German Corporations: GmbH & UG
The GmbH (limited liability company) is by far the most common corporate structure in Germany. It combines liability limited to company assets with strong international recognition and legal certainty — though it is often seen as more rigid and costly than Anglo-American structures.
GmbH vs. UG (haftungsbeschränkt)
The UG is not a separate legal form but a variant of the GmbH with a reduced minimum share capital starting at just 1 euro (versus 25,000 euros for the GmbH). In exchange, the UG must retain at least 25% of annual profit as reserves until it reaches the standard GmbH capital of 25,000 euros. The company name must include the full suffix "haftungsbeschränkt" — "UG" alone is not sufficient.
Formation process
- Drafting the articles of association — standard cases can use the statutory template ("Musterprotokoll"), while custom arrangements require a notarized agreement.
- Notarization appointment, after which the company initially exists as a "GmbH i.G." (in formation).
- Payment of share capital (at least half, i.e. 12,500 euros for a GmbH, before registration).
- Commercial register entry — full liability protection only applies after this; until then, directors and shareholders may face personal liability in certain circumstances.
- Trade registration and tax registration with the tax office.
Common misconception: immediate liability protection
A widespread misconception is that liability protection applies immediately upon notarization or trade registration. In fact, directors and shareholders of the pre-company remain personally liable under certain conditions until commercial register entry — this is standard under German GmbH law, not a peculiarity of any particular service provider.
Ongoing obligations
- Annual financial statement disclosure via the Federal Gazette.
- Proper bookkeeping under German commercial law (HGB).
- Shareholder meetings for major decisions.
- Registration of beneficial owners in the transparency register.
Conclusion
Whether a GmbH or UG suits you depends heavily on available capital and planned profit use. The UG is a sensible low-capital entry point, but should be understood as a stepping stone toward a full GmbH rather than a permanent solution.