In short
The UG (haftungsbeschränkt), in full Unternehmergesellschaft (haftungsbeschränkt), is not a separate legal form but a variant of the GmbH under Sec. 5a GmbHG. It is formed with less than €25,000 share capital, arithmetically from €1, which must be paid in fully in cash before registration. In return, it must allocate a quarter of its annual net profit to a statutory reserve every year until the share capital has been increased to at least €25,000.
Key points
- Legal form: a GmbH with special rules under Sec. 5a GmbHG, introduced in 2008. Legal entity; after registration, liability only with the company's assets.
- Capital: under €25,000, fully in cash before registration; contributions in kind excluded (Sec. 5a (2) GmbHG). We recommend at least €500, better €1,000 to €2,500.
- Reserve: a quarter of the annual net profit, reduced by any loss carried forward from the previous year (Sec. 5a (3) GmbHG).
- No turnover or profit limit. The UG may earn as much as it can.
- Forming a UG with Recht 24/7: €259 net fixed price, model protocol or individual articles of association at the same price, documents within 24 hours, plus VAT, notary and court fees, chamber of commerce and trade registration. View the service: form a UG at a fixed price.
Contents
- UG: meaning of the abbreviation
- Is the UG a separate legal form?
- The UG (haftungsbeschränkt) at a glance
- Share capital of the UG: why €1 is not enough
- The UG reserve requirement explained simply
- Who is liable in a UG?
- How much may a UG earn?
- What does a UG cost?
- Taxes of the UG
- Advantages and disadvantages of the UG
- Who is a UG worthwhile for?
- Common misconceptions about the UG
- From UG to GmbH
- Special forms of the UG
- FAQ
UG: meaning of the abbreviation
UG stands for Unternehmergesellschaft, literally "entrepreneurial company". The suffix "(haftungsbeschränkt)", meaning "limited liability", is a fixed part of the name and shows every business partner: only the company's assets are liable here, and the capital may be very small.
Colloquially, the UG is also called a mini GmbH or one-euro GmbH. Both names capture the essence: the UG is a GmbH to which the minimum share capital of €25,000 does not apply. It was introduced in 2008 with the GmbH reform (MoMiG). The aim was to give founders a German alternative to the British Limited, which was popular at the time because it required almost no capital.
Is the UG a separate legal form?
No. Legally, the UG is a GmbH. The entire GmbH Act applies to it; only Sec. 5a GmbHG deviates in five points:
| Point | Rule for the UG | Provision |
|---|---|---|
| Name | suffix "Unternehmergesellschaft (haftungsbeschränkt)" or "UG (haftungsbeschränkt)" | Sec. 5a (1) |
| Payment | share capital in full before registration | Sec. 5a (2) sentence 1 |
| Contributions in kind | excluded | Sec. 5a (2) sentence 2 |
| Reserve | a quarter of the annual net profit reduced by any loss carried forward | Sec. 5a (3) |
| Crisis | convene the shareholders' meeting without delay if illiquidity is imminent | Sec. 5a (4) |
Everything else is the same: shareholders, managing directors, notary, commercial register, liability, balance sheet and taxes. If the UG increases its share capital to at least €25,000, the special rules no longer apply (Sec. 5a (5) GmbHG). How the GmbH works in principle is explained in our guide What is a GmbH?.
The UG (haftungsbeschränkt) at a glance
| Feature | UG (haftungsbeschränkt) |
|---|---|
| Legal basis | GmbHG, in particular Sec. 5a |
| Founders | from 1 person, natural persons or legal entities |
| Share capital | €1 to €24,999, each share in whole euros (Sec. 5 (2) GmbHG) |
| Payment | in full before registration, cash only |
| Contribution in kind | not allowed |
| Reserve | 25% of the annual net profit minus loss carried forward, until the capital is increased to €25,000 |
| Liability | after registration only the company's assets |
| Notary | mandatory, in person or by video (Sec. 2 GmbHG) |
| Model protocol | possible with no more than three shareholders and one managing director (Sec. 2 (1a) GmbHG) |
| Register | commercial register; the UG only comes into existence with the entry |
| Legal form suffix | "Unternehmergesellschaft (haftungsbeschränkt)" or "UG (haftungsbeschränkt)" |
| Taxes | as for the GmbH: corporate income tax, solidarity surcharge, trade tax |
| Time to registration | usually 5 to 14 days after notarisation |
| Price with Recht 24/7 | €259 net plus VAT and third-party costs |
Share capital of the UG: why €1 is not enough
Because each share must be stated in whole euros (Sec. 5 (2) GmbHG), the minimum is €1 per shareholder: if you form the company alone, €1 is legally sufficient; if two of you form it, at least €2. The capital must be paid in fully before registration, and in cash. A car, a laptop or a stock of goods does not count.
