UG vs GmbH: Which German Company Type Is Right for You? [2026 Guide]

Starting a business in Germany means choosing the right legal structure—and for most founders, the decision comes down to two options: the UG (Unternehmergesellschaft) or the GmbH (Gesellschaft mit beschränkter Haftung). Both offer limited liability protection, but they differ in capital requirements, costs, credibility, and flexibility.

This comprehensive guide covers everything you need to know about UG vs GmbH—from formation costs and tax implications to liability protection and conversion options.

What's the difference between UG and GmbH, briefly?

A UG can be founded with as little as €1 in share capital, while a GmbH requires a minimum of €25,000.

UG is not a truncated legal type. Feel free to start your business if you are short on startup capital.

What is a UG (Unternehmergesellschaft)?

The UG, officially known as "Unternehmergesellschaft (haftungsbeschränkt)," is a special form of the German limited liability company introduced in 2008. The German government created this legal form to compete with the British Private Company Limited by Shares (Ltd.), which had become popular among German entrepreneurs due to its low capital requirements.

Often called the "Mini-GmbH" or "1-Euro-GmbH," the UG is not a separate legal form but rather a variant of the GmbH with special provisions outlined in §5a of the German Limited Liability Companies Act (GmbHG). This means that almost all rules governing GmbHs also apply to UGs, with a few important exceptions.

Key characteristics of a UG:

• Minimum share capital of €1 (though €1,000–€4,000 is recommended in practice)

• Share capital must be paid entirely in cash—no in-kind contributions allowed

• Must retain 25% of annual profits until share capital reaches €25,000

• Must use the full designation "UG (haftungsbeschränkt)" or "Unternehmergesellschaft (haftungsbeschränkt)" in its name

• Can be converted to a regular GmbH once share capital reaches €25,000

The UG offers the same limited liability protection as a GmbH, making it an attractive option for founders who want to protect their personal assets but lack access to significant startup capital.

What is a GmbH (Gesellschaft mit beschränkter Haftung)?

The GmbH, or "Gesellschaft mit beschränkter Haftung" (company with limited liability), is Germany's most popular corporate legal form and one of the most widely used business structures in Europe. As a legal entity, the GmbH exists independently of its shareholders—it can own property, enter into contracts, sue and be sued, and hold assets separate from those of its owners.

The GmbH offers entrepreneurs the key advantage of limited liability: shareholders are generally liable only up to the amount of their capital contribution, not for their personal assets. This separation between company and personal wealth makes the GmbH particularly attractive for businesses with significant risk exposure.

Key characteristics of a GmbH:

• Minimum share capital of €25,000

• At least €12,500 must be paid in before registration (50%)

• In-kind contributions (Sacheinlagen) are permitted

• No mandatory profit retention requirements

• Uses the designation "GmbH" or "Gesellschaft mit beschränkter Haftung"

• Higher credibility with banks, investors, and business partners

Both German citizens and foreigners can found a GmbH without special permits. Even a single person can establish the company, making it suitable for solo entrepreneurs and larger teams alike.

UG vs GmbH: Key Differences at a glance

Before diving into the details, here's a quick comparison of the most important differences between these two legal forms:

Both legal forms share many similarities: they offer limited liability, require notarized formation documents, must be registered in the commercial register (Handelsregister), and are subject to the same tax regulations. The primary differences revolve around capital requirements and the resulting implications for credibility and flexibility.

Share capital requirements: UG vs GmbH

The most significant difference between a UG and GmbH lies in their share capital requirements. Understanding these requirements is crucial because they affect not only your initial investment but also your company's creditworthiness, insolvency risk, and long-term growth potential.

UG minimum capital (Stammkapital)

Legally, you can found a UG with just €1 in share capital. However, this theoretical minimum is rarely accepted by notaries in practice. Most notaries recommend starting with at least €300 as "€1 won't cover the startup costs" aka their services.

☠️ Why €1 is risky:

• The company could become insolvent almost immediately if any expenses arise.

• Managing directors face personal liability for failing to file for insolvency on time.

The entire share capital of a UG must be paid in cash before registration—partial payments are not permitted. This differs from the GmbH, where only half of the capital is required at formation.

