UG formation: Kickstart your enterprise with firma.de

The Unternehmergesellschaft (haftungsbeschränkt) — commonly known as the UG — is a limited liability structure that caters to the needs of startups that are bootstrapped (the minimum share capital is only €1.00 per shareholder) but still want to benefit from limited liability.

The UG is not a corporate form of its own, as frequently assumed, but is a variation of the regular GmbH, which was created by the legislation to Modernise the Law on Limited Liability Companies and to Combat Abuse (Modernisierung des GmbH-Rechts und zurBekämpfung von Missbräuchen [MoMiG]) in 2008.

Since its introduction, the UG or the "Mini-GmbH" has been enormously popular among founders with more than 200,000 formations already — a number that is steadily growing.

The key difference between the UG and the GmbH is the required share capital.

While founders of a GmbH need € 25,000 to incorporate their company, UG shareholders only have to provide €1.00 each to form a limited liability company.

The UG was created to remove the financial barriers facing entrepreneurs pursuing smaller ventures.

Although the UG's minimum share capital is negligible, it must reserve at least 25% of its annual profit ‬‬‪to safeguard its liability.

Your required share capital is only €1.00

The UG (haftungsbeschränkt), also known as the mini GmbH, can be formed with a share capital of only €1.00. This feature makes it the ideal corporate form for startups and small businesses.

Your liability is limited to company assets

As a shareholder, your liability is limited to your corporate assets as set out in the articles of association. In other words, you cannot be held personally liable for any company debt or liabilities.

Minimal formalities during the formation process‬

Instead of drawing up customised articles of association you can choose to form your UG using a model protocol (Musterprotokoll). These model statutes combine several documents required for incorporation: the articles of association, the list of shareholders and the appointment of the managing director.

Easy conversion from mini to regular GmbH

To change the corporate form from UG to GmbH later down the track is a straightforward process. ‪Once the share capital of a UG reaches € 25,000 via building up its capital reserves, you will be able to convert it into a regular GmbH.

UGs are legally obligated to reserve of at least 25% of its annual net income each year. ‪Once its share capital reaches € 25,000, the obligation is lifted, and the company can readily be transformed into a GmbH.‬‬

Should a UG's capital reserves exceed € 25,000, its shareholders can vote to increase the share capital. ‪This option has the following advantages for the company:‬

• The ‪company may freely distribute its yearly profit‬s.
• It can be easily converted into a fully-fledged GmbH.

Although the UG is already a special version of the GmbH, it can only use the official suffix "GmbH" after passing the share capital increase resolution.

UG shareholders are not only the owners of the company but also the decision makers. Shareholders are expected to make significant business decisions during the general shareholders' meeting.

It is possible to form the UG with only one shareholder, but generally, the number of shareholders is unlimited. ‪The UG's model protocol (Musterprotokoll), however, limits the total amount to three partners. If you want to include more than three shareholders in your UG, you must use customised articles of association instead.

Every UG needs a managing director who is appointed by the shareholders to be in charge of managing the day-to-day business of the company and to represent the company externally.

Legally, they are employed just like any other employee in the organisation and must enter into a service contract.

In some exceptional cases, the MD may act as a sole-proprietor, but only if they have a double function as a shareholder and hold a majority stake in the company (i.e. managing partner).

If you want to appoint more than one managing director for your UG, customised articles of association must be used instead of the model protocol.

The UG does not require a supervisory board unless the company employs more than 500 people or the company’s articles of association have been customised to mandate it.

The UG can be formed in nearly the same way as a regular GmbH with only a few exceptions.

Just as in the formation process of the GmbH, the share capital has to be deposited, and the articles of association need to be drawn up. ‪

Since 2008, however, several documents that are obligatory for a regular GmbH have been transformed into a so-called model protocol (Musterprotokoll). Using a model protocol simplifies the incorporation process and speeds up the drafting of the articles of association.

Your UG needs to have an official corporate name. You can choose a name inspired by somebody's name, your corporate purpose or you can get creative and make something up. In every case the name suffix “UG” (haftungsbeschränkt) is mandatory, so your chosen corporate form is transparent to the public.

The four options are explored in greater detail below:

Name your company after a person‬‬‬

It is common to use the names of one or more co-founders as a company name, e.g., "Franklin Smith UG."

Create a fantasy name for your company

You may invent a word to serve as your company name, e.g., "Bripotaz UG (haftungsbeschränkt)".‬

Describe what your company does‬

Use a description of the purpose or the activity of your company, e.g. "Steve Baker's Online Children's Book UG" if you are selling children's books online.‬

Use a combination of the above options

You can combine two or more options, e.g. "Bripotaz: Frank Smith’s Online Book Store".

Before you incorporate a UG, you should choose your company name carefully. Something to consider is the fact that many founders use fantasy terms that are not only unique - and thereby avoid copyright issues - but also pronounceable in as many languages as possible.

Most importantly, it's crucial that your company name only has positive connotations. Always consider your future customers before you make a final decision.

The paid-in share capital of the UG (haftungsbeschränkt) must be between €1.00 (per shareholder) and € 24,999. The shareholders must pay the share capital after the incorporation but before the registration in the commercial register (Handelsregister).

The total share capital is the sum of the nominal shares held by each shareholder. The articles of association should explicitly articulate these amounts. The shareholders must pay the full amount in cash.

Although the minimum required share capital for a UG is only € 1.00, the upper limit is € 24,999. In practice, this figure is usually between € 1.00 and € 1,000.

‪For an accurate determination of your UG share capital, you should seek professional advice as the amount significantly influences your company's credit status and thus your liability as a shareholder.

If you want to deposit a share capital greater than € 24.999, you must form a regular GmbH instead of a UG.

Any UG founder can use the model protocol (Musterprotokol) if they meet specific criteria. It was added to the GmbH law to speed up the formation process and cut down on costs.

The model protocol is a legal document that combines several statue templates (e.g. The articles of association, the list of shareholders etc.) that allows founders to skip several steps when forming their companies.

Solo founders, as well as teams of founders, can use the model protocol.

• Your UG has three or fewer shareholders.
• Your UG has just one managing director.
• You do not have any statue special requirements that are different from the model protocol.

Additionally, as most founders form UGs with a low share capital, the Musterprotokoll contains the following regulation: If the formation costs exceed €300 or the deposited share capital, at least one of the shareholders has to directly bear those costs. However, if a Musterprotokoll is used the notarial fees are much lower making this less of an issue.