In short
The gUG is an entrepreneurial company (Unternehmergesellschaft, UG (haftungsbeschränkt)) under Sec. 5a GmbHG that exclusively and directly pursues charitable, benevolent or religious purposes under the Fiscal Code (AO). It can be formed with less than €25,000 in share capital, is liable only with the company's assets and, once recognised, is exempt from corporation tax and trade tax in its tax-privileged sphere. It must put a quarter of its annual net profit into a statutory reserve until it increases its share capital to €25,000 and can become a gGmbH.
Key points
- gUG stands for gemeinnützige Unternehmergesellschaft (haftungsbeschränkt), the little sister of the gGmbH.
- Share capital below €25,000, to be paid in full in cash. €500 to €1,000 is recommended so that the formation costs are covered.
- Profits may not flow to the shareholders. 25% of the annual net profit goes into the statutory reserve (Sec. 5a (3) GmbHG).
- Treated the same as the gGmbH for tax purposes: tax exemption in the tax-privileged sphere and donation receipts after the assessment notice (Sec. 60a AO).
- Formation at Recht 24/7: €829 net fixed price, articles of association drafted by a lawyer and coordinated with the tax office before notarisation, plus notary fees and official charges.
Contents
- What is a gUG?
- gUG profile
- Difference between a UG and a gUG
- Difference between a gUG and a gGmbH
- Reserve requirement and use of funds: what the 25 per cent rule means
- Who is liable in a gUG?
- How is a gUG financed?
- What taxes does a gUG pay?
- Advantages and disadvantages of the gUG
- gUG or association?
- Forming a gUG in 6 steps
- What does it cost to form a gUG?
- Pitfalls in ongoing operations
- Examples of charitable projects in a gUG
- FAQ
What is a gUG?
The abbreviation gUG stands for gemeinnützige Unternehmergesellschaft, a non-profit entrepreneurial company. It means a UG (haftungsbeschränkt) whose articles of association and actual management meet the requirements of Sec. 51 to 68 AO. It is not a separate legal form. Legally, it is a GmbH with lower share capital to which the special rules of Sec. 5a GmbHG apply. As with the gGmbH, the "g" comes from tax law.
By way of derogation from Sec. 4 GmbHG, the company must carry the suffix "Unternehmergesellschaft (haftungsbeschränkt)" or "UG (haftungsbeschränkt)" in its name (Sec. 5a (1) GmbHG). The abbreviation "gGmbH" under Sec. 4 sentence 2 GmbHG is therefore not available to the UG. In practice, this becomes "gUG (haftungsbeschränkt)", for example "Nachbarschaftsküche Ost gUG (haftungsbeschränkt)".
If you come across "gug" in everyday German, it does not always mean the legal form; the word also appears, for example, as a dialect word or in company names. This guide is only about the non-profit UG.
gUG profile
| Feature | gUG |
|---|---|
| Legal basis | GmbHG with Sec. 5a, Sec. 51 to 68 AO, Annex 1 to Sec. 60 AO |
| Founders | from 1 person, natural persons or legal entities |
| Share capital | below €25,000, legally from €1 (Sec. 5 (2), Sec. 5a (1) GmbHG), €500 to €1,000 recommended |
| Payment | in full before the application for registration (Sec. 5a (2) GmbHG) |
| Contribution in kind | excluded (Sec. 5a (2) sentence 2 GmbHG) |
| Liability | after registration, only the company's assets |
| Reserve | a quarter of the annual net profit reduced by any loss carried forward |
| Profit distribution | prohibited (Sec. 55 (1) no. 1 AO) |
| Taxes | exempt from corporation tax and trade tax in the tax-privileged sphere |
| Donation receipt | yes, after the assessment notice (Sec. 60a AO) |
| Company name | mandatory: "UG (haftungsbeschränkt)" (Sec. 5a (1) GmbHG), in practice "gUG (haftungsbeschränkt)" |
| Articles of association | individual and notarised, the model protocol does not fit |
| Bookkeeping | double-entry bookkeeping and balance sheet under the HGB |
| Duration | typically 2 to 12 weeks until registration |
| Costs at Recht 24/7 | €829 net fixed price plus notary fees and official charges |
Difference between a UG and a gUG
In company law, the UG and the gUG are the same legal form. For both, the share capital is below €25,000, it must be paid in full in cash, contributions in kind are prohibited and the reserve requirement applies. The difference is the purpose.
A normal UG aims to make a profit and may distribute at most three quarters of its annual net profit, reduced by any loss carried forward, to its shareholders. It pays corporation tax and trade tax like any GmbH. The gUG, by contrast, pursues exclusively tax-privileged purposes, distributes nothing and is tax-free in the tax-privileged sphere. In return, it needs articles of association with the clauses of the Fiscal Code and an assessment notice from the tax office.