GmbH minimum capital

A GmbH requires a minimum share capital of €25,000, but you don't need to have the full amount available immediately. At registration, only 50% (€12,500) must be paid in. However, each shareholder remains personally liable for the unpaid portion of their contribution until it's fully paid.

Unlike the UG, a GmbH allows in-kind contributions (Sacheinlagen). Instead of cash, shareholders can contribute:

• Real estate or vehicles

• Machinery and equipment

• Intellectual property and licenses

• Existing business operations

If you choose to make in-kind contributions, you must prepare a formation report (Sachgründungsbericht) documenting the value of the contributed assets. The commercial register court can reject registration if assets are significantly overvalued.

How capital affects creditworthiness and business partners

Your share capital directly impacts how banks, suppliers, and potential partners perceive your company. A GmbH with €25,000 in share capital signals financial stability and commitment, while a UG with minimal capital may raise concerns about the company's ability to meet its obligations.

This perception matters practically: companies with higher share capital often negotiate better payment terms with suppliers, secure bank loans more easily, and inspire greater confidence in B2B relationships. If you plan to work with large corporations or seek external financing, the GmbH's higher capital requirement can actually be an advantage.

Formation costs: UG vs GmbH (Gründungskosten)

Beyond share capital, you'll need to budget for various formation costs. The UG's lower overall costs make it particularly attractive for founders with limited resources.

Notary fees

All German company formations require notarization. The notary's fees depend on the share capital amount and whether you use the simplified Musterprotokoll (standard protocol) or custom articles of association.

UG notary fees:

• With Musterprotokoll: €150–€300

• With custom articles: €300–€500

GmbH notary fees:

• With Musterprotokoll: €300–€400

• With custom articles: €600–€1,200

Commercial Register fees

Registration with the commercial register (Handelsregister) costs approximately €150 for both legal forms. This fee covers the official entry and publication of your company's formation.

Legal and advisory costs

If you use the Musterprotokoll, you can potentially avoid legal fees entirely, as the standard document requires no customization. However, for companies with multiple shareholders or complex arrangements, custom articles of association are strongly recommended.

Legal costs for custom articles:

• UG: €500–€1,000

• GmbH: €500–€1,500

Total cost comparison

Remember: these figures don't include the share capital itself. When you factor in the €25,000 minimum for a GmbH versus potentially €1,000–€3,000 for a UG, the total initial investment differs dramatically.

Ongoing costs: What does a UG or GmbH cost per month?

Formation is just the beginning. Both UG and GmbH have ongoing operational costs that you should factor into your business planning.

Accounting and Bookkeeping

Both legal forms must maintain double-entry bookkeeping (doppelte Buchführung) and prepare annual financial statements. Unlike sole proprietors who can use simple income-expense accounting, UG and GmbH owners need proper commercial accounting from day one.

📝 Norman offers free e-invoicing without limits to help you get the first revenue without additional expenses.

Monthly bookkeeping costs: €100–€400, depending on transaction volume and complexity.

Tax Advisor Fees

While not legally required, most UG and GmbH owners engage a tax advisor (Steuerberater) to handle monthly tax filings, annual statements, and ongoing compliance. Given the complexity of corporate taxation, this investment typically pays for itself.

Monthly tax advisor costs: €150–€500, varying by company size and activity level.

Annual Financial Statement Filing

All GmbH and UG companies must file their annual financial statements with the Federal Gazette (Bundesanzeiger). Small companies can file abbreviated statements, but the requirement applies regardless of size.

Annual filing costs: €50–€200 for electronic submission.

Chamber of Commerce Membership

Membership in the local Chamber of Commerce and Industry (IHK) is mandatory for all commercial enterprises in Germany. Fees depend on your company's revenue and profit.

Annual IHK fees: €150–€500 for small companies, with higher rates for larger operations.

Transparency Register

Since 2017, German companies have been required to register their beneficial owners in the Transparency Register (Transparenzregister).

Annual fee: €20–€25.

Total Monthly Operating Costs

For a small UG or GmbH with modest activity, expect minimum monthly costs of approximately €300–€600 for basic compliance, accounting, and professional services—before any actual business expenses.

Liability: How UG and GmbH Protect Your Personal Assets

Both the UG and GmbH offer limited liability, meaning that company debts are generally not the personal responsibility of shareholders. The company's assets—not the founders' private wealth—stand behind business obligations.