In practice, €1 is too little. The UG usually bears its own formation costs. If the share capital is lower than the notary and register costs, the company is arithmetically over-indebted on the day it is formed. With the model protocol, the company only bears formation costs up to €300 and at most up to the amount of its share capital; the shareholders pay the rest.
Our recommendation: at least €500, better €1,000 to €2,500. This covers the notary, the register and the first months. More capital also looks more credible to banks, landlords and suppliers.
The UG reserve requirement explained simply
To compensate for the low capital, the UG must create a statutory reserve in its balance sheet. Every year, a quarter of the annual net profit goes into it, reduced by any loss carried forward from the previous year (Sec. 5a (3) GmbHG). This reserve may not be distributed. The UG may only use it for three purposes:
- for a capital increase from company funds, i.e. the route to becoming a GmbH (Sec. 57c GmbHG),
- to offset an annual net loss, insofar as there is no profit carried forward,
- to offset a loss carried forward from the previous year, insofar as there is no annual net profit.
The obligation does not end automatically when the reserve reaches €25,000. It only ends once the share capital has been increased to at least €25,000 (Sec. 5a (5) GmbHG).
Example calculation over five years
Assumption: the UG starts with €1,000 share capital, makes a loss in the first year and a profit thereafter. Annual net profit means profit after tax. Only the mandatory reserve is created, nothing voluntary.
| Year | Annual net profit | Loss carried forward from previous year | Basis | Mandatory reserve (a quarter) | Reserve cumulative | Share capital plus reserve |
|---|---|---|---|---|---|---|
| 1 | minus €4,000 | €0 | none | €0 | €0 | €1,000 |
| 2 | €10,000 | €4,000 | €6,000 | €1,500 | €1,500 | €2,500 |
| 3 | €30,000 | €0 | €30,000 | €7,500 | €9,000 | €10,000 |
| 4 | €40,000 | €0 | €40,000 | €10,000 | €19,000 | €20,000 |
| 5 | €24,000 | €0 | €24,000 | €6,000 | €25,000 | €26,000 |
What this means:
- In year 2, the UG may distribute at most €4,500 of the €10,000 profit: €4,000 offsets the loss from year 1, €1,500 goes into the reserve.
- In year 3, at most €22,500 of €30,000 remain for a distribution.
- After year 5, €25,000 are in the reserve. For a capital increase from company funds from €1,000 to €25,000, the UG needs €24,000. From now on, it can become a GmbH.
The reserve comes from profit that has already been taxed. It therefore does not save any tax; it only limits how much you can distribute to yourself. An appropriate managing director's salary is not affected, because it already reduces the annual net profit beforehand.
Who is liable in a UG?
From registration, only the UG's assets are liable to creditors (Sec. 13 (2) GmbHG). Your private assets are protected in principle, even if the share capital is only €1,000. The UG is liable with everything it owns, not just with the share capital.
Before registration, the UG as such does not yet exist. From the notary appointment, it can act as a "UG in formation", but anyone acting on its behalf is personally and jointly liable (Sec. 11 (2) GmbHG).
The missing suffix: If the UG appears without "(haftungsbeschränkt)", for example on invoices, in the website imprint or in contracts, the person acting may be personally liable according to case law, because the contractual partner was entitled to assume unlimited liability. The law only allows the two versions in Sec. 5a (1) GmbHG; an abbreviation such as "UG (haftungsbeschr.)" is not one of them.
Managing director: As in any GmbH, the managing director is liable for breaches of duty (Sec. 43 GmbHG) and must file for insolvency within three weeks at the latest in the event of illiquidity, within six weeks in the event of over-indebtedness (Sec. 15a (1) InsO). Because the UG often works with little capital, this point is particularly important. More in our guide on delayed insolvency filing.
How much may a UG earn?
As much as it can. There is neither a turnover nor a profit limit for the UG. It does not automatically become a GmbH from a certain profit either. The only difference to the GmbH regarding profit is the reserve: a quarter of the annual net profit remains in the company until the share capital reaches €25,000.
This is often confused with the small business VAT scheme (Sec. 19 UStG). It only concerns VAT and applies regardless of the legal form: sales are exempt if total turnover did not exceed €25,000 in the previous year and does not exceed €100,000 in the current year. A UG can also make use of it. This limit has nothing to do with liability, the reserve or the legal form.
