Introduction
The limited liability company (GmbH) and the entrepreneurial company (UG) are popular legal forms for founding a company. Both company forms are characterized by the limitation of liability to the company’s assets, which protects the private assets of the shareholders.
Formation of a GmbH
UG-haftungsbeschränkt Foundation
Feel free to call us, use our online form or our “classic questionnaire” for downloading or printing.
The GmbH is the first choice for medium-sized companies in particular. With a required share capital of at least 25,000 euros, it stands for seriousness and trustworthiness. The share capital of a GmbH serves as the economic basis and liability limit for creditors. When founding a GmbH, it is sufficient if at least half, i.e. EUR 12,500, is paid in. As a legal entity, the GmbH can itself acquire rights and enter into liabilities, sue and be sued. The shareholders of a GmbH hold shares in the company through their capital contributions and generally have corresponding voting rights at the shareholders’ meeting.
The little sister of the GmbH is the Unternehmergesellschaft (haftungsbeschränkt), often referred to as a “mini-GmbH”. The UG (haftungsbeschränkt) is a special form of GmbH (§ 5a GmbHG), which is accompanied by some special features when raising capital (no foundation in kind, full payment) and the obligation to transfer half of the annual surplus to a statutory reserve with the aim of saving up the EUR 25,000 for a fully-fledged GmbH. Theoretically, it can be founded with a share capital of just one euro. This flexibility in terms of share capital makes them particularly interesting for start-ups and young founders. However, we advise you to set the share capital at a minimum of 1000 euros to cover the start-up costs.
Steps for founding a GmbH or UG
Decision and preparation: First of all, you should decide whether you want to set up alone or with business partners. Choose the company name (i.e. the name of the company) that meets the legal requirements and determine the registered office. Also plan the costs and determine the share capital. The share capital does not have to be tied up in an account forever; it can be used for the company.
Partnership agreement: Contact a lawyer or notary and agree on the partnership agreement. The costs of drawing up the articles of association are included in the notarization costs. You are welcome to use our questionnaires for preparation:
Formation of a GmbH
UG-haftungsbeschränkt Foundation
Notarization: When the minutes of incorporation are notarized, the articles of association are also established and the first managing director(s) are appointed at the same time. As a rule, the managing director then immediately signs the application to the commercial register, which the notary should only submit once the share capital has been contributed in the specified amount [geleistet?].
Capital payment and account: You can open the new business account and pay in the share capital only after notarization (not before). You may want to contact your bank beforehand to speed up the process, but it is important that the account and the payment of the share capital are only made after the notarization. When the share capital has been paid into the account in full, send us the account statement. We will then initiate the next step (as provided for in the escrow agreement).
Commercial register entry: We then submit the notarized commercial register application electronically to the relevant registry court. The commercial register will then send you a request for payment of the court costs. Make sure that the letterbox at the domestic business address is correctly and completely labeled by this time at the latest so that the request for costs from the commercial register also reaches you. To this end, you should determine before notarization whether the address is a so-called c/o address or an independent business address.
Please note: Before transferring payment requests, please make sure that they are also the original letters from the registry court. There are countless fraudulent letters circulating which you can recognize, for example, by the IBAN (Belgian or other foreign account number) or by the fact that the national coat of arms does not match the registered office of the court of registration. If in doubt, please check with the commercial register.
Business registration, tax office and taxes: Once you have been entered in the commercial register, you register your business. The company must also obtain a tax number from the tax office. Your tax advisor will usually support you in this.
Further registrations and permits: Depending on the business area, you may need to take out insurance or obtain special permits.
Company number: If you hire employees, you will need a company number, which you can apply for from the company number service of the Federal Employment Agency.
Start of business operations
Frequently asked questions (FAQ) when founding a GmbH or UG
Similar questions often arise when founding a GmbH or UG. Here you will find answers to the most common questions:
1. what is the main difference between a UG and a GmbH? The main difference is the required share capital. While a GmbH requires a minimum share capital of €25,000, a UG can be founded with as little as €1.
2. what liability do the shareholders have in a UG or GmbH? In both types of company, the shareholders are only liable with their capital contribution and not with their private assets.