An existing UG can become a gUG by amending its articles of association. For corporation tax and trade tax, however, the articles must meet the requirements during the entire assessment period (Sec. 60 (2) AO), so the tax exemption for these taxes generally only applies from the year after the amendment.
Difference between a gUG and a gGmbH
For tax purposes there is no difference: both are tax-privileged corporations with the same obligations regarding the use of funds. The differences lie in the capital and in the special rules of Sec. 5a GmbHG.
| Feature | gUG | gGmbH |
|---|---|---|
| Share capital | below €25,000 | at least €25,000 |
| Payment at the time of the application | in full | at least €12,500 |
| Contribution in kind | excluded | possible |
| Reserve under the GmbHG | 25% of annual net profit | none |
| Name suffix | UG (haftungsbeschränkt), in practice preceded by "g" | gGmbH (Sec. 4 sentence 2 GmbHG) |
| Shareholders' meeting in case of imminent insolvency | to be convened without delay (Sec. 5a (4) GmbHG) | under the general rules |
| External perception | low capital visible | established GmbH standard |
| Price at Recht 24/7 | €829 net | €949 net |
If you can raise €12,500, you are often better served by the gGmbH. All details on the bigger sister are in the guide to the gGmbH.
Checklist: gUG or gGmbH?
- Can you pay in €12,500 or more as share capital? Yes points to the gGmbH.
- Do you want to contribute assets such as vehicles or equipment? Yes points to the gGmbH.
- Do you need full trust from banks, landlords and large funders from day one? Yes points to the gGmbH.
- Do you first want to test whether the project is viable and start small? Yes points to the gUG.
- Do you expect hardly any surpluses in the first years, so that the reserve ties up little? Yes points to the gUG.
Reserve requirement and use of funds: what the 25 per cent rule means
In the gUG, two rules meet that pull in opposite directions.
GmbH law requires saving. A statutory reserve must be formed in the balance sheet, into which a quarter of the annual net profit, reduced by any loss carried forward from the previous year, must be transferred (Sec. 5a (3) GmbHG). The reserve may only be used for a capital increase from company funds or to offset losses.
Non-profit law requires spending. Tax-privileged corporations must in principle use their funds for their purposes at the latest in the two calendar or financial years after they are received (Sec. 55 (1) no. 5 AO). This obligation does not apply to corporations with annual income of no more than €100,000.
The tax authorities recognise the gUG's statutory reserve as permissible, so it does not endanger non-profit status. The normal rules of the Fiscal Code apply to the other three quarters: use them in a timely manner or transfer them to one of the reserves under Sec. 62 AO, for example a project reserve for a specifically planned project.
The formula "75% for the purpose, 25% reserve" is often quoted. It does not appear in the law in this form. Sec. 5a (3) GmbHG only means that a quarter of the annual net profit is tied up in the reserve. A quota of 75% for the purpose does not follow from this: under Sec. 55 (1) no. 5 AO, all funds must in principle be used in a timely manner unless they go into permitted reserves. What is meant, moreover, is the annual net profit in the balance sheet, not turnover and not every donation.
The route to the gGmbH: if the gUG increases its share capital to at least €25,000, the special rules of Sec. 5a GmbHG no longer apply (Sec. 5a (5) GmbHG). The increase can be made from the accumulated reserve, with fresh money or a combination. The resolution must be notarised and entered in the commercial register. The company remains the same; a new formation is not necessary. It may keep the UG name or change it to gGmbH.
Who is liable in a gUG?
After registration, only the gUG's assets are liable to creditors. The shareholders risk their paid-in share capital, not their private assets.
Before registration, the company does not yet exist. Anyone who acts on its behalf during this time is personally and jointly liable (Sec. 11 (2) GmbHG). Leases or employment contracts should therefore only be signed after registration.
The management is liable to the company for breaches of duty (Sec. 43 GmbHG). Particularly important with low share capital: if insolvency is imminent, the shareholders' meeting must be convened without delay (Sec. 5a (4) GmbHG). In the event of insolvency or over-indebtedness, there is a duty to file for insolvency (Sec. 15a InsO). Anyone who acts too late is personally liable.
For loans, banks often require a personal guarantee from the shareholders of a gUG with little capital. The shareholders are then liable for the loan with their private assets after all, not under company law but under the guarantee agreement.
How is a gUG financed?
A gUG has no members and therefore no membership fees, and its share capital is usually small. It therefore needs other sources of income. A mix is typical:
- Donations: after the assessment notice, the gUG may issue donation receipts (Zuwendungsbestätigungen). Donors can deduct the donation for tax purposes (Sec. 10b EStG).
- Funding and grants: many public programmes and foundations only fund tax-privileged corporations. The proof is the assessment notice or exemption notice.
