UG (haftungsbeschränkt) Formation Guide — Germany's Startup GmbH

What is the minimum capital for a UG in Germany?

Under GmbHG §5a(1), the minimum share capital for a UG (haftungsbeschränkt) is €1. In practice, most founders use at least €100–€500 to cover initial costs before revenue. However, any amount from €1 is legally valid. The capital must be paid in cash — contributions in kind (Sacheinlagen) are not permitted for UG formation.

How does the 25% profit reserve work for a UG?

GmbHG §5a(3) requires that 25% of annual net profit (Jahresüberschuss) be allocated to a statutory reserve each year. This reserve cannot be distributed as dividends. It accumulates until the total of share capital plus reserve equals €25,000, at which point the UG may convert to a GmbH. The reserve is an equity balance on the balance sheet, not a separate bank account.

How long does UG formation take in Germany?

UG formation using the Musterprotokoll typically takes 2–4 weeks from notary appointment to Handelsregister entry. Custom articles require additional drafting time. The Registergericht processes the filing in 1–4 weeks depending on the court. The UG has no legal personality until the Handelsregister entry is complete.

Can a non-German resident be the sole director of a UG?

Yes. GmbHG imposes no residency requirement on the Geschäftsführer (managing director). A non-resident director is fully valid. However, a local contact address for Finanzamt correspondence and legal service is advisable. If the director consistently exercises management outside Germany, the UG may have its effective management (Ort der Geschäftsleitung) located abroad, creating potential double-taxation issues.

Can I use the Musterprotokoll for a UG formation?

Yes, provided the formation has no more than 3 shareholders and 1 managing director. The Musterprotokoll is the standardised articles of association form introduced by MoMiG, and notary fees for Musterprotokoll formations are significantly lower (approximately €200–400 vs. €600–1,200 for custom articles). The template is very limited — any bespoke shareholder or governance provisions require custom articles.

Is a UG treated differently from a GmbH by German banks?

Some traditional German banks are reluctant to open accounts for UGs with very low share capital (e.g. €1–€100), viewing them as higher credit risk. Fintech banks such as Penta, Qonto, and Holvi are more willing. For higher-value transactions and trade finance, converting to a GmbH with €25,000 capital removes this friction. The UG is a fully legitimate legal form and is not inherently treated as a lesser entity for contracting purposes.

What are the total formation costs for a UG?

Using the Musterprotokoll: notary fees ~€200–400, court registration fee ~€150, total excluding capital approximately €500–700. With custom articles drafted by a lawyer: notary fees ~€600–1,200, legal drafting ~€500–1,000, court fee ~€150, total approximately €1,500–2,500. Professional formation services (including address) start from approximately €990. The share capital itself (minimum €1) is deposited into the company account and is available for business use after registration.

Does a UG pay VAT in Germany?

A UG is subject to German VAT (Umsatzsteuer) under UStG §2 if it carries out economic activity. It must register for VAT with the Finanzamt once annual turnover exceeds €22,000 (Kleinunternehmerregelung under UStG §19). Below this threshold it may opt for the small business exemption. A USt-IdNr (DE + 9 digits) is required for all intra-EU B2B transactions regardless of turnover.

Can a UG hold shares in other companies?

Yes. A UG can act as a holding company and hold shares in subsidiaries (GmbH, UG, or AG). Dividends received from a German GmbH subsidiary qualify for the §8b KStG participation exemption (95% exempt from Körperschaftsteuer). This makes even a UG with minimal capital an effective holding vehicle for German corporate structures, though the mandatory reserve restriction still applies to the UG's own profits.

What happens if a UG does not retain 25% of profits?

Failure to allocate the mandatory 25% annual reserve violates GmbHG §5a(3) and constitutes an unlawful distribution. The directors bear personal liability for any resulting loss to the company. The Finanzamt may also challenge the accounts. If a shareholder receives distributions that should have gone to the reserve, they are required to repay them. A Steuerberater reviews the annual accounts to ensure compliance.

How does a UG convert to a GmbH?

Under GmbHG §5a(5), once share capital plus accumulated statutory reserve equals €25,000, the shareholders resolve to increase capital to at least €25,000 via the existing reserve. A notarised shareholder resolution, updated articles of association, and capital increase documentation are filed with the Handelsregister. The Handelsregister amends the entry, replacing UG (haftungsbeschränkt) with GmbH. No new legal entity is created.

Is a UG suitable for a holding company structure?

A UG can serve as a holding company but the mandatory reserve requirement applies to profits of the UG itself. Since dividend income from German subsidiaries is 95% exempt under §8b KStG, a UG holding company typically accumulates little taxable profit, meaning the reserve requirement is rarely a material constraint in a pure holding scenario.

What documents are required to form a UG?

Required documents: valid passport copies of all shareholders and directors, current proof of address (utility bill or bank statement, dated within 3 months), and if using a legal entity as shareholder — current Handelsregister extract and articles of association of that entity. All foreign documents must be translated into German by a sworn translator. If a director cannot attend the notary, a notarised power of attorney is required.