Choosing a legal form
UG or GmbH: what actually differs, and when the one euro company is the wrong answer
Foreign founders often read the UG as a separate, cheaper kind of German company. It is not. The Unternehmergesellschaft (haftungsbeschränkt) is a GmbH under § 5a of the GmbH Act, with four special rules in a single section: the mandatory name suffix, full payment of capital before registration, no contributions in kind and a statutory reserve. Those rules cost real money and real flexibility, and they end only when you decide to end them. This page sets out the differences that matter, the ones that do not exist at all, and the route from one form to the other.
Last reviewed: 2026-09-20
Share capital: one euro against 25,000, and who pays when
A GmbH needs share capital of at least 25,000 euros, and each share's nominal amount must be a full euro. A UG may have any share capital below that figure, so one euro is legally sufficient. What the capital rules really decide is timing. A GmbH may be registered once a quarter of each share's nominal amount is paid and the cash contributions together reach half the minimum capital, that is 12,500 euros under § 7 (2). The remainder stays an outstanding claim which an insolvency administrator will collect. A UG has no such option, because § 5a (2) sentence 1 requires full payment before registration.
No contributions in kind for the UG
§ 5a (2) sentence 2 of the GmbH Act reads, without qualification, that contributions in kind are excluded. A car, a machine, stock, an existing sole trader business or shares in another company cannot be put into a UG in exchange for shares. A GmbH can do all of that: the object of the contribution and the nominal amount of the share it pays for are fixed in the articles, with a formation report under § 5 (4). If a contribution in kind is part of the plan, the UG is the wrong vehicle.
The statutory reserve: a quarter of every profit
§ 5a (3) requires a legal reserve into which one quarter of the annual surplus, reduced by any loss carried forward from the previous year, must be placed. It is not a one-off: a profitable UG reserves a quarter of its profit every single year. The reserve is also restricted in use, serving a capital increase out of company funds under § 57c, an annual deficit, or a loss carried forward.
The duty does not lapse at any particular amount. It ends only under § 5a (5), once the share capital is increased to reach or exceed 25,000 euros, at which point paragraphs 1 to 4 no longer apply. That is an active step with a shareholders' resolution, notarial recording and a register filing.
Where there is no difference at all
- Taxation is identical: 15 percent corporate income tax under § 23 (1) of the Corporate Income Tax Act, the 5.5 percent solidarity surcharge on it, and trade tax at a 3.5 percent base rate times the municipal multiplier. Neither gets the 24,500 euro trade tax allowance.
- Distributions are treated the same way: 25 percent capital yields tax plus solidarity surcharge, withheld and remitted by the company.
- Liability is the same, because in both cases shareholders are not personally liable beyond their contribution.
- Accounting duties are the same: bookkeeping under § 238 of the Commercial Code, annual financial statements under § 264, disclosure with the Company Register under § 325.
- Size reliefs follow size, not the label. Many UGs and small GmbHs alike are micro-entities under § 267a and may deposit the balance sheet instead of disclosing under § 326 (2), and may omit the notes under § 264 (1) sentence 5.
Formation cost: where the model protocol matters
Notarial fees follow the transaction value set by the Court and Notary Fees Act (Gerichts- und Notarkostengesetz), not negotiation. For the first registration of a corporation the value is the capital to be registered, subject to a minimum of 30,000 euros under § 105 (1). The exception is what makes a cheap formation cheap, because under § 105 (6) no. 1 that minimum does not apply to a formation using the statutory model protocol. A model protocol UG with 1,000 euros of capital is billed on a value of 1,000 euros.
Choosing, and changing your mind later
Choose the UG when you genuinely do not have 12,500 euros to commit, when the business needs little capital and when nothing but cash is being contributed. Accept in exchange that a quarter of every profit is locked away and that no asset can later be contributed for shares. Choose the GmbH when a contribution in kind is planned, when investors or larger customers are expected, or simply when the money is there. Nothing about the GmbH is more expensive to run.
The upgrade route is a capital increase to at least 25,000 euros, after which the special rules fall away and § 5a (5) expressly allows the firm name to be kept. Most companies change it anyway, which is a separate amendment to the articles that can be combined in one deed.
How this runs in our software
The software treats both the same way, because the law does: bookkeeping with AI account assignment, HGB annual financial statements from the trial balance, the size class check that decides whether you are a micro-entity, deposit or disclosure with the Company Register, the E-Bilanz under § 5b of the Income Tax Act, and the corporate and trade tax returns validated before transmission. The first annual financial statements per workspace are free. The one place the UG shows up separately is the profit appropriation, where the statutory reserve must be recognised first.
Frequently asked questions
Is a UG a different legal form from a GmbH?
No. The UG is a GmbH with capital below 25,000 euros and the four special rules of § 5a of the GmbH Act: the mandatory name suffix, full payment of capital before registration, the exclusion of contributions in kind and the statutory reserve.
Can I really start a UG with one euro?
Legally yes, because any capital below 25,000 euros qualifies and a share's nominal amount must be a full euro. Commercially it is rarely wise: the company must pay its own formation costs and first invoices from its own assets, and § 5a (4) obliges the directors to convene the shareholders immediately where insolvency threatens.
Does a UG pay less tax than a GmbH?
No, the taxation is identical. Both pay 15 percent corporate income tax, the solidarity surcharge on it and trade tax at the municipal multiplier, and neither gets the 24,500 euro trade tax allowance. Distributions are taxed the same way as well.
When does the statutory reserve stop?
Not at any particular amount. Under § 5a (5) of the GmbH Act the duty ends only when the share capital is increased so that it reaches or exceeds 25,000 euros. A UG that never increases its capital reserves a quarter of its profit every year, indefinitely.
Must a GmbH pay in the full 25,000 euros immediately?
No. Under § 7 (2) of the GmbH Act registration is possible once a quarter of each share's nominal amount is paid and the cash contributions reach at least half the minimum capital, that is 12,500 euros. The remainder is an outstanding claim which the company can call at any time.
Can a UG hold shares in another company?
It can, and the participation exemption of § 8b of the Corporate Income Tax Act applies to a UG exactly as to a GmbH. The practical obstacle is getting the shares in, because a contribution in kind is excluded by § 5a (2) sentence 2, so the route has to be planned with the notary before formation.
Must a UG prepare and file annual accounts?
Yes, in full. It is a corporation under the Commercial Code, so the bookkeeping duty of § 238, the annual accounts of § 264 and the disclosure of § 325 all apply. Many UGs qualify as micro-entities under § 267a and may deposit the balance sheet instead, but that relief depends on size.
Primary sources and scope
Authoritative references for the key claims on this page. Check the current text before making a filing or accounting decision.