How to Start a UG or GmbH in Germany: The Complete Guide for 2026

If you're starting a business in Germany, one of your first decisions is choosing a legal structure. Many entrepreneurs begin as self-employed (Einzelunternehmer or Freiberufler), which requires almost no setup—just register with the tax office and you're in business. But self-employment comes with a significant downside: unlimited personal liability. If your business takes on debt or faces a lawsuit, your personal assets are on the line.

That's why most founders eventually consider forming a company with limited liability. In Germany, this typically means choosing between two structures: the UG (haftungsbeschränkt) and the GmbH. Both protect your personal assets, but they differ in ways that matter—especially when you're just getting started.

"I've founded companies in the US, UK, Singapore, and Germany. Germany is by far the most complicated and lengthy. Still, if you live in Germany and most of your customers are here, don't think about tax savings in other jurisdictions. It will always be much more complicated and more expensive than you expected." — Peter Boyko, serial entrepreneur

What Is a UG vs. GmbH?

The GmbH (Gesellschaft mit beschränkter Haftung) is Germany's most established form of limited liability company. It's been the default choice for over a century and carries immediate credibility with banks, investors, and business partners.

The UG (haftungsbeschränkt) arrived in 2008 as a response to the British Limited flooding the German market. Lawmakers wanted to give founders a German alternative that didn't require €25,000 upfront. The result is essentially a "starter GmbH" or "mini GmbH"—same legal protection, different capital rules.

The trade-off is straightforward: the UG lets you start with almost nothing, but you'll face restrictions on profit distribution and some skepticism from partners who see the "(haftungsbeschränkt)" in your company name and wonder if you're undercapitalized.

How to Start a UG or GmbH: Step-by-Step

The registration process works the same way for both entity types. What changes is how much capital you deposit and a few details in the paperwork. Here's how to get from idea to legally registered company.

Step 1: Define Your Company Structure

Before you contact a notary, sort out the basics. You'll need to decide how many people are founding the company and who will manage it. A single founder can be both the sole shareholder and managing director—this is the most common setup for small businesses.

You'll also need a company name. German law requires your name to be unique in your local commercial register and to include the legal suffix. For a UG, that means writing out "UG (haftungsbeschränkt)" in full every time—no abbreviations allowed. For a GmbH, you can simply add "GmbH" at the end.

Finally, think about your business purpose. The Unternehmensgegenstand doesn't need to be poetic, but it should cover everything you plan to do. Write it too narrowly and you'll need an expensive amendment later. Write it too broadly and you might raise questions during registration.

Step 2: Draft the Articles of Association

The Gesellschaftsvertrag is your company's constitutional document. It defines who owns what, how decisions get made, and what happens if things go wrong.

For simple setups—up to three shareholders and one managing director—you can use the Musterprotokoll, a standardized template that keeps notary costs down and speeds up the process. Most solo founders starting a UG go this route.

If you have a more complex arrangement, or if you want provisions for things like drag-along rights, custom profit distribution, or specific rules for share transfers, you'll need custom articles. This costs more but gives you flexibility that the template doesn't offer.

Step 3: Notary Appointment

German company formation requires a notary. There's no way around this—the signatures on your founding documents must be notarized to have legal effect.

The good news is that since August 2022, you can do this online. Video notary sessions are now available for straightforward company formations, which means you don't need to physically visit a notary office. This is particularly helpful if you're founding from abroad or simply don't want to deal with scheduling constraints.

At the appointment, you'll sign the articles of association, officially appoint the managing director, and authorize the notary to submit your application to the commercial register. Bring valid ID—a passport works—and any documents the notary has requested in advance.

Step 4: Open a Business Bank Account

Your company needs a bank account before it can be registered. The notary will require proof that you've deposited your share capital, and that proof comes from the bank.

For a UG, the minimum deposit is €1, but starting with such a small amount is mostly theoretical. Most founders put in €500 to €2,000 to cover initial expenses like the notary, registration fees, and basic operating costs. For a GmbH, you need to deposit at least €12,500—half of the required €25,000 share capital.

Two banks stand out for German company formation:

Qonto is the best overall choice for most businesses. The account opening process is smooth, the interface is modern, and they understand the needs of newly formed companies. It's what we recommend if you want a professional banking setup from day one.

Vivid is worth considering if speed and low costs are your priority. They can often open accounts faster than traditional banks, and their fee structure is particularly friendly for businesses just getting started.

Whichever you choose, apply for the account early in the process. Bank onboarding can take a few days, and you don't want it to become a bottleneck.

Step 5: Commercial Register Entry

Once the notary has everything—signed documents, proof of capital deposit, completed application—they submit your registration to the Handelsregister. This is the official commercial register maintained by local courts.

Processing time varies by location. In busy cities like Berlin or Munich, expect 2–4 weeks. Smaller jurisdictions are sometimes faster. When the registration goes through, you'll receive an HRB number (your unique commercial register identifier) and your company will be published in the Bundesanzeiger, the federal gazette.

✅ At this point, your company legally exists.

Step 6: Register with Tax Authorities

Within a few weeks of registration, the tax office will send you a Fragebogen zur steuerlichen Erfassung—a questionnaire about your expected business activities, revenue, and structure. Complete this carefully. The answers determine your tax numbers, VAT obligations, and prepayment schedules.

