The UG (Unternehmergesellschaft) is a limited liability company form that is particularly suitable for entrepreneurs with little capital.
In common parlance, the entrepreneurial company is also often called "Mini-GmbH " or "1-Euro-GmbH ", which is a very popular legal form especially for the start into entrepreneurship.
That expects you today
- Company type: UG
- Advantages and disadvantages of a UG
- The taxes
- What about liability?
- Found a UG - 5 steps to your 1-Euro-GmbH
- All about the duration of the formation
- The costs
- Obligations after the UG establishment
Company type: UG
Each legal form has advantages and disadvantages. For you as a founder, it is important to choose a suitable legal form that meets your requirements. We will show you which advantages and disadvantages are particularly relevant for an entrepreneurial company so that you have a sound basis for deciding on the legal form of your future company.
Limitation of liability
The legal form of the ‘Unternehmergesellschaft’ (UG, Entrepreneurial company) was only created in 2008. It has been able to largely displace the Limited, which has been used repeatedly in Germany up to now, and in a sense represents the small alternative to the classic GmbH.
Basically, the limitation of liability is probably the greatest advantage of the UG. The company is a legal person. This means that the entrepreneur - apart from a few exceptions - is not liable with his or her private assets, but only the assets of the company are available for liability.
Personal liabilities are only conceivable in exceptional cases, for example, if there are additional guarantees by the shareholder which become effective. Thus, it can be said that the UG has the advantage of low liability, while no high initial capital has to be used.
Affectionately this legal form is also called "1-Euro-GmbH" - and quite rightly so because the foundation can theoretically take place even with minimal share capital. If 12,500 euros of capital are available, you can choose between a classic GmbH and a UG. In general, if you found a UG but save up capital later, you can also convert your UG into a GmbH without any problems, if you wish to do so.
The low capital requirement when founding a company is one of the biggest advantages of this legal form and at the same time also explains why the UG has increasingly replaced the Limited in Germany.
Different possibilities depending on the activity
A UG can be founded for any form of business activity. So you are absolutely not limited, whatever business you want to build. A UG is always a good, simple way to start up.
Formation as a single person
Can only several people establish a UG together? Fortunately, we can answer this common question with a clear no! You can also found a UG alone. Founding as a single person means that you enjoy all the advantages just as if two or even more people were founding the company.
If you run a business with the legal form UG, you can of course claim the personnel costs as operating expenses. This means that these costs reduce the profit and therefore also the basis for calculating the tax burden.
Advantages of a UG
- It is flexible and can be used for various business models (activities, trades).
- There are only low formation costs, for example through the use of model articles of association.
- However, the shareholder agreement can be designed variably if the model articles of association are dispensed with.
- Liability is limited to the assets of the UG, but the private assets of the partners remain unaffected.
- Theoretically, only a share capital of one euro is required (for practical reasons, more capital should be available).
- The formation is also possible by a single person.
- The shareholder is then also the managing director. However, a shareholder can also be an employee of the company.
- Shareholders can also be natural persons and legal entities (i.e. corporations or partnerships).
- The personnel costs, i.e. also the own salary, can be claimed as operating expenses This reduces the profit and thus also the tax.
- The UG must pay corporate income tax, but the tax rates are often more favorable than income tax.
- Shareholders can easily sell their shares, which also makes it easier to sell the entire UG.
Disadvantages of a UG
- The capital contribution must be made in cash in full; contributions in kind are not possible.
- Restriction on the desired name, as the suffix "UG (haftungsbeschränkt/limited liability)" must be added.
- The UG is subject to the publicity obligation and must carry out commercial bookkeeping and accounting.
- Due to its limited liability and low share capital, the UG enjoys only a low reputation and hardly any creditworthiness with banks, suppliers, and other creditors.
- Banks therefore often require directly enforceable guarantees.
- If the share capital is too low, there is a risk of insolvency or overindebtedness.
- Although formation is comparatively inexpensive, the formalities are more time-consuming and expensive than when forming a partnership.
