GmbH vs UG: The most import­ant dif­fer­ences when found­ing a com­pany.

GmbH vs UG

Entre­pren­eurs look­ing to start a busi­ness in Ger­many often com­pare two pop­u­lar legal forms: the GmbH (Gesell­schaft mit bes­chränk­ter Haf­tung) and the UG (Unternehmergesell­schaft). Both offer lim­ited liab­il­ity, the abil­ity to issue shares and a struc­tured legal frame­work, but dif­fer in fin­an­cial and oper­a­tional require­ments. A thor­ough under­stand­ing of these dif­fer­ences is cru­cial to choos­ing the right legal form for your busi­ness.

1. Min­imum share cap­ital

One major dif­fer­ence between a GmbH and a UG is the required share cap­ital. A GmbH requires a Min­imum share cap­ital of € 25,000of which at least €12,500 must be paid in at the time of form­a­tion. In con­trast, a UG can be foun­ded with as little as €1, which makes it easier to enter the busi­ness world. A UG is geared towards growth — its ulti­mate goal is to develop into a GmbH (which is why it is also known col­lo­qui­ally as a mini-GmbH).

2. liab­il­ity pro­tec­tion and cred­ib­il­ity

Both legal forms offer lim­ited liab­il­ity, which pro­tects the private assets of the share­hold­ers. How­ever, a GmbH often enjoys a higher repu­ta­tion as it is asso­ci­ated with a greater fin­an­cial com­mit­ment and an estab­lished mar­ket pres­ence. A UG, on the other hand, can be viewed with some scep­ti­cism by banks and busi­ness part­ners, as it is often seen as an inter­me­di­ate stage on the way to becom­ing a GmbH.

3. retained earn­ings and cap­ital increase

A key dif­fer­ence in the legal struc­ture of these com­pan­ies is how profits are handled. A UG is leg­ally obliged to retain 25 % of its annual profit until it has accu­mu­lated share cap­ital of €25,000. Only then can it be con­ver­ted into a GmbH. This reg­u­la­tion ensures fin­an­cial sta­bil­ity, but can restrict short-term rein­vest­ment. A GmbH is not sub­ject to such restric­tions and can dis­trib­ute profits more flex­ibly.

4. form­a­tion and not­ary costs

The form­a­tion pro­cess for both legal forms requires not­ar­isa­tion by a cer­ti­fied expert and entry in the com­mer­cial register. Due to the greater com­plex­ity of a GmbH, it incurs higher not­ar­isa­tion and regis­tra­tion costs, which gen­er­ally amount to between €600 and €1,200. Due to its sim­pli­fied form­a­tion pro­cess, a UG offers lower form­a­tion costs, which are often between €300 and €800, when opened using a model pro­tocol, oth­er­wise the same not­ary fees apply as when open­ing a GmbH.

5 Tax­a­tion and com­pli­ance

The tax oblig­a­tions of both legal forms are sim­ilar. They include:

• Cor­por­ate income tax: 15%
• Trade tax: Depend­ing on the muni­cip­al­ity
• Solid­ar­ity sur­charge: 5.5 % of cor­por­a­tion tax
• Value added tax: 19% (or 7% for cer­tain goods/services)

A GmbH is often per­ceived as more stable, which can have a pos­it­ive impact on tax treat­ment and fin­an­cing options. The UG as a legal form may be sub­ject to par­tic­u­larly care­ful scru­tiny by tax author­it­ies and fin­an­cial insti­tu­tions.

6. flex­ib­il­ity in busi­ness oper­a­tions

The GmbH legal struc­ture offers more flex­ib­il­ity when it comes to acquir­ing investors, secur­ing bank loans and expand­ing the com­pany. Although the UG is an attract­ive option for start-ups, it can require addi­tional admin­is­trat­ive effort as the com­pany grows.

Con­clu­sion: Choos­ing the right legal form

When decid­ing between a GmbH vs. UG entre­pren­eurs should con­sider their fin­an­cial resources, long-term goals and desired level of cred­ib­il­ity. Each legal form comes with its own advant­ages and dis­ad­vant­ages, so it’s cru­cial to fully under­stand their dif­fer­ences. In case of uncer­tainty, con­sult­ing a start-up tax advisor can be help­ful in mak­ing an informed decision and choos­ing the right legal struc­ture.

As a gen­eral rule, as soon as the main chal­lenges of the Found­a­tion in Ger­many Once these are mastered, com­pan­ies can make informed decisions to ensure the best pos­sible start in the busi­ness world.

GmbH or UG? Dis­cuss with us!

Are you unsure whether a GmbH or a UG is the right choice for your com­pany? With start­bereit we will help you to under­stand the most import­ant dif­fer­ences. Come along and dis­cuss with us about liab­il­ity, share cap­ital, costs and advant­ages of both legal forms. Our experts are on hand to answer all your ques­tions and find the best solu­tion for your start-up. Let’s find out together which com­pany form best suits your plans!

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