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What is a UG?

The UG (haftungsbeschränkt) is a corporation, just like the limited liability company (GmbH) and the stock corporation (AG). The UG is not an independent legal form, but a sub-form of the GmbH. Both companies have limited liability as a special feature. Many entrepreneurs want to start up as quickly, cheaply and with as little risk as possible. The UG offers all these advantages. Nevertheless, there are also many disadvantages that you should bear in mind when deciding in favor of the UG.

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Founding a UG - disadvantages at a glance

Finding the right legal form for your company is not always easy. For this reason, you should always be well informed about the advantages and disadvantages of a legal form. Here you will find an overview of all the disadvantages of the UG.

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The distribution of profits is initially limited

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Contributions in kind are not possible

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Profits are taxed in the same way as in a GmbH

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Insufficient share capital can quickly lead to insolvency

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The UG (haftungsbeschränkt) enjoys less trust from customers than the GmbH

Limited profit distribution

The distribution is limited for the UG, especially at the beginning. If the share capital is less than EUR 25,000, the UG is obliged to pay 25% of the profits in the financial year into the business account each year as a reserve. This obligation exists until the EUR 25,000 has been paid in as share capital reserves, regardless of the financial situation of the shareholders.

In addition, contributions in kind are not permitted as share capital reserves for the UG. Deposit payments must be made in full in cash. In practice, this means that the company’s capital cannot be increased by tangible reserves such as machinery, patents or buildings.

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Profit taxation in the UG

There are no differences in the taxation of profits. The UG is obliged to pay trade tax. In addition, the shareholders pay capital gains tax (25%). The UG must also pay VAT of 19% and corporation tax of 15% (plus solidarity surcharge).

Insolvency risk with low capital value

The UG can be founded with a minimum capital value of just one euro. This makes entrepreneurship easy and accessible for many start-ups. What is an advantage in this respect is also a disadvantage. If the share capital is too low, the risk of insolvency is very high if, for example, invoices cannot be paid. A UG with a low capital value brings no marketing advantage. Many contractual partners would therefore like more security in commercial transactions and therefore obligate shareholders of the UG personally.

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When does it make sense to set up a UG?

Founding an entrepreneurial company (haftungsbeschränkt) makes particular sense for entrepreneurs who wish to limit their liability in their self-employment and manage with little capital. In principle, the GmbH enjoys a higher reputation in commercial transactions due to its high share capital. Nevertheless, the choice of a UG can make sense and, with its low minimum share capital value, enables an easy entry into entrepreneurship.

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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 do you need to set up a UG (haftungsbeschränkt)?

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It doesn't take much to set up a UG (haftungsbeschränkt). In addition to a company name and a business address, a business account is required to pay in the share capital. First, a shareholders' agreement is drawn up and notarised by a notary. Then you have to open the business account and pay in the share capital. The notary registers the UG (haftungsbeschränkt) in the commercial register once the share capital (at least EUR 1) has been paid in. The UG (haftungsbeschränkt) is then registered with the trade office and tax office before it can start its business activities.

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.

What kind of legal form is the UG (haftungsbeschränkt)?

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The UG (haftungsbeschränkt) is a corporation and, strictly speaking, a GmbH with special characteristics, so it is not actually an independent legal form. It is a corporation with its own name (company), which is represented by a managing director. The UG (haftungsbeschränkt) can be founded by one person alone or by several shareholders. Like the GmbH, the UG (haftungsbeschränkt), as its name suggests, is also limited by liability, although the minimum share capital required to establish it is only 1 euro. In most cases, however, a share capital of around 1,000 euros will be used.