UG Stammkapital: Share capital that makes it easier to incorporate a company in Germany

Contents

• Introduction
• Things to consider
• Building reserves

Introduction

Anyone who wants to set up a business but does not have much start-up capital can set up the so-called UG (lhaftungsbeschränkt). It has only been possible to establish this form of business in Germany since 2008. As a special form of the GmbH, the UG benefits from many advantages of the GmbH such as the limitation of liability.

The formation of a UG requires a share capital of only €1. That’s why the UG (haftungsbeschränkt) is also known colloquially as a ‘Mini-GmbH’ (article is in German).

Nevertheless, entrepreneurs should remember that the €1 of share capital is not the same as the start-up costs. You should also bear in mind that notary costs and fees for the commercial register (Handelsregister) and business registration also need to be factored in.

Things to consider when determining your UG’s share capital

What the share capital should be able to cover

• Company formation costs
• Notary costs
• Handelsregister fees
• Other consultancy costs, e.g. for a lawyer and/or tax consultant
• Business registrations (Gewerbeanmeldung etc.)
• Starting up costs
• Capital reserves

Make sure the share capital is high enough

Even though the UG is an excellent legal form, especially for start-ups, many aren’t aware that even a single euro entails a certain risk. Inadequate security with sufficient share capital can always also involve the risk of insolvency.

Bear in mind that a CEO is generally obliged to file in good time in the event of insolvency. So give your UG sufficient share capital or think about doing a capital increase at some point. This enables you to plan for the long term and avoid liquidity bottlenecks.

Building reserves

The UG is obligated to set aside reserves. This means that 25% of the annual profit must be retained as a reserve. This must be continued until the share capital of a GmbH, i.e. € 25,000, is reached. The UG can then be converted into a GmbH.

If you would like to increase your share capital, a visit to the notary is always necessary to carry out a capital increase.

A UG is therefore ideally suited as a starting legal form if you wish to establish a GmbH but do not have the necessary share capital. Because as soon as the €25,000 is reached, you can turn your UG into a GmbH.

What happens if no capital investments were made? In this case, the defaulting shareholder could be threatened with forfeiture proceedings.