What does a UG cost?
Formation
| Item | Amount | Note |
|---|---|---|
| Recht 24/7 fee (form a UG) | €259 net | fixed price, model protocol or individual articles of association at the same price |
| Notary with model protocol | approx. €160 (one shareholder), approx. €240 (two to three), incl. expenses and VAT | no more than three shareholders, one managing director, no individual rules |
| Notary with individual articles | approx. €350 to €750 incl. expenses and VAT | freely structured, for example with pre-emption rights or several managing directors |
| Register court | approx. €300 | entry in the commercial register; the entry fee alone is €225, also with the model protocol (no. 2100 GV HRegGebV) |
| Trade registration | depends on the municipality | |
| Chamber of commerce or crafts | depends on the chamber | membership arises automatically |
| Transparency register | €129 net | optional, notification by Recht 24/7, fixed price per company |
For the notary and the register, you end up with around €460 to €540 with the model protocol and around €650 to €1,050 with individual articles of association, each including expenses and VAT; on top come the fee of €259 net plus VAT and the trade registration.
Ongoing costs per year
The UG must prepare a balance sheet like any GmbH. Ongoing costs are: bookkeeping, annual financial statements and tax returns, usually via a tax adviser, the fee for the chamber of commerce or crafts, and disclosure of the annual financial statements (Sec. 325 HGB). Anyone who forgets to disclose faces administrative fine proceedings. With around €50,000 turnover, in our experience you should expect about €600 per year for bookkeeping, tax obligations and the chamber fee; both items rise with turnover.
Taxes of the UG
For tax purposes, the UG is treated exactly like the GmbH:
- Corporate income tax: 15% for assessment periods up to 2027, then gradually less, down to 10% from 2032 (Sec. 23 (1) KStG).
- Solidarity surcharge: 5.5% on corporate income tax.
- Trade tax: trade income times 3.5% times the municipal multiplier (Sec. 11 (2) and 16 GewStG). There is no tax-free allowance as for a sole proprietorship.
- Distribution: Profits you pay out to yourself are subject to 25% flat-rate withholding tax plus the solidarity surcharge privately (Sec. 32d (1) EStG).
Does a UG have tax advantages? Compared with the GmbH, none; taxation is identical. Compared with a sole proprietorship, it can bring advantages if profits stay in the company: these are only charged with corporate income tax and trade tax, not with your personal income tax rate. If, on the other hand, you need every euro privately, you end up paying tax at two levels. Whether it pays off should be calculated with your tax adviser. The comparison can be found in our guide UG vs. sole proprietorship.
Advantages and disadvantages of the UG
| Advantages | Disadvantages |
|---|---|
| liability limited to the company's assets after registration | a quarter of the annual net profit must go into the reserve |
| start with little capital, no €12,500 required | capital fully in cash, no contributions in kind |
| can be formed alone | the suffix "(haftungsbeschränkt)" signals low capital; banks and suppliers look more closely |
| the model protocol reduces notary costs | balance sheet, annual financial statements and disclosure as for the GmbH |
| can later become a GmbH without a new formation | with very little capital, quick over-indebtedness and duty to file for insolvency |
| same tax rules as the GmbH | notary and register court mandatory even with little capital |
Who is a UG worthwhile for?
- Solo founders with liability risks who cannot or do not want to pay in €12,500.
- Business ideas in the test phase that should start quickly and cheaply with limited liability.
- Holding parent: As the parent company of a holding structure, the UG is an inexpensive entry point. More under What is a holding company?.
The UG is less suitable if you can pay in €12,500 anyway: then the GmbH, without the reserve requirement and without the suffix in the name, is usually the better choice. If your business carries hardly any liability risk and you want to withdraw all profits privately, a sole proprietorship or a GbR is often enough. Decision aids can be found in our guides UG or GmbH and UG vs. sole proprietorship.
| Feature | UG (haftungsbeschränkt) | GmbH | Sole proprietorship |
|---|---|---|---|
| Capital | under €25,000, fully in cash | €25,000, €12,500 immediately | none |
| Liability | company assets | company assets | owner without limit |
| Notary | yes | yes | no |
| Accounting | balance sheet | balance sheet | cash-basis accounting up to €800,000 turnover and €80,000 profit |
| Reserve | 25% of the annual net profit | none | none |
| Price with Recht 24/7 | €259 | €319 | €259 |
All prices net plus VAT and third-party costs.