Limited Liability Explained

When you form a UG or GmbH, you create a separate legal entity. This entity has its own rights and obligations, independent of its owners. If the company incurs debts or faces legal claims, creditors can pursue only the company's assets, not shareholders' personal property.

This protection is particularly valuable for businesses with inherent risks—whether from potential lawsuits, supplier relationships, or market uncertainties. Your house, savings, and other personal assets remain protected even if the company fails.

When Personal Liability Applies (Durchgriffshaftung)

Despite limited liability protection, several situations can expose shareholders and managing directors to personal responsibility:

• Insolvency delay (Insolvenzverschleppung): Managing directors must file for insolvency within three weeks of the company becoming insolvent or over-indebted. Failure to do so creates personal liability for damages caused by the delay.

• Pre-registration liability: Before the company is registered in the commercial register, individuals acting on the company's behalf are personally liable for obligations incurred. This "Vor-GmbH" phase requires careful management.

• Personal guarantees: Banks often require managing directors or shareholders to personally guarantee loans, especially for new or undercapitalized companies. Such guarantees create personal liability regardless of the corporate form.

• Breach of duties: Managing directors must exercise the care of a prudent businessperson. Violations of this duty—such as failing to pay social security contributions, tax fraud, or self-dealing—can result in personal liability.

• Inadequate capitalization: If a company is founded with grossly insufficient capital for its intended business activities, courts may "pierce the corporate veil" and hold shareholders personally responsible.

Why UG Shareholders May Face Personal Liability Faster

The UG's lower capital requirement creates a thinner buffer against insolvency. A UG founded with €1,000 in share capital could become technically insolvent after just a few months of losses, triggering the managing director's obligation to file for insolvency.

Consider this scenario: You found a UG with €2,000. After paying formation costs (€500), office supplies (€300), and two months of minor operating expenses (€400 each), you're already approaching zero. If you can't cover the next invoice, the company may be insolvent—and you, as the managing director, face personal liability if you don't act promptly.

Taxation: UG vs GmbH (Steuerliche Behandlung)

One of the most common questions founders ask is: "Which legal form is better for taxes?" From a tax perspective, UG and GmbH are treated identically. Both are subject to the same corporate tax regime.

Corporate Taxes for Both Forms

Three main taxes apply to both UG and GmbH at the company level:

Corporate income tax (Körperschaftsteuer): 15% of taxable profit.

Solidarity surcharge (Solidaritätszuschlag): 5.5% of the corporate income tax amount, effectively adding about 0.825% to the tax burden.

Trade tax (Gewerbesteuer): Varies by municipality, typically 12%-17% of trade income. The exact rate depends on the local Hebesatz (multiplier), which each municipality sets independently.

Combined effective tax rate: Approximately 30%, though this varies slightly based on your company's location.

Taxation of Dividends to Shareholders

When the company distributes profits to shareholders, additional taxation applies at the shareholder level:

For shares held privately: Dividends are subject to a 25% flat withholding tax (Abgeltungsteuer) plus solidarity surcharge, resulting in approximately 26.4% total taxation.

For shares held in a business: The partial income method (Teileinkünfteverfahren) applies—only 60% of dividends are taxable at the shareholder's personal income tax rate.

For corporate shareholders: When another corporation (such as a holding company) receives dividends, 95% of the distribution is tax-free, with only 5% treated as a non-deductible business expense.

Managing Director Salary (Geschäftsführergehalt)

Shareholder-managing directors can pay themselves a salary, which counts as a tax-deductible business expense for the company. This salary is then taxed as employment income for the individual, subject to regular income tax and social security contributions.

Caution: The tax authorities scrutinize managing director salaries carefully. If the salary is deemed excessive relative to the company's performance and comparable market rates, the excess may be reclassified as a hidden profit distribution (verdeckte Gewinnausschüttung), losing its tax deductibility.

Which Legal Form Is Best for Taxes?

Between UG and GmbH, there is no tax advantage to either form. The choice should be based on other factors like capital availability, credibility needs, and business planning.

However, both forms may offer tax advantages compared to operating as a sole proprietor (Einzelunternehmer), particularly when:

• Retaining profits in the company for reinvestment

• Your personal income tax rate exceeds 30%

• You want to build tax-advantaged retirement provisions

• Planning for eventual business sale or succession

Consult a tax advisor to model your specific situation before deciding on a legal form.

