The legal forms compared
| Sole proprietorship | UG (limited liability) | GmbH | |
|---|---|---|---|
| Minimum capital | none | below 25,000 €, fully paid in, no contributions in kind | 25,000 € |
| Liability | personal, with all assets | limited to company assets | limited to company assets |
| Formation | business registration | notary, commercial register | notary, commercial register |
| Special feature | simple, few formalities | mandatory reserve: ¼ of annual surplus | well regarded by business partners |
GmbH: the classic
The share capital of a GmbH must be at least 25,000 euros (§ 5 GmbHG). The articles of association require notarial form (§ 2 GmbHG). For formations with no more than three shareholders and one managing director there is a simplified procedure with a statutory model protocol. The GmbH only comes into existence on entry in the commercial register.
UG (haftungsbeschränkt): the low-cost entry
The entrepreneurial company (UG) is a GmbH with lower share capital. It must use the designation "UG (haftungsbeschränkt)", the capital must be fully paid in before registration, and contributions in kind are excluded. Every year a quarter of the annual surplus must be put into a statutory reserve (§ 5a GmbHG). Once the capital reaches 25,000 euros, these special rules no longer apply.
Sole proprietorship and branch
A sole proprietorship comes into being with the business registration – quick and inexpensive, but with personal liability. Instead of a new company, foreign companies can also register a branch in Germany. Which option suits you for tax and organisational purposes depends on the business model.
How we support you
In our economic consulting we analyse your market, risks and goals with you and prepare the decision on the right legal form. For notarial and tax steps we work with the relevant specialists.
Frequently asked questions
What is the minimum capital for a UG?
The law only says that the share capital may be below 25,000 euros. It must be paid in full before registration. Very low capital can quickly become tight in day-to-day business, though.
Do I need a notary for a GmbH?
Yes. The articles of association require notarial form, including with the model protocol.
Can I switch from a UG to a GmbH later?
Yes. Once the share capital is increased to at least 25,000 euros, the special UG rules no longer apply.
Sources
This guide gives a general overview and is not legal or tax advice. Rules and fees can change – the information from the responsible authority is what counts.