- Many procedures have to be notarized.
- The disadvantage is the obligation to save, which means that the surpluses may not be distributed in full until the legally defined savings amount is reached.
- When the savings amount of 25,000 euros is reached, the UG can be converted into a GmbH. However, this does not happen automatically and is costly.
- In order to avoid a hidden distribution of profits, private assets and company assets must be strictly separated.
- Corporation tax and solidarity surcharge + trade tax are due.
- The managing director must strictly comply with the GmbH Act, otherwise, there is a risk of criminal and civil law consequences.
Taxes are an unpopular but important topic. If you want to do business, it is essential to plan and calculate the tax burdens.
The most important tax is the corporate income tax. This is 15% of the company's surplus, and there is also a 5.5% solidarity surcharge.
The corporate income tax is payable quarterly in advance and is then calculated exactly at a later date. Accordingly, depending on the profit and the amount of advance payments made, there may then be an additional payment.
If profit is made and also distributed to you as a founder, a further 25% tax - again plus solidarity surcharge - will be due. The tax on those amounts that are distributed as profit to the partners is called the ‘Settlement tax’.
Of course, every UG is also subject to input tax and sales tax, which is usually 19 percent, or in exceptional cases 7 percent.
Further taxes are incurred if the company employs staff. In this case, for example, there is also payroll tax and church tax, as well as further fees that must be paid on time.
What about liability?
As already briefly mentioned above, a UG basically has limited liability with the share capital. This liability is therefore to be classified as comparatively low. Exceptions can occur if you, as the owner, have assumed additional, personal guarantees.
Establishing a UG - 5 steps to your 1-Euro-GmbH
What steps are necessary to form a UG? We now offer you a short overview, so that you can start quickly and in a structured way. Finally, we provide you with a checklist for UG formation.
1. planning is half the battle
Don't start your UG until you know exactly what your company will do, how you will position yourself, and what advantages you have in the marketplace over other providers that make you think your company will be successful. Check? Then read on!
2. clarify legal aspects
To get started, you need a partnership agreement. This includes, for example, who all the shareholders of the company are, where the company is located, and what its name is. The activities of the company must also be described because this information is later also visible in the commercial register.
You should have the contract drawn up by a lawyer and ideally also checked by a notary. This involves costs, but also offers security.
Another option is to form the company using a sample protocol of a partnership agreement. This saves you the costs of a notary and lawyer, but it is only possible if there are a maximum of three shareholders and one managing director. So it is better to think twice about whether these legal factors are the right place to save money.
The addition "Entrepreneurial company (limited liability)" is mandatory, so it must always be indicated. You can be creative in finding a name for your company - just make sure that you never violate the rights of third parties, such as copyrights.
4. open an account
Your company needs a company account. But be careful: You usually need a notarial deed to open an account. It is, therefore, best to ask the bank of your choice in advance which documents are really needed and when you can open the account.
Basically, you can start with one euro of capital. However, this is not advisable for several reasons. Right at the beginning, the company has costs, for example for the notary. Accordingly, you need direct capital to finance the start-up costs. In addition, existing capital always represents certain security and stability to the outside world.
5. UG Business Registration
The company must be registered in the commercial register. The managing director is responsible for this registration and must also confirm that there are no reasons why he should not become managing director. The managing director must also submit a report to the tax office and register the trade.
Checklist: How to establish a UG?
- Prepare all necessary documents and obtain any required permits. (For example, in construction or catering).
- Determination of important points:
- Name/registered office of the company
- Object of the company
- Amount of the share capital
- Number and composition of shareholders
- Determination of who will be the managing director
- Clarification of whether model articles of association or individual contract should be used. The contract can already be prepared before the notary appointment.
- Have your partnership agreement notarized by a notary public. The partners must be present and sign. On this occasion, the next step usually takes place at the same time:
- Appoint a managing director: A shareholders' resolution must be passed for this. Either at the same time as the shareholders' agreement or in a separate notary appointment (Attention: new costs!).