Profit Distribution and Mandatory Reserves

How you can access the profits your company generates differs significantly between UG and GmbH—a crucial consideration for founders who depend on business income.

UG: The 25% Retention Requirement

The UG must build up a statutory reserve by retaining one-quarter of its annual profit (reduced by any loss carried forward from previous years). This requirement continues until the accumulated reserves plus share capital reach €25,000—the minimum capital of a GmbH.

Example: Your UG earns €20,000 profit in its first year. You must retain €5,000 (25%) as a reserve. Only the remaining €15,000 is available for distribution to shareholders.

The mandatory reserve can only be used for:

• Capital increases from company funds

• Covering a net loss for the year (if no profit carried forward exists)

• Covering a loss carried forward (if no current profit exists)

You cannot simply distribute the reserve or use it for general business purposes. This restriction can create cash flow challenges for founders who need to extract income from their company.

GmbH: Flexible Profit Distribution

The GmbH has no mandatory retention requirement. Shareholders decide at the annual meeting how to use profits—whether to distribute them entirely, retain them for investment, or some combination.

This flexibility gives GmbH shareholders more control over their personal income and the company's capital structure. However, prudent business practice often suggests retaining some profits regardless of legal requirements, particularly during growth phases or uncertain economic conditions.

Formation Process: How to Register a UG vs GmbH in Germany

Step-by-Step Formation Process

The formation process for UG and GmbH follows largely the same steps, with minor differences in documentation and costs.

1. Define your business purpose and company name

Choose a company name that meets legal requirements: it must be distinctive, not misleading, and distinguishable from existing registered companies in your area. The name must include the appropriate legal suffix ("UG (haftungsbeschränkt)" or "GmbH").

Your local Chamber of Commerce (IHK) can review your proposed name before you proceed with formation. This pre-check helps avoid rejection by the commercial register.

2. Draft articles of association (Gesellschaftsvertrag)

The articles of association are your company's constitutional document. They must include at minimum:

• Company name with legal form designation

• Registered office (Sitz)

• Business purpose (Unternehmensgegenstand)

• Share capital amount

• Number and nominal value of shares

• Which shareholders hold which shares

3. Notarization

A notary must certify the articles of association and related formation documents. All shareholders (or their authorized representatives) must attend the notary appointment.

4. Open a business bank account and deposit capital

After notarization, open a business account in the company's name and deposit the required share capital. For a UG, this means 100% of the stated capital. For a GmbH, at least €12,500 must be deposited.

Keep the deposit confirmation—you'll need it for commercial register application.

5. Commercial register application

The notary files the application for registration with the local commercial register court (Amtsgericht). Required documents include:

• Notarized articles of association

• List of shareholders

• Appointment of managing directors

• Managing director declarations (no disqualifying circumstances)

• Proof of capital deposit

• Domestic business address

6. Registration and publication

Once the court reviews and approves your application, your company is officially registered and becomes a legal entity. The registration is published in the Federal Gazette.

7. Additional registrations

After commercial register entry, complete these additional requirements:

• Trade registration (Gewerbeanmeldung) with local authorities

• Tax registration with your local tax office (Finanzamt)

• Transparency register entry

• Any industry-specific permits or licenses

The Musterprotokoll (Standard Protocol) Option

German law provides a simplified formation option called the Musterprotokoll for straightforward company setups. This standardized document combines the articles of association, shareholder list, and managing director appointment into one form.

Musterprotokoll requirements:

• Maximum three shareholders

• Only one managing director

• Only cash contributions (no in-kind contributions)

• No modifications to the standard text allowed

The main advantage is cost savings: notary fees are significantly lower for Musterprotokoll formations. However, the rigid format leaves no room for customization. Important provisions like vesting schedules, non-compete clauses, or special voting rights cannot be included.

Recommendation: The Musterprotokoll works well for single-founder companies or very simple partnerships where shareholders have aligned interests. For anything more complex, invest in custom articles of association.

Online Formation Since August 2022

Since August 1, 2022, German law allows online company formation through video notarization. Founders can complete the entire notary appointment remotely, making the process faster and more convenient—especially for founders located outside Germany.

