The establishment of an entrepreneurial company (UG) offers an attractive option for many founders and start-ups in Germany. It is known as a "mini-GmbH" and enables entrepreneurs to start a business with less share capital while still benefiting from the liability restrictions of a GmbH.
In this article, we will take a detailed look at the advantages and disadvantages of founding a UG. We will consider both the legal and financial aspects as well as the practical considerations that potential founders should take into account.
The aim is to provide a comprehensive understanding that helps interested parties make an informed decision as to whether the UG is the right legal form for their business venture.
Definition UG
The entrepreneurial company (with limited liability), often abbreviated as UG, is a variant of the limited liability company (GmbH) that was designed specifically for founders with limited financial resources.
Legally enshrined in the Limited Liability Companies Act (GmbHG), Section 5a allows a corporation to be founded with a share capital of just one euro.
This legal structure was introduced in 2008 with the aim of promoting the establishment of smaller companies and strengthening the competitiveness of German corporate law in international comparison. The UG thus offers a cost-efficient alternative to the traditional GmbH without sacrificing the advantages of limited liability.
The main features of a UG are:
- Minimum share capital: Available from as little as one euro.
- Limitation of liability: The liability of the shareholders is limited to the company's assets.
- Reserve requirement: A quarter of the annual surplus must be set aside as reserves until the share capital of a regular limited liability company (GmbH) is reached.
Despite its similarities to the GmbH, the UG has specific characteristics that make it particularly attractive for certain business models. The low capital investment allows founders to start a business with minimal financial risk while benefiting from the structures of a corporation.
If you would like to learn more about how to establish a UG, please refer to the following article: How long does it take to establish a UG
What are the advantages of founding a UG?
The decision to establish a limited liability company (UG) offers numerous advantages that are particularly attractive for start-ups and smaller businesses. A key advantage of the UG is its minimal share capital. Unlike a traditional GmbH, which requires share capital of €25,000, a UG can be founded with as little as one euro. This makes it much easier to start a business and lowers the barriers to entry for founders.
Another important aspect is the limitation of liability. As with a GmbH, liability is limited to the company's assets, thereby protecting the private assets of the shareholders. This offers significant security for entrepreneurs who want to venture into a new business without risking private losses.
The advantages of a UG include:
- Flexibility in raising capital: Founders can gradually increase the capital base of their UG and strengthen their equity capital by accumulating reserves, with a view to possibly converting it into a GmbH at a later date.
- Legal structure: The UG is subject to the same legal framework as the GmbH and benefits from a structured corporate form with clear rules for management and liability.
In addition to these points, the UG enables quick and uncomplicated establishment. Documents can be prepared digitally and submitted efficiently to a notary public through services such as beglaubigt.de. This reduces the administrative effort and significantly speeds up the process of establishing a company.
The UG thus proves to be an attractive option for founders who are looking for a formal and limited liability corporate structure with low capital requirements. With the ability to act quickly and structure the company in a legally secure manner, the UG provides a solid foundation for business success.
If you want to save time when setting up your UG, you can complete many of the steps online. Find out more here: The digital notary for Germany – online formation of a GmbH or UG
What are the disadvantages of a UG?
Despite the considerable advantages, establishing an entrepreneurial company also has some disadvantages that should be considered when making a decision.
One of the main disadvantages is the strict reserve requirement laid down in Section 5a (3) of the Limited Liability Companies Act. This provision requires that a quarter of the annual surplus be allocated to statutory reserves until the share capital reaches the amount of €25,000 that would be required for a conventional limited liability company. This can significantly restrict the liquidity and financial flexibility of the UG.
Another disadvantage is the often perceived lower creditworthiness compared to companies with higher share capital. Lenders and business partners may view a UG as less stable or trustworthy, which can hinder the raising of external capital and business development.
The main disadvantages of a UG include:
- Financial constraints: The obligation to build up reserves ties up capital that could otherwise be used for investments or working capital.
- Reputational damage: The low deposit may lead to a lack of trust among potential business partners.
In addition, there is an organizational burden associated with the annual accounting requirements and compliance with formal regulations. This can be particularly challenging for smaller companies, which may not have the necessary resources.
