There are many different legal forms to choose from when you're looking to start your own company in Germany. Each is worth considering closely, but if you want to operate with limited personal liability and pay in a relatively low initial capital, the legal form of a UG might be a good bet.
In this article, we examine the pros, cons and requirements of founding a UG.
If you want to start with a small investment amount, the UG offers the advantage of limited liability, protecting your personal assets in case of business debts. This can be particularly beneficial in high-risk industries.
However, the UG also comes with administrative challenges, including bookkeeping obligations and annual financial statements, which can require time and resources.
Additionally, there is an obligation to partially allocate profits to the capital reserve until the share capital of a GmbH is reached. If you plan to scale your business quickly or attract investors, it might be advisable to convert the UG into a GmbH.
Learn about setting up a GmbH in this article.
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The amount of share capital you should pay to start your UG depends on various factors:
Legally, the minimum share capital is only €1. However, such a small amount is often perceived, rightly or wrongly, as unprofessional in German business circles and is insufficient for initial investments or operating costs. It's generally advisable to invest a share capital that covers both the initial operating costs and provides a buffer for unexpected expenses.
A commonly recommended benchmark is between €2,000 and €5,000.
Remember that with a UG, you must allocate 25% of any annual surplus to filling up the capital reserve until you've reached the amount of a GmbH's minimum capital (€25,000).
– Philip Zimmermann, expert in startups and finance
Founding a UG follows a similar process to that of forming a GmbH and can be summarized in six steps:
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The Articles of Association of your UG must include the following information:
Ensure that the company name includes the addition “Unternehmergesellschaft (haftungsbeschränkt)”. This addition is mandatory and informs investors, business partners, customers, or suppliers about the legal form of your company. Furthermore, you should ensure in advance that your company name is not already taken.
To avoid double costs for the notary due to incorrect or missing information, and to guarantee the legal validity of the agreements, it is best to have the contract drawn up by a lawyer or at least reviewed by one in advance.
As an alternative to drafting the UG articles of association yourself, you can use a UG founding template, or 'model protocol' (UG-Musterprotokoll) to simplify and accelerate the founding process. On one hand, it helps reduce notary costs. However, it is very rigid: no adjustments or additional individual regulations are possible with the model protocol. You may only use the model protocol if the UG has no more than three shareholders and only one managing director.
Another option is to use a customizable template for your UG Articles of Association, such as the one Qonto provides free of charge and in Word format.
Once you've drafted the Articles of Association with your co-shareholders, the next step is to go to a notary to have them notarized. At this appointment, all shareholders must be present.
To save notary costs, you can also appoint the managing director at this stage.
To be able to deposit the share capital agreed upon in the Articles of Association, you need a business account for the UG. When opening the account, you can upload (or send) the notarized Articles of Association to your banking provider.
An UG is only considered legally established once it's been entered in the commercial register (Handelsregister). Until then, it exists as a pre-company, or UG in formation (UG in Gründung, or UG i. G.). This can create complications when opening a founder business account with a traditional 'High Street' bank. For a smoother founding process, Qonto offers a founder's account for companies that are in the middle of the formation phase.
All you need to open a UG business account are the core details of your company:
With Qonto, opening an account is an entirely online process and takes just a few minutes. Once all information is complete, the online business account is usually available within 72 hours.
Once you've transferred the share capital of the UG to your business account, you can enter your company in the commercial register (Handelsregister).
As a corporation, the UG is entered into the commercial register Section B (HRB). The application should be completed with the help of a notary, who then forwards it to the district court.
Since you need to deposit share capital, you will also need a bank statement of the business account and the deposit receipt. After a review by the district court, the entry in the commercial register is announced in the digital Federal Gazette (elektronische Bundesanzeiger).
For the commercial register entry of the UG, you'll pay a fee at the respective district court as well as your notary costs.
Did you know?
You can easily upload your commercial register application to the Qonto app and immediately start using the basic features and functions of your business account, even before the registration process is complete. This way, you benefit from more financial flexibility right from the start and can get going without having to wait for the Handelsregister to process your application.
Any self-employed activity carried out at one's own financial risk over an extended period with the aim of generating profits is considered a business and must be registered with the trade office (Gewerbeamt). This business registration (Gewerbeanmeldung) is done at the respective trade and regulatory office of your town or city.
If you wish to complete the registration in person, you can schedule an appointment and fill out a trade license on-site. You submit this together with the partnership agreement. However, you now also have the option to register the business online.
Typically, the trade office will inform the tax office (Finanzamt) about your new business creation so that you receive a business tax number (Steuernummer) )and the corresponding VAT ID (Umsatzsteuer-ID) for your company. To save time, you can also apply for these tax IDs yourself. Simply submit the questionnaire for tax registration (Fragebogen zur steuerlichen Erfassung) to your local tax office. You'll find all you need to know about completing this form in this dedicated article.
In addition to registering your UG at the tax and trade office, you may also need to inform other entities, such as:
If you plan to employ your own staff, you must also apply for a company number (Betriebsnummer beantragen) with the employment agency (Agentur für Arbeit).