Requirements for online formation:

• Valid identification document readable by video

• Stable internet connection

• German bank account for capital deposit

The online option applies to both UG and GmbH formations, though complex arrangements may still benefit from in-person notary meetings.

Timeline: How Long Does Formation Take?

With proper preparation, expect the following timeline:

• Document preparation: 1–2 weeks

• Notary appointment: 1 day (schedule 1–2 weeks in advance)

• Bank account opening and capital deposit: 1–2 weeks

• Commercial register processing: 1–3 weeks

Total time: Approximately 3–6 weeks from start to finish. The process can be faster with experienced advisors who prepare documents efficiently and have relationships with responsive notaries and banks.

Commercial Register Requirements for UG and GmbH

Both UG and GmbH must comply with various commercial register requirements, both at formation and on an ongoing basis.

Information Filed in the Commercial Register

The following information becomes public record:

• Company name and legal form

• Registered office address

• Business purpose

• Share capital amount

• Managing directors' names and representation authority

• Shareholders (via the separately maintained shareholder list)

Anyone can access this information through the official commercial register portal (Handelsregister.de), making transparency a key feature of German corporate law.

Mandatory Business Letter Disclosures

All business letters—including emails, invoices, and formal correspondence—must include:

• Full company name with legal form

• Registered office location

• Commercial register court and registration number

• All managing directors by first and last name

• If applicable, supervisory board chair name

Failure to include required information can result in fines and creates an unprofessional impression.

Ongoing Filing Obligations

Changes to registered information must be filed promptly:

• Change of managing directors

• Change of registered address

• Amendments to articles of association

• Changes to share capital

Additionally, annual financial statements must be published in the Federal Gazette (Bundesanzeiger) according to size-dependent disclosure requirements.

Can You Convert a UG to a GmbH?

Yes—converting a UG to a GmbH is not only possible but is actually the intended path envisioned by the legislature when creating the UG form.

When Conversion Is Possible

Conversion becomes possible once the UG's share capital reaches €25,000. This can happen through:

• Accumulated statutory reserves (from the mandatory 25% profit retention)

• Additional capital contributions from shareholders

• A combination of both

There is no time limit or obligation to convert. A UG can theoretically remain a UG indefinitely, even after accumulating significant capital.

Conversion Process

1. Shareholder resolution: The shareholders must pass a resolution to increase the share capital to at least €25,000 and change the company name to include "GmbH" instead of "UG (haftungsbeschränkt)."

2. Notarization: The resolution and resulting amendments to the articles of association must be notarized.

3. Commercial register application: File the capital increase and name change with the commercial register.

4. Registration: Once registered, the company officially operates as a GmbH.

Costs of Conversion

Converting a UG to a GmbH typically costs €300–€800 for notary fees and commercial register changes. This is significantly cheaper than founding a new GmbH from scratch.

🚫 You cannot convert a GmbH back to a UG. The conversion is a one-way street.

Advantages and Disadvantages: UG vs GmbH (Vor- und Nachteile)

Let's summarize the key pros and cons of each legal form to help you make your decision.

UG Advantages

• Low startup capital: Found a company with limited liability protection without needing €25,000.

• Lower formation costs: Save €1,000–€2,000 or more compared to GmbH formation.

• Same liability protection: Your personal assets are protected just like with a GmbH.

• Test business ideas: Start with minimal risk to validate your concept before committing more capital.

• Clear path to GmbH: Convert to a full GmbH once your company is established and has accumulated capital.

• Same tax treatment: No tax disadvantages compared to the GmbH.

UG Disadvantages

• Lower credibility: Some business partners, suppliers, and customers view UGs as less established or financially weaker.

• Mandatory profit retention: The 25% reserve requirement limits your access to company profits.

• No in-kind contributions: You can only contribute cash, not assets like equipment or intellectual property.

• Higher insolvency risk: With minimal capital, even small losses can trigger insolvency.

• Longer company name: The full "UG (haftungsbeschränkt)" suffix is required on all documents and communications.

• Potential financing challenges: Banks may be more reluctant to provide loans or credit lines.

GmbH Advantages

• Higher credibility: The GmbH enjoys a strong reputation among German businesses, banks, and international partners.