- Income from the purpose-related business: course fees, admission fees for cultural events or charges for social services, insofar as they directly serve the purpose (Sec. 65 AO). This income is exempt from corporation tax and trade tax.
- Sponsorship: companies support the gUG in return for being named. Depending on the arrangement, this is tax-free or a commercial business operation.
- Commercial business operation: for example a café or the sale of merchandise. Up to €50,000 income a year including VAT, no corporation tax or trade tax is due (Sec. 64 (3) AO).
- Shareholder loans: shareholders can lend money to the gUG. Interest and terms must be in line with the market, otherwise there is a risk of impermissible favourable treatment.
- Capital increase: shareholders or new partners pay in additional share capital, notarised.
Contributions from the shareholders without a right to repayment are also possible, but they are permanently tied to the charitable purpose.
What taxes does a gUG pay?
The same tax system applies to the gUG as to the gGmbH. Its activities are divided into four areas:
| Area | Example | Corporation tax and trade tax |
|---|---|---|
| Non-profit sphere | donations, grants | exempt |
| Asset management | interest, rental income | exempt |
| Purpose-related business | course fees of an education project | exempt |
| Commercial business operation | café, advertising income | exempt up to €50,000 income a year, taxable above that |
If the commercial business operation becomes taxable, corporation tax is 15% (until 2027, then falling gradually to 10% from 2032, Sec. 23 (1) KStG) plus the solidarity surcharge, and trade tax is added. VAT depends on the individual transactions: many services are exempt, the reduced rate of 7% applies to services outside a commercial business operation, and for purpose-related businesses under Sec. 66 to 68 AO only under additional conditions (Sec. 12 (2) no. 8 (a) UStG). Real estate that the gUG uses for its charitable purposes and that is attributable to it or to another privileged entity is exempt from property tax (Sec. 3 (1) sentence 1 no. 3 (b) and sentence 2 GrStG). The section on taxes in the gGmbH guide explains this in detail.
Advantages and disadvantages of the gUG
| Advantages | Disadvantages |
|---|---|
| formation with little capital, without paying in €12,500 | low capital appears less trustworthy to banks and landlords |
| liability limited to the company's assets after registration | loans often only with a personal guarantee |
| tax exemption in the tax-privileged sphere | 25% of annual net profit tied up until €25,000 is reached |
| donation receipts and access to funding | no membership fees, financing has to be built up |
| formation by one person, no members' meeting | no profit distribution, assets permanently tied |
| fast decisions by the management | accounting and disclosure obligations like any GmbH |
| later switch to the gGmbH without a new formation | contributions in kind excluded |
| clear separation of private and project assets | risk of over-indebtedness if the share capital is too tight |
gUG or association?
The registered association (eingetragener Verein, e.V.) is the classic legal form for charitable work. The gUG is the alternative for anyone who wants to work entrepreneurially, alone or in a small team.
| Feature | gUG | e.V. (non-profit) |
|---|---|---|
| Founders | from 1 person | 7 members for registration (Sec. 56 BGB) |
| Capital | below €25,000, €500 to €1,000 recommended | none |
| Decisions | shareholders and management | members' meeting and board |
| Liability | company assets | association assets |
| Reserve under the GmbHG | 25% of annual net profit | none |
| Financing | donations, funding, purpose-related business, loans | membership fees in addition |
| Bookkeeping | balance sheet under the HGB | records (Sec. 63 (3) AO), books depending on size (Sec. 141 AO) |
| Notary | notarisation of the articles of association | certification of the application to the register |
| Donation receipt | yes | yes |
| Price at Recht 24/7 | €829 net | €829 net (non-profit association) |
Notary and register fees are significantly lower for an association, around €200 in total according to our service page. If you want to involve many people, you are well served by the association. If you want to decide quickly and without a members' meeting, choose the gUG.
Forming a gUG in 6 steps
- Clarify the purpose: define a specific tax-privileged purpose under Sec. 52 to 54 AO and describe how it will be achieved. Decide on the shareholders, management and share capital.
- Draft the articles of association: individual articles with all provisions of the model articles (purpose, selflessness, exclusivity, directness, use of funds, asset lock). The model protocol of the GmbHG does not contain these clauses.
- Advance coordination with the tax office: the draft goes to the competent tax office before the notary appointment. This avoids costly amendments to the articles.
- Notary appointment and payment: the notary notarises the articles of association. You then pay the share capital in full into the business account.
- Commercial register and transparency register: the notary applies to register the gUG in the commercial register, and it comes into existence on registration. This is followed by the report to the transparency register.
- Assessment notice: you apply to the tax office for a formal assessment that the requirements under the articles are met, under Sec. 60a AO. From then on, you may issue donation receipts.
