The Unternehmergesellschaft (haftungsbeschränkt), or UG, is a form of German limited liability company under the GmbH Act (Section 5a GmbHG). It can be formed with a symbolic share capital starting at €1, but must set aside at least 25% of its annual net profit into a statutory reserve each year until it reaches the €25,000 minimum capital otherwise required for a GmbH. As the name suggests ("haftungsbeschränkt" = "with limited liability"), liability is limited to the company's assets.
What is a UG (Unternehmergesellschaft)?
The UG is not a separate legal form but a variant of the GmbH with reduced minimum capital. It was introduced in 2008 as part of the GmbH reform (MoMiG) to give founders a low-capital route into limited liability – previously, the full GmbH share capital of €25,000 was required for that protection. The UG is generally governed by the same GmbH Act, supplemented by special rules on minimum capital, the reserve requirement, and the standard incorporation protocol.
In business succession and M&A practice, the UG frequently serves as an acquisition vehicle: buyers set up a UG to carry out a company acquisition (share deal or asset deal) without having to raise the full GmbH capital upfront.
How do you form a UG?
A UG can be formed with a minimum share capital of €1; in practice, a higher amount is advisable, since €1 leaves little room to actually operate. For a one- or two-person formation with standard management arrangements, the statutory model protocol ("Musterprotokoll") can be used, reducing notary costs and time. The process in brief: have the articles of association (or model protocol) notarized, pay the share capital into a business bank account, and apply for registration in the commercial register. Limited liability only takes effect once the company is registered; before that, it exists as a "UG in Gründung" (UG in formation), during which the founders are personally liable.
How does liability work for a UG?
Once registered in the commercial register, only the company's assets are liable for a UG's obligations – not the shareholders' personal assets. The suffix "(haftungsbeschränkt)" or "UG (haftungsbeschränkt)" must therefore always be used in full business dealings; failing to do so can jeopardize the liability shield in individual cases. Before registration (UG in Gründung), the founders are personally liable for the company's obligations.
UG vs. GmbH: what's the difference?
Criterion | UG (haftungsbeschränkt) | GmbH |
|---|---|---|
Minimum capital | from €1 | €25,000 |
Reserve requirement | yes, 25% of annual net profit until €25,000 is reached | no |
Profit distribution | limited by the reserve requirement | free, as long as capital is preserved |
Name suffix | "UG (haftungsbeschränkt)" mandatory | "GmbH" |
Perception / creditworthiness | often viewed as lower creditworthiness by banks and business partners | higher acceptance, established standard |
Conversion | can convert to a GmbH at any time | – |
What are the advantages and disadvantages of a UG?
The main advantage is the low capital requirement combined with limited liability – relevant for founders with limited equity, or for buyers who want to set up an acquisition entity without a large upfront investment. On the other hand, the reserve requirement limits distributions, banks and business partners sometimes assess a UG more cautiously than a GmbH because of its thinner capital base, and the mandatory name suffix makes that thinner capitalization visible in every business dealing.
How does a UG become a GmbH?
A UG can convert into a GmbH at any time, informally, by increasing its share capital to at least €25,000 and registering this with the commercial register via a notary. No separate conversion procedure under the Transformation Act (Umwandlungsgesetz) is required. Many companies take this step once sufficient reserves have been built up or fresh capital is contributed – for example as part of a growth financing round, or ahead of a company sale, when buyers prefer an established GmbH structure.