• Flexible profit distribution: No mandatory retention—shareholders control how profits are used.

• In-kind contributions allowed: Contribute assets instead of or in addition to cash.

• Better access to financing: Banks and investors are generally more comfortable working with GmbHs.

• Shorter, cleaner name: Just "GmbH" rather than the lengthy UG designation.

• International recognition: The GmbH is well-understood across Europe and globally.

GmbH Disadvantages

• High capital requirement: €25,000 minimum (€12,500 at registration) is a significant barrier for many founders.

• Higher formation costs: Expect to spend €1,500–€3,000 or more on formation.

• Capital tied up: The share capital remains in the company and cannot be freely withdrawn.

UG vs GmbH for Startups: Which is better?

The right choice depends on your specific circumstances, business model, and growth plans. Here's a framework for deciding.

When a UG Makes Sense

• Limited initial capital: If you don't have €25,000 available, the UG lets you start with limited liability protection immediately.

• Testing a business concept: For unproven ideas, the UG allows you to validate the market with minimal financial exposure.

• Solo founders or small teams: The simplified Musterprotokoll works particularly well for single-person companies or small partnerships.

• Service businesses with low capital needs: Consulting, software development, and other service businesses often don't require significant upfront investment.

• Plan to scale later: If you expect to grow into a GmbH within a few years, starting as a UG provides a natural progression path.

When a GmbH Makes More Sense

• Sufficient capital available: If you have the €25,000 (or can raise it), the GmbH offers advantages without significant downsides.

• Seeking investors: Venture capital firms and angel investors typically prefer investing in GmbHs.

• B2B with enterprise clients: Large corporations often have procurement policies that favor established legal forms.

• International business focus: The GmbH is better recognized internationally than the UG.

• Asset-heavy businesses: If you plan to contribute equipment, vehicles, or real estate as capital, you need a GmbH.

• Need strong bank relationships: For businesses requiring credit lines or loans, the GmbH's higher capital base helps.

The Holding Structure Option

Many experienced entrepreneurs use a holding company structure: a separate UG or GmbH that owns shares in operating companies. This structure offers several benefits:

• Tax-efficient exits: When the holding sells shares in a subsidiary, 95% of the gain is tax-free at the corporate level.

• Asset protection: Keeping assets in a holding company separates them from operating business risks.

• Reinvestment flexibility: Profits can be moved to the holding and reinvested in new ventures with minimal taxation.

If you're planning to build multiple businesses or anticipate a significant exit, consult with a tax advisor about whether a holding structure makes sense for you.

Where to Find Sample Contracts for UG and GmbH Formation

Quality formation documents are essential for a successful company setup. Here are your options:

Official Musterprotokoll

The standardized Musterprotokoll is published as an annex to the GmbH Act (GmbHG) and is available free of charge. Your notary will have the current version, or you can download it from official government sources.

Best for: Single founders or simple two-person companies with aligned interests and standard arrangements.

Professional Legal Templates

Various legal publishers and startup service providers offer template articles of association that go beyond the basic Musterprotokoll while remaining more affordable than fully custom documents.

Best for: Founders who need more flexibility than the Musterprotokoll but have relatively standard requirements.

Custom Articles of Association

For companies with multiple founders, complex equity arrangements, or specific governance needs, custom articles of association drafted by a lawyer provide the most protection.

Consider custom documents when:

• You have three or more shareholders

• Shareholders are contributing different things (capital, work, IP)

• You want vesting provisions for founder shares

• You need non-compete or lock-up clauses

• You're planning for investor involvement

The Role of Legal Counsel

While not legally required, involving a lawyer—especially one experienced with startups—can prevent expensive problems later. Common issues that proper legal documentation prevents include:

• Disputes over founder departures and share buybacks

• Deadlocks when shareholders disagree

• Ambiguity about decision-making authority

• Complications during investment rounds

The cost of good legal advice at formation (typically €1,500–€3,000) is almost always less than resolving disputes later.

How Norman Helps You Register Your UG or GmbH

Starting a company in Germany involves navigating complex legal requirements, German-language documentation, and multiple government agencies. Norman simplifies this process for founders.