Establish your GmbH or UG in just a few days – with our fully digital incorporation process and personal support in English for legal and tax questions. This way, you can get the right business account for your incorporation and deposit your share capital directly online.
How long does it take to create a UG?
The time needed to set up a UG typically ranges from two to six weeks. This includes the time for drafting the Articles of Association, notarization, and registration in the commercial register. You can expedite the process through careful preparation and early submission of all necessary documents.
Since August 2022, founding a UG is completely possible online. Thanks to the new law on the Digitalization Directive (DiRUG), founders can conveniently and efficiently establish their UG from home – without the need for an in-person notary appointment.
The digital founding process is completed in a few simple steps:
1. You send all the necessary founding documents digitally to the notary.
2. The notary prepares the documents electronically.
3. The notarial certification takes place via video conference.
4. You and all shareholders sign digitally via remote signature.
5. The notary submits the documents directly to the commercial register.
Establishing a UG is more cost-effective than a GmbH, yet various fees and costs still apply. These can vary depending on the complexity of the founding process and the service providers chosen. Here is an overview of the expected costs.
| Cost item | Estimated costs | Frequency |
|---|---|---|
Share capital |
€1 |
one-time, then subsequent payments |
Notary fees |
€200-€500 |
one-time |
Commercial register |
€150-€200 |
one-time |
Business registration |
€20-€60 |
one-time |
Opening balance sheet |
0-€300 |
one-time |
Legal fees |
0-€1,000 |
one-time |
Banking fees |
0-€300 |
monthly |
In total, you can expect costs of up to €2,500 for establishing a UG. However, note that the share capital of €1 is not the final amount and additional contributions up to €25,000 may follow. So, plan for these as well.
Looking for a way to finance your UG formation? Secure the financing that perfectly fits your company's needs – directly from the Qonto app.
The profit of a UG can generally flow in different directions:
It is important to note that with a UG, you are required to allocate at least 25% of any annual surplus to a capital reserve. This applies until the share capital of the UG reaches the minimum amount of a GmbH, which is €25,000. This regulation is designed to strengthen the equity base of the UG.
Please note that the distribution of dividends has tax implications, both for the UG and for the shareholders. A wise use of profits should therefore consider both legal requirements and corporate objectives.
– Philip Zimmermann, expert in startups and finance
The UG is one of the limited liability companies, so the liability regulations of the GmbH Act apply. Generally, the GmbH and the entrepreneurial company are liable to creditors only with the company's assets and not with personal assets.
Exceptions apply in cases of:
The tax burden of a UG company depends on the amount of profit, the type of business activity, and other tax-related factors. Here is an overview of the relevant types of taxes:
The exact tax rates and allowances may be subject to change, so individual tax advice is recommended.
Manage accounting and taxes directly in Qonto – thanks to our convenient integration with DATEV.
The cost of accounting for a UG is typically between €50 and €200 per month, depending on the volume of business transactions and the chosen accounting service.
If you hire a tax advisor, additional costs for the annual financial statement and tax return may arise, usually between €500 and €1,500 per year.
Digital accounting solutions often offer more affordable flat rates, but are mainly suitable for smaller companies with few receipts.
With Qonto, you benefit from integrated accounting within the business account – at no extra cost.
A UG is required to keep accounts because it is considered a corporation and is therefore legally obliged to maintain double-entry bookkeeping and prepare an annual financial statement. This means you must properly document all business transactions, create a balance sheet as well as a profit and loss statement, and submit these to the relevant commercial register.
Even if you start as a founder with little initial capital, the UG is subject to the same accounting and disclosure requirements as a GmbH.
Compliance with these obligations is important to avoid liability risks and to ensure the credibility of your company with business partners and authorities.
Establishing a limited liability company offers various advantages and disadvantages, which can be weighted differently depending on business goals, capital resources, and risk tolerance.
To provide you with better guidance, we have summarized the key points in the following table.
| Category | Advantages | Disadvantages |
|---|---|---|
Capital |
Low share capital |
Mandatory capital reserve |
Liability |
Limited liability |
Limited creditworthiness |
Image |
More reputable than sole proprietorship |
Less prestigious than GmbH |
Administration |
Easier to create |
Higher administrative burden |
Flexibility |
Easier for structural changes |
Limited capital raising options |
Taxes |
Corporate tax often cheaper |
Double taxation on dividends |
The main advantage of founding a UG lies in the limited liability: as a shareholder, you are only liable with your contribution, thus protecting your personal assets from the risks of the business. At the same time, the UG allows you to start your entrepreneurial journey with, in theory, a minimum capital of just €1.
This makes the UG particularly attractive for founders who want to start with limited financial resources but still value a professional and legally secure company form.
The biggest disadvantage of a UG is that you are required to set aside 25% of your annual profits as reserves until the share capital of a GmbH is reached. This means you have less money freely available, which can initially slow down the growth of your company.
Additionally, business partners and banks often perceive the UG as less creditworthy compared to a traditional GmbH.
