Founding a UG gives entrepreneurs a way to establish a limited liability company without the GmbH share capital of €25,000. Learn what the setup involves, from the first documents to tax registration. 

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What Is a UG and Who Can Found One?

A UG, or Unternehmergesellschaft haftungsbeschränkt, is a German limited liability company and a special form of GmbH. The UG is a separate legal entity, so the company’s debts and obligations are separate from the shareholders’ private assets.

Some people call a UG a “mini-GmbH” because it offers limited liability in the same way as a GmbH, but you can start one with much less share capital. The legal minimum is €1.

A UG can be set up by one person, who can also act as its managing director. Shareholders can be individuals or legal entities. The company needs at least one shareholder, a business purpose, a registered office and a business address in Germany. Its name must include “UG (haftungsbeschränkt)”.

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What Are the Requirements for Founding a UG?

You can found a UG with €1 in share capital, but most founders need more to cover the notary, registration and early business costs. The full share capital must be paid in cash before registration in the Commercial Register. Contributions in kind can’t be used as share capital when the UG is formed.

The company also needs a suitable name, a clear business purpose and a registered office in Germany. Before registration, the founders need notarised articles of association. If the requirements are met, they can use the standard template protocol, or Musterprotokoll, instead. This is available for up to three shareholders and one managing director.

Founding a UG in Germany: Step-by-Step

1. Prepare the UG

First, decide who the shareholders are and how the ownership will be split. Decide what the business will do and choose a company name. Then set the share capital and prepare the articles of association, or use the standard template protocol if you qualify.

2. Complete the formation

Have the formation documents notarised, then open a business account for startups & SMBs and pay in the agreed share capital. The notary submits the application to the Commercial Register, and the UG becomes a legal entity once it’s registered.

3. Register and prepare for business

Submit the tax registration questionnaire to the local Finanzamt to obtain your tax number, if your business is subject to trade registration, with the local Gewerbeamt (trade office). If your business needs a VAT ID, apply for one. The company is automatically affiliated with the relevant IHK (Chamber of Industry and Commerce) or HWK (Chamber of Crafts). You should also set up your accounting system and keep company and personal finances separate from the beginning.

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How Much Does Founding a UG Cost?

The €1 share capital is only the legal minimum. You’ll also pay notary, Commercial Register and business registration fees, with bank, legal or tax services adding to the total.

Cost itemTypical cost
Share capitalFrom €1 (belongs to the company)
Notary feesFrom €105 for a one-person UG using the standard template protocol
Commercial Register€225
Business bank accountDepends on provider
Legal or tax adviceOptional
Other administrationVaries

What Are the Advantages and Disadvantages of a UG?

Advantages:

  • minimum share capital of just €1
  • limited liability
  • relatively straightforward formation
  • option to convert to a GmbH later

Disadvantages:

  • 25% of annual profit after loss carried forward allocated to a legal reserve until €25,000 in capital
  • no contributions in kind as share capital at formation
  • ongoing accounting and reporting obligations
  • very low initial capital and limited funds for early operating costs
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What Taxes Does a UG Pay in Germany?

A UG is taxed as a corporation and can be subject to several taxes:

  • Corporate income tax: currently 15% of the UG’s taxable profit.
  • Solidarity surcharge: 5.5% of the corporate income tax.
  • VAT: 19% on taxable goods and services, with reduced rates or exemptions in some cases.
  • Trade tax: paid to the municipality where the UG operates, with the amount depending on the local rate.
  • Wage tax: withheld from employees’ salaries and paid to the tax authorities.

When the UG distributes profits to shareholders, the distribution can trigger tax for the shareholders.

What Happens After Founding a UG?

Once the UG is registered, it has ongoing accounting, tax and reporting duties. You’ll need to keep proper business accounts for founders, use double-entry bookkeeping, prepare and publish annual financial statements and meet the required filing deadlines.

The UG must file its tax returns and pay any taxes due on time. If the company’s details change, you’ll also need to update the Commercial Register.

One key UG rule is the 25% reserve requirement. Each year, 25% of the annual profit after any loss carried forward must go into a legal reserve. This continues until the UG increases its share capital to at least €25,000, and it can then be converted into a GmbH.

FAQ

How much money do I need to start a UG in Germany?

There’s no set sum for every company. Next to the share capital, you’ll also need to cover notary, registration, business registration and other formation costs. You should also have enough funds for your initial operating expenses.

Can I found a UG with €1?

Yes. €1 is the legal minimum. In practice, many founders set the share capital above the minimum to have enough funds to cover the company’s initial expenses. The full agreed amount must be paid in cash before registration. 

Can one person found a UG?

Yes. A single person can be the sole shareholder and managing director.

Can a foreigner found a UG in Germany?

Yes. German citizenship isn’t required to found a UG or become its shareholder. Foreign founders may, however, need to provide additional documentation, depending on where they live and their individual situation.

Do I need a German bank account to found a UG?

Not necessarily. The UG needs an account into which the share capital can be paid before registration, but German law does not specifically require a German bank account. Provider and notary requirements may vary.

Can a UG be converted into a GmbH?

Yes. Once the UG has built up €25,000 in share capital and legal reserves, you can convert it into a GmbH. This requires a shareholder resolution and registration in the Commercial Register.

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