3. how does the formation of a UG or GmbH work? The company is founded – as described above – by notarization, raising the share capital and subsequent entry in the commercial register.
4. what costs are involved in setting up the company? Formation costs include notary fees and fees for entry in the commercial register and any consulting costs. The notary and court costs depend on the amount of the share capital. For a “normal” foundation, for example, the costs would be calculated as follows:
Formation with one shareholder:
| notarial activity | Goodwill | Fee |
| Notarization of foundation | 30.000,00 | 125,00 |
| Notarization of shareholder resolution | 30.000,00 | 250,00 |
| Execution fee | 60.000,00 | 96,00 |
| Notarization of commercial register application | 30.000,00 | 62,50 |
| Execution fee | 30.000,00 | 25,00 |
| Childcare fee | 30.000,00 | 62,50 |
Foundation with several shareholders:
| notarial activity | Goodwill | Fee |
| Notarization of shareholder resolution with formation | 60.000,00 | 384,00 |
| Execution fee | 60.000,00 | 96,00 |
| Notarization of commercial register application | 30.000,00 | 62,50 |
| Execution fee | 30.000,00 | 25,00 |
| Childcare fee | 30.000,00 | 62,50 |
plus in each case Expenses and VAT, additional fee for notarization in a foreign language, etc., if applicable.
5 What are the ongoing obligations for UGs and GmbHs? Both types of company are obliged to prepare annual financial statements and submit them to the commercial register and fulfill their accounting obligations.
6. how can a UG be “converted” into a GmbH? The conversion of a UG into a GmbH is unproblematic: it is not necessary to apply the German Conversion Act, it is sufficient to increase the share capital to at least € 25,000. The articles of association and the company name (GmbH instead of UG) are adapted. Theoretically, it is even possible to increase the capital from company funds – i.e. from saved funds. However, this procedure would require proof of value, which is usually provided by an auditor’s report. The cost of such an expert opinion is several thousand euros.
The practice therefore favors a capital increase through new shareholder contributions. The shareholders undertake to contribute further share capital to the company. The share capital is increased to € 25,000, whereby it is sufficient to pay in only € 12,500, as with the formation of a GmbH. If the share capital is increased to € 25,000 and “changed” to a GmbH, the shareholders also have access to the non-cash formation provisions for raising capital.
7. which company form is better for my project? The choice between UG and GmbH depends on factors such as capital availability, desired limitation of liability and reputation with business partners. Start-ups and small companies often choose the UG, while the GmbH provides more creditworthiness due to the higher share capital. A simple UG (haftungsbeschränkt) is usually sufficient for a pure holding company, as is common in the start-up sector as a start-up vehicle.
8. are there tax differences between UG and GmbH? Both company forms are treated equally for tax purposes and are subject to corporation tax, trade tax and, where applicable, VAT.
9. is it not better to set up using the simplified procedure?
The formation of a GmbH/UG using the simplified procedure requires the use of a model protocol. The model minutes replace the articles of association and also serve as a list of shareholders. In practice, however, the simplified procedure can only be used to a very limited extent for very few applications. Although this procedure offers minor cost advantages, the use of the model protocol also has disadvantages:
- Formation using the simplified procedure is only possible for cash formations with a maximum of three shareholders and only one managing director, who must also be exempt from Section 181 BGB.
- The appointed managing director has no statutory management rights and can be easily dismissed.
- The model protocol does not provide for more than one managing director.
- Formations in kind (e.g. contribution of an existing company) are not possible with the model protocol (not with the UG anyway).
- The model protocol does not permit any individual regulations. There is a complete lack of regulations that are considered mandatory for multi-person companies, e.g. rules on the adoption of resolutions, electronic adoption of resolutions outside of shareholders’ meetings, redemption rules, regulations on inheritance, the transferability of shares (linking the transferability of shares to the consent of the shareholders), etc.
Any deviation from the model protocol leads to the loss of the advantages under cost law. Even minimal textual changes are only permitted under strict conditions, and significant changes require a complete rewrite of the articles of association or the submission of a list of shareholders to remedy an incorrect formation.