UG vs GmbH: Which One Is Better for Your Business?

UG vs GmbH is one of the first decisions you'll have to sort out when setting up a company in Germany. Compare the key differences in capital, liability, setup and banking and learn about the specific requirements foreign founders need to consider.

What Is a GmbH?

A GmbH (Gesellschaft mit beschränkter Haftung) is Germany's standard limited-liability company. It has its own legal identity, so it is responsible for its debts rather than its shareholders.

A GmbH has €25,000 in share capital, but you generally only need to pay in €12,500 prior to registration. If you already have that amount available, going with a GmbH may make sense from day one, especially if you're planning to deal with larger clients or established business partners.

What Is a UG?

A UG, or Unternehmergesellschaft (haftungsbeschränkt), is the lower-capital route into the GmbH structure.

You can legally start with just €1 in share capital. You have to pay the entire share capital in cash before registration, and 25% of annual profits, after losses carried forward, has to be put into a statutory reserve. Once the company formally increases its registered share capital to at least €25,000, the special UG rules no longer apply. That said, the company doesn't automatically become a GmbH.

UG vs GmbH: Key Differences

Here's a quick look at what you'll need to put in, how profits work and what each option means for your business.

Can Foreign Founders Open a UG or GmbH in Germany?

You can set up either one as a foreign founder, own the company and, if the rules allow it, be its managing director. You do not generally need a German co-founder. Depending on your circumstances, you might not even need to travel to Germany to incorporate it. With online notarisation, you can complete an eligible GmbH or UG formation by video through the notary portal. You’ll need a suitable ID with an activated eID function, plus a smartphone and a computer or tablet. The exact ID requirements depend on where you’re from.

Opening the bank account can take more work. The provider needs to verify the company as well as its owners and directors and may ask about the source of the funds.

Setting up or owning a German company doesn't give you the right to live or work in Germany.

What if you're a non-EU founder?

As a non-EU founder, you’ll usually need a residence permit for self-employment if you want to live in Germany and run your business there. The permit is assessed under Section 21 of the German Residence Act (AufenthG). Authorities may consider the business’s economic interest or regional demand, its potential benefit to the German economy, and how you plan to finance it.

If you're starting from abroad, our guide on how to start a business in Germany as an international founder covers the main requirements and steps involved.

GmbH vs UG: Which Is Better?

To choose between a GmbH and a UG, look at where your business is today and what you expect from the company next.

A UG may be a better fit if:

• You have limited capital to start with.
• Your business has relatively low running costs.
• You don't expect to need outside finance soon.
• A lower level of corporate credibility isn't a major concern.

You’re comfortable keeping some profits in the company to build up its reserves.A GmbH may be a better fit if:

• You have €25,000 in share capital.
• You're likely to work with bigger B2B clients, investors or lenders.
• Having an easier time with financing and a more established company structure is important to you.
• You'd rather not have to put part of your annual profit into the UG's statutory reserve.

The right choice comes down to your capital needs, business model and growth plans. For non-EU founders who plan to move to Germany, the company's financing and business prospects also matter for a self-employment residence permit.

How Banking Works for a UG vs GmbH

In practice, a dedicated business account is needed during formation to pay the share capital and is important afterwards for keeping company transactions separate from personal finances.

If the shareholders or directors live abroad, the bank may ask for a few extra details. Expect requests for ID, company and ownership documents and information about where the funds come from. They may also take a closer look at a UG with very little capital.

If you'd rather sort this out online, Finom is a great option. Eligible UGs and GmbHs can apply while they're still being formed, so you can use the account to pay in your share capital before registration. Once your business is up and running, you can pick a plan based on how you use the account. Basic covers the essential banking needs for smaller businesses, Smart gives you higher limits and Core provides more capacity for companies with more complex needs.

Want to find out what you'll need? See How to Open a Business Bank Account in Germany for the details.

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FAQ

Can one person establish a UG or GmbH in Germany?

Yes. Both a UG and a GmbH can have a single shareholder. That person can also be the company's managing director.

GmbH vs UG: Are they taxed differently?

Not in the main respects. Both face the same main business taxes: corporation tax, the solidarity surcharge and trade tax. The bigger difference is what happens to the profit because a UG has to put 25% of its annual surplus into a statutory reserve.

Does the founder have to be personally liable as a shareholder?

Generally, no. The company itself is responsible for its liabilities, with its assets used to cover them. However, a person who acts on behalf of the company before registration can be personally liable.