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UG or GmbH?

The UG is a special form of GmbH, which is why the two legal forms have some similarities. They are both limited liability companies. Nevertheless, we can see major differences in the distribution of profits, share capital, formation costs and other obligations. All these factors have an impact on your start-up process and the right choice for your company.

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An overview of the differences

The UG and the GmbH differ significantly in terms of formation costs in particular. In addition, the UG is obliged to hold reserves, whereas these are voluntary for the GmbH. Here you will find an overview of all the important differences.

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The formation costs for a UG are up to EUR 1,600, whereas the formation of a GmbH costs around EUR 27,500 (including share capital).

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A UG can be founded with a share capital of just one euro. The situation is different with the GmbH: Here, a minimum deposit of 25,000 euros is mandatory, but half (12,500 euros) can be paid in initially.

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A UG has a reserve requirement of 25%, whereas reserves are voluntary for a GmbH.

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The profit distribution of the UG is calculated pro rata after deduction of the 25% mandatory reserve. In contrast, it is calculated pro rata for the GmbH, without deducting the mandatory reserve.

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In the case of a UG, the managing directors are required to identify themselves in the commercial register and, in the case of a GmbH, in the commercial register and register court.

The share capital

The UG and the GmbH differ in the amount of the share capital contribution that must be made when the company is founded.

  • To set up a GmbH, you need to raise share capital of EUR 25,000. However, it is sufficient to pay half of this amount, i.e. EUR 12,500, into the business account when the company is founded. In addition, the formation costs can be paid from the share capital.
  • When founding a UG, a minimum share capital contribution of one euro is sufficient, which makes this legal form particularly attractive for start-ups or young entrepreneurs.

The limited liability company as a legal entity is only liable with the company’s assets, not with the private assets of the shareholders.

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The distribution of profits

In the case of a GmbH, the distribution of profits is contractually regulated and depends on the distribution of shares. The shareholders are entitled to the net profit for the year, which may, however, remain in the company’s assets, if specified, and serve a specific purpose that is defined in the shareholders’ resolution.

The UG profit distribution is also divided proportionally among the shareholders. In the UG, you have less freedom in handling the distribution, which is related to the low share capital. The law stipulates that 25% of the annual surplus must serve as a mandatory reserve, meaning that only the remaining 75% can be distributed among the shareholders. The annual mandatory reserve can only be accessed in exceptional cases, such as in the case of losses carried forward or to offset deficits.

The identification requirement

In order to ensure transparency in commercial transactions, there is an identification requirement that obliges shareholders and managing directors to have their identity verified. The aim is to counteract money laundering and other illegal activities.

When registering a GmbH, the managing directors must prove their identity to the commercial register by means of an identity document. As a result, the identity is checked and confirmed by the registry court.

The situation is similar with the UG. In this case, the shareholders must provide evidence when registering with the commercial register; there is no further examination by the registration court.

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UG vs. GmbH: a comparison of advantages

The UG has a very low minimum share capital value of one euro. This may sound attractive at first, but it is disadvantageous when it comes to the reputation of potential customers on the international market. In contrast, the GmbH with a minimum share capital of EUR 25,000 enjoys greater trust on the market.

Both company forms benefit from the limitation of liability, which means financial security for founders in business transactions.

In the area of profit distribution, the GmbH stands out with the flexible structure of the shares. The UG is subject to legal requirements which stipulate that 25% of the annual surplus must be treated as a mandatory reserve and therefore cannot be distributed to the shareholders.

The UG can be converted into a GmbH as it grows, but this is associated with high costs. A GmbH, on the other hand, has no growth limit.

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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.

When does it make sense to set up a GmbH?

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A GmbH always makes sense when entrepreneurs want to limit their liability. While sole proprietors are liable with their private assets, the liability of a GmbH is limited to the company's assets. In addition, the legal form of the GmbH generally has a good reputation with banks and other companies. For this reason, it is often chosen as the legal form, as the company appears more trustworthy to the outside world. It is also suitable for investors.

What do I need for a GmbH?

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At least one shareholder is required to form a GmbH. This person can also be the managing director. However, the team of a GmbH is often made up of several people who share the tasks and pay in the share capital together. Once the personal details have been established, at least half of the EUR 25,000 share capital must be paid into the business account when the company is founded. This must be topped up to the full amount at a later date. In addition, the GmbH requires a summonable business address. Once the share capital has been paid in, the company is entered in the commercial register and transparency register. A tax number must also be applied for from the tax office for the start of business activities.