In conclusion, it can be said that although the UG is an economically attractive option for setting up a limited liability company, it should be carefully weighed against the possible financial and operational restrictions.
The decision for or against establishing a UG should always be made after a thorough analysis of the specific corporate goals and needs.
To avoid making mistakes when founding your UG, you should definitely seek the help of an experienced notary. For some steps, such as registering with the commercial register, it is also necessary to make an appointment with a notary. If you have any questions about our service, please feel free to contact our support team.
Who is liable in a UG and to what extent?
Liability in a limited liability company (haftungsbeschränkt) generally follows the rules that also apply to a GmbH, as laid down in the GmbH Act. The main feature of this type of company is the limitation of liability to the company's assets. This means that the personal assets of the shareholders are protected against claims by creditors, provided that there are no illegal acts or breaches of duty of care.
Section 13 (2) GmbHG clarifies that the company is liable with its corporate assets. This offers shareholders significant security, but does not protect them from all risks.
For example, managing directors of a UG can be held personally liable if they fail to perform their duties properly. This includes, in particular, the obligation to file for insolvency in a timely manner and to pay taxes and social security contributions correctly.
The liability risks include:
- Managing director liability: Personal liability for breaches of duty.
- Piercing the corporate veil: In rare cases, piercing the corporate veil may occur if the separation between shareholders and the company is not clearly maintained.
Compliance with these legal requirements not only protects the company, but also the personal interests of the shareholders and managing directors. Correct and prudent handling of company affairs is therefore crucial in order to effectively exploit the advantages of limited liability.
Only by carefully observing legal requirements and ensuring transparent corporate governance can the risks of personal liability be minimized. Notaries and legal advisory services, such as those offered by platforms such as beglaubigt.de, can provide support in this regard. We put you in touch with notaries who inform managing directors about their obligations and possible liability risks when founding a UG.
What is meant by the savings obligation of a UG?
The savings obligation of the entrepreneurial company (with limited liability) is an essential feature of this type of company and is laid down in § 5a (3) of the GmbH Act. This provision requires UGs to pay a quarter of their annual surplus into a statutory reserve until the company's share capital has grown to €25,000. This amount corresponds to the minimum share capital of a traditional GmbH.
This mechanism is intended to strengthen the capital base after the establishment of a UG and put the company on a solid financial footing. The savings requirement aims to increase the financial resilience of the company and ensure that sufficient equity capital is available to operate the business sustainably.
The following points are relevant with regard to the savings obligation:
- Purpose of creating reserves: Protection of creditors by strengthening equity capital.
- Impact on liquidity: Restriction of available funds for operating expenses and investments.
Although the UG's obligation to save serves as a safety net, it can also be perceived as a restriction, as it limits the company's financial flexibility. Especially in the early stages of business development, the obligation to build up reserves can hamper growth by reducing the amount of capital available for operational purposes and expansion.
Despite this challenge, the obligation to save also offers an opportunity to discipline financial management and prepare the company for future challenges.
Strict compliance with this regulation can help to strengthen the confidence of investors and lenders by demonstrating the seriousness and long-term commitment of the management.
If you would like to work with one of our partner notaries throughout Germany to set up your UG, you can send us an enquiry at any time.
How much tax does a UG pay?
The taxation of an entrepreneurial company (with limited liability) follows the same basic principles as that of a limited liability company (GmbH), as the UG is treated as a form of GmbH under commercial law. This includes corporate income tax, trade tax, and sales tax, which are the most important types of tax for a UG.
Corporate income tax is levied on the taxable income of the UG and currently amounts to 15%. In addition, there is a solidarity surcharge, which amounts to 5.5% of the corporate income tax. This tax must be paid regardless of profit, which can be a financial burden for newly founded UGs.
The main types of tax for a UG include:
- Corporate income tax: 15% on taxable income.
- Trade tax: Variable assessment rate, depending on the location of the business.
- Sales tax: Regular rate of 19%, reduced rate of 7% on certain goods and services.
In addition to corporate income tax, every UG is subject to trade tax. The effective trade tax rate depends on the assessment rate of the municipality in which the UG is based. Trade tax reduces the assessment basis for corporate income tax due to its deductibility as a business expense, which can lead to a certain tax relief.