From questionnaire to registration typically takes 2 to 12 weeks, depending on how quickly the tax office gives its opinion on the articles.
What does it cost to form a gUG?
| Item | Amount | Note |
|---|---|---|
| Recht 24/7 fee (form a gUG) | €829 net | fixed price, articles of association, advance coordination with the tax office, formation documents, advice |
| Notary | approx. €350 to €750 incl. expenses and VAT | notarisation of the individual articles of association and the application to the register |
| Register court | approx. €300 | registration in the commercial register |
| Transparency register | €129 net | report by Recht 24/7 |
| Trade registration | depends on the municipality | only if a trade is carried on |
| IHK contribution | depends on the chamber | non-profit companies often exempt or reduced |
| Share capital | €500 to €1,000 recommended | not a fee, remains the gUG's assets |
Low share capital does not reduce the notary fees: with individual articles of association, the business value is at least €30,000 (Sec. 107 (1) GNotKG); lower values only apply to formation with the model protocol (Sec. 105 (6) GNotKG), which does not fit the gUG. As with the GmbH, the register fee for registration is €225 (no. 2100 of the fee schedule of the HRegGebV).
The share capital should not be too tight. The gUG bears its own formation costs. If the capital is below them, the company is over-indebted in arithmetic terms from day one.
Pitfalls in ongoing operations
- Managing director's salary: a salary is allowed, but must be reasonable. Disproportionately high remuneration breaches Sec. 55 (1) no. 3 AO and endangers non-profit status.
- Managing director's service agreement: remuneration, duties and expenses should be agreed in writing before the first payment. Payments to shareholder-managing directors without a clear basis can be treated as an impermissible benefit.
- Investing funds: free funds may be invested, but must be used for the purpose within the deadline or properly transferred to a reserve.
- Purpose and activity: what the gUG actually does must match its articles of association. New fields of activity often require an amendment to the articles.
- Bookkeeping and annual financial statements: the gUG prepares accounts under the HGB, discloses its annual financial statements and separates the four spheres. The tax office usually reviews non-profit status every three years.
Examples of charitable projects in a gUG
The examples are simplified and entirely fictitious.
Tutoring project: a student teacher offers free learning support for children from low-income families. She forms a gUG on her own with €1,000 share capital, applies for funding from a foundation and issues donation receipts to donors.
Repair café: three neighbours run a workshop in which volunteers repair devices and offer environmental education. Small fees for workshops run through the purpose-related business.
Cultural initiative: two musicians organise concerts in deprived neighbourhoods. The gUG concludes contracts with venues and artists without the two being personally liable. If the project grows, they increase the capital and switch to a gGmbH.
FAQ
Who is liable in a gUG?
After registration, only the gUG's assets are liable, not the shareholders' private assets. Before registration, those acting are personally liable (Sec. 11 (2) GmbHG). Personal liability can also arise from breaches of duty by the management and from guarantees for bank loans.
How is a gUG financed?
Mainly through donations, funding and grants as well as income from the purpose-related business. In addition, there is sponsorship, a small commercial business operation, shareholder loans and capital increases. There are no membership fees, because the gUG has no members.
What taxes does a gUG pay?
No corporation tax or trade tax in the non-profit sphere, in asset management and in the purpose-related business. A commercial business operation becomes taxable if its income exceeds €50,000 a year. VAT depends on the individual transactions.
What does it cost to form a gUG?
At Recht 24/7, the fee is €829 net as a fixed price. On top of that come notary fees of approx. €350 to €750 incl. expenses and VAT, approx. €300 for the register court and, on request, €129 for the transparency register. The share capital, €500 to €1,000 recommended, remains the company's assets.
What is the difference between a gGmbH and a gUG?
For tax purposes, none. The gUG has less than €25,000 share capital, which must be paid in full in cash, and must set aside 25% of its annual net profit. The gGmbH needs €25,000 share capital, of which €12,500 at the time of the application, and has no reserve requirement under the GmbHG.
What is the difference between a gUG and a UG?
In company law, both are the same. The UG aims to make a profit and may distribute it; the gUG pursues exclusively tax-privileged purposes, distributes nothing and is, in return, tax-free in the tax-privileged sphere. The gUG needs articles of association with the clauses of the Fiscal Code.
Can the gUG become a gGmbH later?
Yes. As soon as the share capital reaches €25,000 through a capital increase, the reserve requirement and the other special rules no longer apply (Sec. 5a (5) GmbHG). The increase is possible from the reserve, with new money or a combination, and requires a notarised resolution. The company remains the same.
Terms used in this guide
About the author
Dr. Georg Schröder, LL.M.
Dr. Georg Schröder is a lawyer and writes the guides of Recht 24/7. He explains legal questions so that you can follow them without legal training, and he reviews every guide before it is published.
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