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UG or GmbH? Comparison of Legal Forms, Formation Costs and Practical Tips from the Notary

Would you like to set up your own GmbH or UG and are wondering what the difference is? Our compact guide shows the differences in liability, share capital, external perception and typical use cases, including pros and cons.

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Table of contents

At a glance –
UG or GmbH

  1. Clarify your capital requirements and planned growth path.
  2. Consider your target partners (banks, investors, customers) and their expectations.
  3. Decide on the formation capital and, where relevant, retention vs. distribution of profits.
  4. Plan the financial and legal structure (reserves, appropriation of profits).
  5. Seek individual advice (tax adviser/lawyer), in particular on grants and subsidised loans.

Comparison: GmbH vs. UG

  • Difference in share capital: a UG can be formed with share capital of 1 euro, a GmbH requires share capital of at least 25,000 euros (of which half, 12,500 euros, must be paid in on formation)
  • Difference in the appropriation of profits: due to the statutory retention requirement, a UG must retain at least 25% of its annual profit in the company until the share capital reaches 50,000 euros. A GmbH can distribute profits immediately
  • Formation costs: notary fees and commercial register costs are almost identical for standard formations of a UG and a GmbH
  • Requirements: forming a GmbH and forming a UG both require notarisation, registration in the commercial register and the appointment of a managing director
  • Reputation: the GmbH is regarded as the established form of corporation and may therefore enjoy greater trust among banks, investors and business partners, while a UG can be perceived as a quick, low-cost formation
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Decision guide: GmbH or UG

  • How much share capital is available? If it is less than 12,500 euros, only a UG comes into consideration.
  • What is the purpose of the company, and do I want to attract investors? If so, choose a GmbH because of the higher share capital and better reputation.
  • Am I willing to leave future profits in my UG until the required share capital is reached? If so, I can start now with a UG and a lower contribution than a GmbH requires.
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Formation checklist for your notary appointment (GmbH and UG)

  • Choose a company name
  • Define the company purpose
  • Have the name and purpose checked for registrability by the Berlin Chamber of Commerce (IHK)
  • Determine the address and registered office
  • Choose the legal form (GmbH or UG)
  • Determine the amount of share capital
  • Determine the shareholders and their shares
  • Appoint the managing director(s)
  • Define the power of representation of the managing directors
  • Arrange the notary appointment
  • Open a bank account
  • Pay in the share capital
  • Send proof of payment to the notary
  • Pay the commercial register fees
  • Submit the information to the tax office
  • Register the beneficial owner in the transparency register
  • Official registration in the commercial register
A night-time street in the rain, lined with tall buildings and colourful glowing Japanese neon signs. Cars drive through wet streets while a hazy blue mist fills the air, creating a vibrant urban scene.

Practical comparison – when is which form appropriate?

For a formation with limited start-up capital, the UG (haftungsbeschränkt) is recommended as a quick, low-cost solution.

For companies with growth prospects and access to investors, the GmbH is the better choice because of its higher share capital base and better reputation in B2B business.

Did you know? Once the minimum capital has been reached, a UG can be converted into a GmbH at the notary by way of a so-called capital increase.

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Practical example: GmbH vs. UG (haftungsbeschränkt)

Example: Two founding teams each set up a company with a similar business idea (e.g. a software service) and plan for 12 months of operation, borrowing requirements and future growth.

Case A: UG (haftungsbeschränkt)

  • Formation capital: 1 euro of formation capital, later a 25% retention reserve until the share capital reaches 50,000 euros.
  • Financing: often requires strong planning and possibly guarantees or subsidised loans, as banks are more cautious where the equity base is low.
  • External perception: visibly a low-cost formation; may be perceived as less established, so additional evidence of stability may be needed.
  • Risk management: the retention requirement builds up equity, but ongoing distributions are restricted; the appropriation of profits must be well documented.
  • Costs: lower formation costs, but ongoing costs (notary, register, tax advice) similar to a GmbH; managing the retention reserve requires bookkeeping.

Case B: GmbH

  • Formation capital: at least 25,000 euros of share capital, at least half of which is paid in on formation.
  • Financing: banks often prefer GmbHs because of the higher capitalisation; better creditworthiness and greater scope for borrowing are possible.
  • External perception: a stronger signal of seriousness and stability; easier to gain the trust of partners, customers and investors.
  • Risk management: no statutory retention requirement, but reserves can be built up; profits can be distributed in whole or in part.
  • Costs: higher formation costs due to the higher start-up capital, but better potential for scaling.
A futuristic city street at night with glowing blue lines on wet pavement, tall buildings with neon signs and silhouettes of people walking through the foggy atmosphere.

Our tip: If you are unsure whether a GmbH or a UG is the right choice, start with a UG. You can convert your company into a GmbH at any later time. Better to start now than to wait!

Tactical decisions before formation

  • If, as a founder, you are planning a quick market presence on a small budget, a UG is often a sensible choice. With a UG, your initial costs are considerably lower than when forming a GmbH.
  • If capital requirements, investor contacts or larger borrowing needs are the priority, an early GmbH may make more sense in order to increase credibility and financing options.

Example decision points:

  • Planned capital requirement within 18 months? A UG can increase its capital step by step; a GmbH offers a stronger external image.
  • Strategic partnerships that require trust? GmbH preferred.
  • Willingness to make a higher initial investment? A GmbH may be the better fit.
A city street stretching into the distance, lined with tall buildings on both sides. People and vehicles are scattered along the wet road, and the teal and orange lighting creates a moody, futuristic atmosphere.
A wide city street stretching into the distance, flanked by tall buildings. Cars and pedestrians move along the wet road, lit in the early evening by the reflections of street lamps and neon signs.

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