company (if this is only planned for a certain period)
  • Definition of the financial year of the UG
  • Regulations on the bodies of the company (shareholders’ meeting, management and their representation)

Rights and obligations of UG shareholders

The shareholders’ agreement should contain individual provisions on the rights and obligations of the shareholders.

These concern:

  • Regulations on shareholder resolutions
  • Regulations for the shareholders’ meeting: Convening, quorum, voting rights, minute taker
  • Annual financial statements
  • Profit and loss distribution, distribution of profits and formation of reserves
  • Sale of shares (with several shareholders)
  • Regulations on termination and notice periods for shareholders
  • Compensation claims of shareholders and managing directors
  • Departure of a shareholder due to illness or death
  • Regulations on the matrimonial property regime of the partners
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The difference between a standard record and individual articles of association

You can use a template as an alternative to the individually formulated UG articles of association. The so-called standard record simplifies and accelerates the formation process. Due to standardisation, the notary fees are also lower. The disadvantage, however, is that it is not possible to deviate from the formulations of the standard record, so that there is no freedom of design, especially for more complex UG companies.

The standard record can only be used if:

  • only one to three shareholders are intended for the UG
  • there should be a maximum of one managing director
  • the financial year corresponds to the calendar year

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FAQ

Why found a UG (haftungsbeschränkt)?

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Founding a UG (haftungsbeschränkt) is particularly suitable for young companies. This is because 1 euro is theoretically enough for the share capital. If you don't want to be liable with your private assets but don't have the start-up capital for another limited company, a UG (haftungsbeschränkt) is a good choice. Unlike a sole proprietorship, liability is limited here and private assets are protected. In practice, however, there are also many arguments against setting up a UG (haftungsbeschränkt), as it often makes more sense to set up a GmbH. Individual advice should be sought here.

What does UG (haftungsbeschränkt) mean?

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The legal form UG (haftungsbeschränkt) means that the founders are not liable with their private assets if the company gets into financial difficulties. The legal form must be indicated on all business documents, for example in e-mails, letters and invoices as well as in the website imprint. This is required so that other companies and customers can see at a glance that the company's liability is limited. The UG (haftungsbeschränkt) is less highly regarded by banks and investors and in business transactions than other corporations.

What is the difference between a GmbH and a UG (haftungsbeschränkt)?

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The biggest difference between a UG (haftungsbeschränkt) and a GmbH is the amount of share capital required to set up the company. A GmbH requires 25,000 euros in share capital, half of which must be paid in when the company is founded. In the case of the UG (haftungsbeschränkt), on the other hand, EUR 1 is sufficient as share capital, provided the capital requirement does not necessitate a higher sum. In the case of a UG (haftungsbeschränkt), reserves must be formed from profits which may not be distributed to the shareholders. In addition, the UG (haftungsbeschränkt) can also consider increasing its capital and changing its name to a GmbH. Otherwise, the UG (haftungsbeschränkt) has the same rights and obligations as a GmbH in terms of shareholder, accounting and liability requirements. The UG (haftungsbeschränkt) must also pay corporation tax and trade tax in the same way as the GmbH.