Common misconceptions about the UG
"€1 share capital is enough"
Legally yes, in practice no. The notary and register cost more, and with individual articles of association the UG usually bears its own formation costs. With too little capital, it is then over-indebted from day one. With the model protocol, the shareholders pay what exceeds the share capital, and the UG has nothing left of its share capital for the start.
"I can form a UG without a notary"
No. The model protocol or articles of association must be notarised (Sec. 2 (1) GmbHG). Since August 2022, this has also been possible by video conference with the notary (Sec. 2 (3) GmbHG), but the notary remains mandatory. The process is described in our step-by-step guide to forming a UG.
"Liability is limited from the notary appointment"
No. Limited liability only applies fully from the entry in the commercial register. Until then, the persons acting are personally liable.
"At €25,000 in reserves, the UG automatically becomes a GmbH"
No. This requires a notarised shareholder resolution on the capital increase and entry in the commercial register. Until then, it remains a UG with the reserve requirement.
"I can use the reserve freely later"
No. It may only be used for a capital increase from company funds or to offset losses (Sec. 5a (3) GmbHG). A distribution to the shareholders is excluded.
From UG to GmbH
The switch is not a new formation but an amendment to the articles of association of the same company. There are two routes:
- Capital increase from company funds: The accumulated reserve is converted into share capital (Sec. 57c GmbHG). The basis is an audited balance sheet whose reporting date is no more than eight months before the application, and the last annual financial statements must have been adopted (Sec. 57c, 57e and 57f GmbHG).
- Capital increase against contributions: The shareholders pay in fresh money. This is possible at any time, even without a full reserve.
UG with small share capital
25% into the reserve every year
Shareholder resolution before the notary on the capital increase to at least €25,000
Application and entry in the commercial register
GmbH rules apply
The name may stay or be changed to GmbH
Once the share capital reaches €25,000, the special rules of Sec. 5a GmbHG no longer apply. The company name "UG (haftungsbeschränkt)" may be retained (Sec. 5a (5) GmbHG), but most companies change it to "GmbH". Costs and process in detail can be found in our guide UG or GmbH.
Special forms of the UG
- gUG: the non-profit UG, treated for tax purposes like the gGmbH. More in our guide on the gUG; you can form one as a gUG for €829 net.
- UG & Co. KG: a limited partnership whose general partner is a UG. It works like the GmbH & Co. KG; with us as a UG & Co. KG for €469 net.
- UG as a holding company: The UG holds shares in one or more subsidiaries; with us via form a holding company for €599 net for parent and subsidiary.
If the UG is to be wound up later, the same steps apply as for the GmbH: dissolution, liquidation, blocking year and deletion. Details in our guide on GmbH liquidation; we offer support as a liquidation for €479 net. All prices plus VAT and third-party costs.
FAQ
What is the disadvantage of a UG?
The UG must allocate a quarter of its annual net profit to a reserve until the share capital has been increased to €25,000. Contributions in kind are excluded, and the suffix "(haftungsbeschränkt)" shows business partners that there may be little capital. A balance sheet and disclosure are mandatory, as for the GmbH.
How much may a UG earn?
There is no turnover or profit limit. The UG may earn as much as it likes and does not automatically become a GmbH as a result. It merely has to keep a quarter of its annual net profit as a reserve.
Can you form a UG without a notary?
No. The model protocol or articles of association must be notarised. Since August 2022, this has also been possible by video with the notary, but the notary is always involved.
Who is liable for the debts of a UG?
After entry in the commercial register, only the UG with its assets. Persons acting before registration, a managing director in case of breaches of duty or a late insolvency filing, and anyone who has given a guarantee can be personally liable. You should have the individual case reviewed by a lawyer.
What does a UG cost per year?
Ongoing costs are bookkeeping, annual financial statements, tax returns, the chamber fee and disclosure. With around €50,000 turnover, we expect about €600 per year for bookkeeping, tax obligations and the chamber fee; more with higher turnover. A quote from your tax adviser gives you the exact figure.
Must "haftungsbeschränkt" always be in the name?
Yes. In business dealings, the UG must always appear as "Unternehmergesellschaft (haftungsbeschränkt)" or "UG (haftungsbeschränkt)" (Sec. 5a (1) GmbHG), on invoices, the website, emails and in contracts. If the suffix is missing, the person acting may be personally liable.
Can I form the UG alone?
Yes, the single-member UG is the most common case. You are the sole shareholder and usually also the managing director. With the model protocol, this is particularly inexpensive at the notary.
When does a UG become a GmbH?
Only when the shareholders increase the share capital to at least €25,000, from the reserve or with new money, and the increase is entered in the commercial register. It never happens automatically, not even with a high reserve.
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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