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What does UG (haftungsbeschränkt) mean?

The UG (haftungsbeschränkt) was introduced into German law as a counterpart to the popular “Limited” company form from the UK. As a special form of GmbH, it is a separate legal form for companies and is considered a corporation. In Germany, the UG is often colloquially referred to as Mini-GmbH, 1-Euro-GmbH or UGmbH. You can find out here what options the shareholders have, what role liability plays for the UG (haftungsbeschränkt) and whether this legal form is suitable for your start-up.

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What are the advantages of founding a UG?

Both the UG and the GmbH are corporations with limited liability. Both companies need one or more shareholders and have at least one managing director. In addition, both legal forms must be entered in the commercial register. So what advantages does the UG offer over the GmbH?

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The UG has a lower minimum share capital of 1 euro (the GmbH requires a share capital of 25,000 euros)

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Liability in a UG is limited

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The formation costs are lower compared to a GmbH

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It is possible to convert the UG into a GmbH at a later date

What does haftungsbeschränkt mean for a UG?

The limited liability UG has the advantage that the shareholders and managing directors are not liable with their private assets. This is not the case for partnerships (e.g. GbR). There, the shareholders are fully liable with their private assets. The UG (haftungsbeschränkt) provides for liability in exceptional cases, in the event of negligent or actively destructive actions within the company.

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The formation of a UG

The formation of a UG haftungsbeschränkt differs significantly from other corporations in terms of costs. Only a minimum value of one euro must be paid in for the share capital. If you set up a GmbH, you must raise at least EUR 25,000 for the share capital.

The UG can also be founded using a model protocol. The sample protocol is a pre-formulated standardised template for the articles of association. By using the sample protocol, you can save time and money at the notary’s office. You can use the sample protocol if

  • You have a maximum of 3 shareholders
  • You only plan with one managing director
  • and your financial year corresponds to the calendar year

If you are planning a more complex UG structure, it is advisable to have individual articles of association drawn up instead of the model articles of association. The articles of association give you more flexibility in terms of determining the distribution of profits, the right to sell and much more.

What does the law say about the UG?

Are you wondering where the UG is regulated by law? Strictly speaking, there is no separate “UG law”. As the UG is a special form of GmbH, the regulations governing the GmbH apply to the legal circumstances of the UG. The legal basis for this can be found in the GmbHG (from § 5a). The GmbHG was merely expanded to include provisions on the UG. The general legal sources are therefore the GmbHG and the German Commercial Code (HGB).

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Is the UG the right legal form for you?

Whether the UG (haftungsbeschränkt) is the right legal form for your start-up depends on various factors. If you opt for a UG, then you are opting for a limited liability company. The choice of a UG as a legal form is particularly attractive for young founders. The share capital is comparatively low compared to common legal forms such as the GmbH (EUR 25,000) and the AG (EUR 50,000). However, if you are planning to set up more complex company structures in the future, it may make sense to establish a GmbH directly. Although it is possible to convert the UG into a GmbH, this is associated with high costs.

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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 a UG (haftungsbeschränkt) & Co KG?

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A UG (haftungsbeschränkt) & Co KG is a special legal form that is made up of a partnership (KG) and a corporation (UG (haftungsbeschränkt)) and thus combines the advantages of both in one company. The UG (haftungsbeschränkt) & Co KG is ideal for founders who do not want to be liable with their private assets in the event of insolvency and who, for certain reasons, want to operate their company in the legal form of a partnership.

What does it cost to set up a UG (haftungsbeschränkt)?

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The formation of a UG (haftungsbeschränkt) is not less expensive than other legal forms. Notary fees and costs for business registration and entry in the commercial register are generally not cheaper than founding a GmbH. However, you can found a company with significantly less share capital. This can theoretically be as little as 1 euro. A UG (haftungsbeschränkt) can be founded with a capital of just 1,000 euros. If it is a one-man UG (haftungsbeschränkt), you can use the so-called model protocol for the formation and save on notary fees again.

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.