Often referred to colloquially as the “mini-GmbH” or the “1-Euro-GmbH”, the provisional limited liability company or Unternehmergesellschaft (UG) is not a business structure in its own right but a variant of the regular GmbH. It is especially suitable for entrepreneurs or freelancers who want to limit their liability risk, but want to start with a lower share capital than is required for a GmbH. Theoretically, it is possible to establish a UG with as little as one euro, in comparison to the 25.000 euros required for a GmbH.
Once established, the UG is required to set aside at least 25 percent of its net annual profit as a reserve (known as “Ansparpflicht”). As soon as the reserved capital has reached 25.000 euros, this requirement to set aside profit ends and the company can be converted to a regular GmbH.
Key features of a UG
- Establishment: Article of association; entry into commercial register
- Capital: 1 to 24.999 euros
- Governance: Managing director, shareholders’ meetings, and supervisory board for companies with more than 500 employees
- Liability: Up to the amount of capital contribution, or the amount of company assets; shareholders usually exempt from private liability
- Taxation: Liable for corporation tax, solidarity surcharge, trade tax, capital gains tax, sales tax and income tax, if applicable
How to establish a provisional limited liability company in Germany
Although the minimum capital requirement for setting up a UG is smaller than that required for a GmbH, there is no option to found the company with contributions in kind (e.g. valuables such as real estate rather than cash). This means that the agreed minimum amount of capital must be fully paid in before the UG can be entered into the commercial register. Founders may therefore wish to take out a business loan or grant to ensure they have enough capital.
The UG is founded by means of a partnership agreement, certified by a notary and submitted into the commercial register. This document usually outlines the following details:
- Company name
- Object of the UG
- Amount of share capital
- Capital contributions of individual shareholders
Once the article of association has been submitted and the company has been entered into the commercial register, the founders will also have to complete the company set up process by applying to the trade office, Chamber of Commerce and the tax office.
Liability of UGs
As with a regular GmbH, the shareholders’ liability is limited to their capital contribution and the company’s assets. Generally, any debt will be paid out of the company’s assets, leaving the shareholders’ assets untouched. The law requires a strict separation of company and private assets.
UGs & German business taxes
UGs are usually liable for all business taxes, including trade tax, corporation tax, solidarity surcharge, VAT and payroll tax (if employing members of staff). It may be possible to waive VAT obligations if the UG does not exceed turnover limits and can be classified as a small business (the ultimate decision lies with the tax office).
Managing a provisional limited liability company
The UG needs at least one managing director, who is employed by the company. The details of this employment relationship are regulated in the management contract. The director must be at least 18 years old and must not have been convicted of bankruptcy in the last five years. If several managing directors are appointed, they must act together unless otherwise agreed. A shareholders’ meeting, at which the managing director is appointed and the use of profits is decided, must be held at least once per year.
UGs & accounting in Germany
The UG, as a corporation, is obliged to publish its annual accounts, utilise double-entry bookkeeping and prepare annual balance sheets.