Are you planning to register UG (Mini GmbH) in Germany (UG Gruendung)? Let starts from here. In Germany, there are different types of Companies which you can form. Most famous is the GmbH “Gesellschaft mit beschränkter Haftung” (Company with limited liability). There is also one form of a company which came in existence in the year 2008. Its called UG or Mini GmbH. The Unternehmergesellschaft, abbreviated UG, is a form of company in which the liability is limited to the assets of the company which is particularly suitable for entrepreneurs especially for starting up a business with little capital. The UG is also called as a “Mini-GmbH” or”1-Euro-GmbH”. A company name as a UG means that business partners must always be given the suffix “(haftungsbeschränkt)” after the company name.
Number of People required to register a UG
Even a single person can register the business form of a UG, a so-called one-person UG. This means that you do not have to join forces with other people to form a UG. In addition to natural persons, i.e. people, legal entities, i.e. other companies, can also be partners in a UG.
Register UG (Mini GmbH) in Germany – 6 steps to your Mini GmbH
Once you have the business idea and the name for your business, you can start the process of registering your UG. Below you will find how to register UG (Mini GmbH) in Germany (UG Gruendung) at first:
What are the advantages and disadvantages of a UG (UG Gruendung) compared to a GmbH?
Every legal form has advantages and disadvantages. It is important for you as a founder to choose a suitable legal form that meets your requirements. We will show you the particularly relevant advantages and disadvantages of an Unternehmergesellschaft so that you have a sound basis for making a decision on the legal form of your future company.
Advantages of the UG
The main advantage of a UG is that they do not require a share capital of € 25,000 as it is required in registering GmbH. In addition, the formation costs (notary and court costs) are lower when the company is formed with a sample protocol. For a small business operation, the UG is therefore often worthwhile as a corporate form. However, to register UG (UG Gründung) in Germany also has disadvantages. For example, a UG enjoys less trust among customers and business partners. It is rather obliged to use the addition “(limited liability)”. Furthermore, 25% of the profits generated by a UG must remain in the company. What advantages does a UG offer you as a founder? We have compiled the most important ones for you!
- Limitation of liability
The legal form of the Unternehmergesellschaft (UG) was only newly created in 2008. It was able to largely replace the limited company, which had been used repeatedly in Germany until then, and in a way represents the small alternative to the classic GmbH.
In principle, the limitation of liability is probably the greatest advantage of the UG. The company is a legal entity. This means that the entrepreneur – with a few exceptions – is not liable with his or her private assets, but only the assets of the company are available for liability.
Personal liability is only conceivable in exceptional cases, for example, if there are additional guarantees by the partner, 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.
- Share capital
This legal form is also affectionately known as “1-Euro-GmbH” – and rightly so, as the foundation can theoretically be carried out with a minimum of share capital. If 12,500 euros of capital are available, a choice can be made between the classic GmbH and UG. In general, if you found a UG but later save capital, you can easily convert your UG into a GmbH if you wish.
The low capital requirement when founding a company is one of the biggest advantages of this legal form and 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 restricted to whatever business you want to set up. A UG is always a good, simple way to start a business.
- Foundation as an individual
Can only several people found a UG together? Fortunately we can answer this frequent question with a clear no! You can also found an UG alone. Starting as a single person means that you enjoy all the advantages as if two or more people were starting the company.
- Personnel costs
Whoever operates a company with the legal form of a UG can of course claim the personnel costs as operating expenses. This means that these costs reduce the profit and thus the basis for calculating the tax burden also decreases.
Disadvantages of register the UG
Where there is a lot of light, there is also shadow – and so, of course, with all the arguments that speak for the legal form of the UG, there are also factors that must be viewed critically.
This begins with the founding of the company. You only need very little capital, but this must be contributed in cash. Contributions in kind as with the GmbH are therefore not allowed. The formalities of founding a company are, as with a GmbH, more extensive and therefore more expensive than if you chose a partnership as your legal form.
If the company then makes a profit, these surpluses cannot be distributed in full immediately. Instead, pro-rata reserves must be formed on an ongoing basis until the prescribed savings amount of 25,000 euros is reached. As soon as this is the case, the UG is converted into a GmbH.
If the company is successful, it will therefore continue to develop little by little until it becomes a genuine, classic GmbH. Here, care is also taken to ensure that this accumulation of reserves is not circumvented by hidden profit distributions. Your advantage: as soon as the savings amount is reached, the profits can be paid out in full. From a tax point of view, it should also be noted that corporate income tax and solidarity surcharge are of course also payable in the case of a UG.
Last but not least, it should also be mentioned that the reputation of the UG still does not quite match that of a real GmbH. This can also be substantiated in a well-founded way, because after all, there is less capital available. Thus, lenders, be they banks, have certain reservations about a UG.
You will get a lot fake and strange letters after the registration in the commercial register (Handelsregister). Please Pay attention to this and do not fall for it when you found a UG. At least think twice before you do any payment.
What to do next after you register UG (Mini GmbH) in Germany (UG Gruendung)
Once you are done with the company registration, you need to register your business at different offices in Germany. Below is a short list:
- Registration with the Finanzamt
- Trade association (Berufsgenossenschaft)
- Employment agency (Agentur für Arbeit)
Responsibilities after the registration of the UG
Anyone setting up a company is directly confronted with responsibilities and duties. Every month you need to perform few responsibilities as a company. The UG is obliged to keep books (double-entry bookkeeping), submit tax returns and prepare annual accounts.
- Tax consultant – For many purpose you will need a tax consultant. Please try to find your suitable Tax consultant as soon as possible.
- Monthly Bookkeeping (doppelte Buchführung) – Every month, you need to close your book. All the incoming and outgoing Invoices needs to be booked. This will be done by the tax consultant every month.
- Payroll – If you have a fixed employee or salaried employee, You are bound to do the monthly payroll and send all the details to the tax consultant so that he or she can prepare the salary slip.
- Taxes – If you have an employee then you need to pay income tax (Lohnsteuer), Solidaritätszuschlags and church tax (Kirchensteuer) as a company.
- Licenses – For many business in Germany, you need to get license before you start working.
Can I convert a UG (Mini GmbH) into a GmbH in the future?
Yes. 25% of the annual net profit must remain in the company as reserves until the share capital and reserves amount to € 25,000. This means that profits may initially not be paid out at 100%, but only at 75%. As soon as the share capital and the reserves together amount to € 25,000, the shareholders can pass a resolution to increase the share capital by which the reserves become part of the share capital. With this procedure the UG becomes a GmbH. As soon as the capital increase resolution has been passed, the obligation to set aside reserves no longer applies, so that 100% of the profits may be distributed. Alternatively, the shareholders carry out the capital increase through cash contributions from their own funds.
If you decide to set up a UG, you can conclude by considering a few points:
To form a UG or Mini GmbH is an ideal and attractive possibility to start a business with little equity and start-up capital. Furthermore, you have the advantage of a limited liability, which does not affect your private assets. In addition, there are many entrepreneurial freedoms that you have as the sole shareholder and managing director.
Due to the limited liability, however, the UG does not enjoy a good reputation, as your creditors will not get their money in an emergency. Furthermore, 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! we hope that you have an idea now how to register UG (UG Gründung) in Germany
Disclaimer: We have analysed and researched enough to provide you exact information. But we don’t guarantee the accuracy of the data. Regulation and Laws tends to change from time to time. We recommend you to visit the Government website for actual information. The purpose of this article is to provide you first hand information so that you can start your research.