Sales tax applies to the goods and services provided by the UG. UGs are required to charge sales tax on their sales and pay it to the tax office. Regular advance registration and payment of this tax requires accurate accounting and financial management.
Proper handling of tax obligations is essential for the financial health of a UG. Tax shortfalls can lead to additional payments, interest, and penalties. Professional support from tax advisors or appropriate online services can help to effectively manage the tax burden and ensure legal compliance.
We work with notaries throughout Germany and would be happy to arrange an appointment for you with a suitable notary in your area:
How much profit can a UG make and how is it distributed?
The distribution of profits in an entrepreneurial company (with limited liability) is regulated by the articles of association and must comply with the provisions of the Limited Liability Companies Act.
A significant portion of the profits of a UG is tied up due to the statutory savings obligation, which directly affects the distribution of available profits to shareholders.
According to Section 29 of the German Limited Liability Companies Act (GmbHG), the company's net income for the year is distributed to the shareholders after statutory reserves have been formed and any losses carried forward have been taken into account. Profits are typically distributed in proportion to the shareholders' shares in the company's share capital, unless the articles of association provide for a different distribution.
Aspects relevant to profit distribution include:
- Savings obligation: At least 25% of the annual surplus must be allocated to statutory reserves until the share capital reaches €25,000.
- Shareholder resolutions: Decisions on the appropriation of remaining profits after reserves have been formed.
The distribution of profits is not only a question of liquidity, but also of strategic corporate management. UGs can decide to reinvest a larger portion of their profits in order to promote growth or improve creditworthiness. Such decisions must be carefully weighed in order to secure the long-term development of the company.
Compliance with these legal requirements and careful planning of profit distribution are crucial for financial health and growth after the establishment of a UG. A clear and transparent profit distribution policy promotes shareholder confidence and supports stable corporate governance.
If you are still unsure whether a UG is the right business form for you, the following article may also be helpful: When is it worthwhile to establish a UG?
How does a notary assist in the formation of a UG, and how can beglaubigt.de help?
The establishment of a UG requires notarial assistance to ensure that all legal requirements are met. According to Section 2 (1a) of the German Limited Liability Companies Act (GmbHG), the articles of association of a UG must be notarized. This serves to protect the shareholders and ensure the legal conformity of the documents.
The role of the notary includes reviewing and certifying the founding documents, ensuring compliance with legal requirements, and advising the founders on their rights and obligations. It is particularly important to carefully draft the articles of association, which form the basis for the operational and legal structure of the UG.
Important notarial tasks when establishing a UG are:
- Verification of the identity of the founding shareholders and their legal capacity.
- Ensuring that the share capital has been duly paid up.
- Registration of the UG in the commercial register.
The beglaubigt.de platform offers valuable support for setting up a UG by simplifying and speeding up the process of scheduling appointments and preparing documents with a notary. By providing digital tools, founders can prepare and submit important documents online, which significantly reduces time and effort.
In addition, beglaubigt.de supports founders in monitoring their process until the final commercial register entry of the UG. This service greatly simplifies the process and allows entrepreneurs to focus on other aspects of starting a business. The integration of notarial services and digital platforms such as beglaubigt.de improves the efficiency of the start-up process and increases legal certainty for all parties involved.
Fazit
The decision to establish a limited liability company (UG) offers both significant advantages and specific challenges. The low share capital requirements and limited liability make the UG an attractive option for founders who want to start with limited resources. In addition, the legal structure of the UG enables fast and flexible corporate management.
However, the strict regulations on reserve formation and the potential restriction of creditworthiness are important considerations that should be taken into account before establishing a UG. These legal and financial conditions can impair liquidity and hinder the growth of the company.
The role of notaries and the support provided by platforms such as beglaubigt.de are crucial for the smooth running of the start-up process and compliance with all legal requirements. These services offer essential support in minimizing administrative effort and making the start-up process efficient.
In conclusion, establishing a UG offers an excellent opportunity to implement entrepreneurial ideas with a formal and professional corporate structure. Despite the challenges associated with this type of company, a well-planned UG can provide a solid foundation for lasting business success.
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