GmbH vs UG in Germany: Capital and Formation Guide
The legal difference between a GmbH and a UG is not simply 25,000 euros versus one euro. The decisive questions are how much operating capital the company needs, whether investors and customers accept a UG, and whether the founders can maintain corporate formalities from day one. This is general information, not individual legal or tax advice.
Share capital is a company asset, not a government fee
A GmbH has statutory share capital of at least 25,000 euros. In a cash formation, at least 12,500 euros and at least one quarter of each cash share generally must be contributed before registration; the balance is still a receivable from the shareholders. Once registered, the company may use paid-in cash for legitimate business expenses. It cannot simply repay capital to founders in violation of capital-maintenance rules. See section 5 and section 7 GmbHG; section 30 contains the capital-maintenance rule.
A UG may register with less than 25,000 euros, but the stated amount must be fully paid in cash and cannot be provided in kind at formation. Capital should match the cash forecast, not the statutory minimum. Forming with nominal capital and immediately depending on shareholder loans can produce avoidable insolvency, accounting, and subordination questions.
The reserve slows distributions, not operations
A UG must place one quarter of its annual surplus, adjusted for a loss carried forward from the prior year, into a statutory reserve. Section 5a GmbHG permits that reserve for specified purposes, including a formal capital increase and loss coverage. The rule is not a promise that the bank account will steadily reach 25,000 euros, because operating losses and lawful uses can change the balance.
Reaching an accounting balance does not automatically turn a UG into a GmbH. The shareholders normally resolve a capital increase and amend the articles before a notary, then file the change in the commercial register. The statutory UG rules should be read with the company's accounts and articles before planning a conversion.
Choose with financing and failure scenarios
Model the first twelve months under three cases: expected sales, six months of delayed revenue, and the loss of the largest customer. Include tax prepayments, payroll and social contributions, bookkeeping, insurance, refunds, warranty claims, and wind-down costs. If the entity would become unable to pay after one ordinary setback, the nominal ability to form it is irrelevant.
Also ask prospective investors, banks, landlords, and enterprise buyers whether they accept a UG and whether personal guarantees will still be demanded. The federal business-form comparison provides a useful official starting point. Choose a UG for a lean, well-funded plan below the GmbH threshold; choose a GmbH when the business already needs substantial working capital. In either case, separate private and company money and obtain advice before the first binding contract.
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