Norman offers comprehensive company formation services including:

• Expert guidance on choosing between UG and GmbH based on your specific situation

• Preparation of all required formation documents

• Coordination with notaries for efficient processing

• Support with business bank account opening and capital deposit

• Commercial register application and follow-up

• Tax registration with the Finanzamt

• Transparency register filing

• Ongoing compliance support

Why founders choose Norman:

• Digital-first process: Handle most steps online, saving time and travel

• English-language support: Navigate German bureaucracy in your preferred language

• Fixed, transparent pricing: Know your costs upfront with no surprise fees

• Experienced team: Benefit from advisors who have helped hundreds of founders

Whether you're a German entrepreneur starting your first business or an international founder establishing a German presence, Norman provides the expertise and support to get your company registered correctly and efficiently.

🚀 Ready to get started? Contact Norman today to discuss your company formation and receive a personalized recommendation for your situation.

Conclusion: Making the Right Choice Between UG and GmbH

Choosing between a UG and GmbH ultimately comes down to balancing capital availability against credibility needs and business requirements.

Choose a UG if:

• You're starting with limited capital

• You want to test a business concept before committing significant resources

• You're comfortable building toward GmbH status over time

• Your business model doesn't require strong institutional credibility immediately

Choose a GmbH if:

• You have access to the €25,000 minimum capital

• You need maximum credibility with banks, investors, or enterprise clients

• You want full flexibility in profit distribution

• You plan to contribute assets rather than just cash

The practical middle path: Many successful German companies started as UGs and converted to GmbHs once they had proven their business model and accumulated capital. This approach combines the low-risk entry of the UG with the long-term benefits of the GmbH.

Whatever you decide, proper formation is crucial. Mistakes made at the beginning—whether in your articles of association, capital structure, or registration—can be expensive and time-consuming to fix later.

Ready to start your German company? Norman's team of experts can guide you through the entire formation process, from choosing the right legal form to completing your registration. Contact Norman today to take the first step toward building your business in Germany.

Frequently Asked Questions (FAQ)

Is a UG or GmbH better?

Neither form is universally better—the right choice depends on your circumstances. Choose a UG if you have limited capital and want to test a business concept with minimal financial risk. Choose a GmbH if you have access to €25,000, need strong credibility with partners or investors, or want maximum flexibility in profit distribution.

What are the disadvantages of a UG?

The main disadvantages include: lower credibility with banks and business partners, mandatory retention of 25% of annual profits, prohibition on in-kind contributions, higher insolvency risk due to thin capital base, and the requirement to use the longer "UG (haftungsbeschränkt)" name suffix.

How much can a UG earn?

There is no legal limit on how much a UG can earn. A UG can generate unlimited revenue and profit. The only financial restriction is the requirement to retain 25% of annual profits until the company's capital reaches €25,000.

When is a UG worthwhile?

A UG is worthwhile when you want limited liability protection but cannot afford the €25,000 GmbH capital requirement, when testing an unproven business idea, for low-capital service businesses, or as a stepping stone toward an eventual GmbH conversion.

What does a UG cost per month?

Expect minimum monthly costs of €300–€600 for basic operations, including bookkeeping (€100–€300), tax advisor fees (€150–€300), and various small compliance costs. Actual costs depend on transaction volume and whether you handle some tasks yourself.

When does a GmbH not make sense?

A GmbH may not make sense when you cannot access the €25,000 capital requirement, for very small or part-time business activities where the compliance burden outweighs benefits, or when testing an idea where failure is likely—the UG offers the same liability protection with less capital at risk.

Can foreigners found a UG or GmbH in Germany?

Yes, both German citizens and foreigners can found a UG or GmbH without special permits. Non-EU citizens who will serve as managing directors and work in Germany typically need an appropriate residence permit. The company's registered office must be in Germany, though the actual business operations can be conducted from abroad.

Do I need a tax advisor for a UG or GmbH?

While not legally required, a tax advisor is strongly recommended. Both UG and GmbH must maintain double-entry bookkeeping, file regular tax returns, and prepare annual financial statements. The complexity of German corporate taxation makes professional support a worthwhile investment for most founders.

What happens if a UG goes bankrupt?

If a UG becomes insolvent, the company's assets are used to satisfy creditors according to insolvency law priorities. Shareholders generally lose only their invested capital—personal assets remain protected. However, managing directors face personal liability if they failed to file for insolvency on time or breached other duties.