If you expect to invoice more than €25,000 in your first year (or €100,000 in subsequent years), you'll need to register for VAT and charge it on your invoices. Below that threshold, you can opt for Kleinunternehmerregelung, which exempts you from VAT but also means you can't reclaim VAT on your own expenses.

Step 7: Trade Office and Chamber Registration

Register your commercial activity with the local Gewerbeamt. This costs €20–60 depending on your municipality and takes about ten minutes.

Shortly after, you'll receive a letter from the IHK (Chamber of Commerce) or HWK (Chamber of Crafts) informing you of your mandatory membership. Yes, mandatory. Germany requires all commercial businesses to belong to their relevant chamber. Fees are based on your revenue—expect €150–300 per year for most small businesses.

Step 8: Additional Registrations

Depending on your situation, a few more registrations may apply. If you plan to hire employees, you'll need a Betriebsnummer from the employment agency and registration with a Berufsgenossenschaft for occupational accident insurance.

All companies must also register with the Transparenzregister, Germany's beneficial ownership database. Since 2023, this registration is free for most companies, but the obligation remains—failing to register can result in significant fines.

Don't Want to Handle All of This Yourself?

If the eight steps above feel like a lot, that's because they are. At Norman, we guide founders through the entire process—from company name check to notary, bank account, Finanzamt, Transparenzregister, and Gewerbeanmeldung. You get a dedicated consultant who builds a personalized roadmap for your situation. UG formation starts at €99, GmbH at €199.

Start your founding process here →

What Does It Actually Cost?

The capital requirement is the headline difference between UG and GmbH, but it's not really a cost—that money stays in your company as working capital. The actual costs are the fees you pay to get registered.

Ongoing costs are similar for both structures. Budget €1,500–5,000 per year for accounting and tax filing, depending on your transaction volume and complexity. Add IHK membership (€150–300) and annual publication fees (€50–100).

"When founders ask about costs, I always distinguish between setup fees and capital. The €25,000 for a GmbH isn't money you're spending—it's money you're putting into your own company. The real question is whether you can afford to lock up that capital before you've proven your business model works." — Peter Boyko, founder of Norman

The UG's Profit Retention Rule

Here's something that surprises many UG founders: you can't freely distribute your profits.

German law requires every UG to set aside 25% of its annual net profit into a capital reserve. This continues year after year until the company's share capital reaches €25,000. At that point, the UG can convert to a GmbH and the restriction disappears.

This isn't optional. If your UG earns €40,000 in net profit, €10,000 goes into the reserve automatically. Only €30,000 is available for distribution or other uses. The rule exists to ensure that UGs gradually build up the same capital base as a GmbH, but it means your first several years of profits are partially locked away.

For founders planning to reinvest everything anyway, this hardly matters. But if you're counting on taking profits out of the business to live on, factor this restriction into your planning.

When to Choose Which

The decision isn't complicated once you understand the trade-offs.

A UG makes sense when you're testing an idea and don't want to commit €25,000 upfront. It's popular with consultants, freelancers moving to a corporate structure, and founders of early-stage startups. The limited liability protection is identical to a GmbH, and the profit retention rule only matters if you're actually profitable.

A GmbH makes sense when you have access to capital and want maximum credibility from day one. Banks take GmbH applications more seriously. Business partners don't wonder about your financial stability. And you can contribute assets—equipment, intellectual property, even real estate—as part of your capital, which isn't possible with a UG.

Many founders start with a UG and convert to a GmbH later as the business grows and the capital reserve accumulates. This is a perfectly valid strategy, not a compromise.

Frequently Asked Questions

When does starting a UG make sense?

A UG is ideal when you want limited liability but don't have €25,000 to lock up as share capital. It works well for service businesses, consultants, and founders who plan to reinvest profits rather than distribute them. The low barrier to entry lets you get started quickly while still separating your personal assets from business liabilities.

What are the disadvantages of a UG?

The main drawbacks are the mandatory 25% profit retention, the requirement to use the full "UG (haftungsbeschränkt)" name on everything, and lower perceived credibility with some business partners and banks. You also cannot contribute assets in kind—only cash.

What does a UG cost per year?

Expect minimum annual costs of €1,250–2,000 for a simple UG with low revenue. This covers basic accounting, tax filing, IHK membership, and required publications. Costs increase with transaction volume and complexity.

Is there a revenue limit for a UG?

No. A UG can generate unlimited revenue. The only ongoing requirement is the 25% profit retention until share capital reaches €25,000, at which point you can convert to a GmbH.

Can foreigners start a UG or GmbH?

Yes. There are no citizenship or residency requirements for shareholders or managing directors. You can found and manage a German company while living abroad. The online notary option makes this particularly accessible.

Ready to Get Started?

If you'd rather have someone walk you through this than figure it out alone, Norman helps founders register their UG or GmbH with personal guidance at every step. No overpriced legal packages—just a dedicated expert, a clear checklist, and exclusive banking partner offers. UG from €99, GmbH from €199.

Start your UG or GmbH founding with Norman →