- Open a UG account: To open your business account, the bank needs the shareholders' agreement certified by the notary.
- Pay in the necessary capital stock: At least 1 Euro is required, a higher amount is more realistic.
- Register in the commercial register: For the notification to the local court (for entry in the commercial register), you must present the notary with proof of payment of the share capital contribution. This takes over the transmission to the district court, where then the registration takes place.
- Business registration: Now you personally register your business with the city/municipality. (Some allow the UG found online). The trade office informs other offices such as IHK, Chamber of Commerce, Employer's Liability Insurance Association, Employment Agency, the State Statistical Office...
- Registration with the tax office according to § 137 AO within one month with the so-called tax registration form: It is also available online (ELSTER ). Usually, you get the documents after the business registration from the tax office. Only freelancers have to do it themselves.
- Print business papers: If you have all registrations behind you, you also have the VAT ID and HR number and you can complete your website and have your letterheads and other business papers printed.
All about the duration of the formation
How long does it take to found a UG? There is no general answer to this question, but there are factors that you can actively influence. For example, finding a name or how quickly you pay in the necessary capital. You can save time by using a sample contract, individual contracts by the lawyer take longer. Other factors, such as the speed of the notary, are only partially within your control. It is best to allow at least three weeks or more like a whole month for the entire formation period until everything is really completed.
Of course, you are rightly asking yourself, "How much will it cost me to form a UG?" Here, too, it is not possible to give a blanket answer, as every UG formation incurs costs of varying amounts. Especially the documents or permits that are necessary for you cause very individual costs.
What you must consider in any case are the following costs:
- Costs for the shareholder agreement (drawn up by a lawyer or just a sample agreement?) The costs depend on the effort and complexity of the agreement.
- Notary fees for various documents and notarizations (shareholders' agreement, application to the commercial register).
- Bank fees for opening an account.
- Costs for IHK contributions.
- Tax consultant costs for the necessary opening balance sheet.
Attention: the costs for the notarial certification depend on the amount of the share capital!
Obligations after the UG establishment
Anyone who founds a company is immediately confronted with responsibilities and duties.
A short overview of the duties:
- Opening balance sheet
- Accounting obligation/balancing (annual financial statement)
- Reserve obligation
- Obligation to make additional contributions
- Obligation to retain earnings
Directly after the establishment, concretely already up to the start of the business activity, an opening balance sheet must be provided. This shows the assets and liabilities of the company, i.e. what assets and capital are available. If the opening balance sheet is prepared by a tax advisor, there are corresponding costs that you must plan for.
Afterward, you have the obligation to keep accounts. You must therefore prepare annual financial statements, as is also required for the GmbH. This includes the profit and loss account, balance sheet, and, depending on the size of the company, a management report.
The reserve obligation is another obligation that comes upon you when founding a UG.
This means that you are not allowed to distribute your profits in full. Instead, you have to save 25% of the profit until you end up with 25,000 euros minimum share capital. However, there is no time limit for the savings obligation. From this sum, you can decide whether the UG should be converted into a GmbH.
The additional funding obligation is about the fact that you have to pay money to compensate for losses. For the GmbH this is regulated in the GmbH law, for the UG it is more difficult. This is because you already accumulate 25% annually and therefore theoretically have to make ongoing additional payments in order to avoid insolvency.
If you decide to found a UG, you can conclude by keeping a few points in mind:
Founding a Mini GmbH is an ideal and attractive way to start a business with little equity and seed capital. In addition, you have the advantage of limited liability, which leaves your private assets untouched.
In addition, you have many entrepreneurial freedoms as the sole shareholder and managing director.
Due to the limited liability, however, the UG does not enjoy a good reputation, since your creditors cannot get their money in case of an emergency. In addition, you cannot distribute your profits in full at the beginning because of the necessary savings obligation. If you can cope with this, nothing stands in the way of the foundation!