UG reserve requirement (Rücklagenpflicht der UG)
Also: Rücklagenpflicht, gesetzliche Rücklage, Thesaurierungspflicht, statutory reserve
In short
Every year, the UG must put a quarter of its annual net profit, reduced by any loss carried forward from the previous year, into a statutory reserve. The obligation only ends once the share capital has been increased to at least €25,000.
UG reserve requirement (Rücklagenpflicht der UG) explained
The reserve compensates for the low start-up capital and may not be distributed. The UG may only use it for three purposes: for a capital increase from company funds, to offset an annual net loss to the extent there is no profit carried forward, and to offset a loss carried forward from the previous year to the extent there is no annual net profit. There is no upper limit: even with a €25,000 reserve, the obligation continues until the shareholders actually increase the share capital (Sec. 5a (5) GmbHG). The reserve does not save tax; it only limits how much can be distributed. A reasonable managing director's salary reduces the annual net profit beforehand.
