How to Choose Between UG and GmbH in Germany

1. Introduction

If you’re planning to start a business in Germany or buy a ready-made company, the first decision you’ll face is:
Should I choose a UG (haftungsbeschränkt) or a GmbH?

Both are limited liability companies — meaning your personal assets are protected — but they differ in capital requirements, reputation, and flexibility.
Choosing the right form depends on your budget, business model, and long-term goals.

2. What Is a UG (Unternehmergesellschaft)?

The UG (haftungsbeschränkt) — also known as the Mini-GmbH — was introduced in 2008 as a simplified alternative to the GmbH.
It’s perfect for startups, freelancers, and small businesses who want to operate legally with minimal initial investment.

Key Features:

• Minimum capital: from €1
• Must save 25% of annual profit until it reaches €25,000 (to become GmbH)
• Suitable for small-scale operations
• Cheaper to form and maintain
• Slightly less reputation among banks and investors

💡 Example:
If you want to start an online business or test the market, UG is a flexible and low-cost option.

3. What Is a GmbH (Gesellschaft mit beschränkter Haftung)?

The GmbH is Germany’s standard corporate structure — trusted, stable, and internationally recognized.
It’s ideal for medium and large businesses, partnerships, or investors who want credibility from day one.

Key Features:

• Minimum share capital: €25,000 (at least €12,500 paid-in at start)
• Strong reputation and reliability
• Easier access to business loans and B2B contracts
• Required for certain regulated industries
• Higher setup and maintenance costs

💡 Example:
If you plan to work with German clients, export goods, or attract investors — GmbH is the right choice.

4. UG vs GmbH: Side-by-Side Comparison

Feature	UG (haftungsbeschränkt)	GmbH
Minimum Capital	from €1	€25,000 (€12,500 paid at start)
Formation Time	2–4 weeks	2–4 weeks
Reputation	Entry-level company	Professional, trusted
Profit Allocation	25% of profit saved yearly	Free profit use
Banking & Credit	Sometimes limited	Fully accepted
Taxation	Same as GmbH	Same as UG
Ideal For	Startups, freelancers	Investors, established business
Conversion	Can upgrade to GmbH later	Already full GmbH

5. Taxes: Are There Differences?

Surprisingly, UG and GmbH pay the same taxes in Germany:

• Corporate tax (Körperschaftsteuer): 15%
• Trade tax (Gewerbesteuer): 7–17% depending on city
• Solidarity surcharge: 5.5% of corporate tax

So, the difference lies not in taxation but in image, capital, and flexibility.

6. Legal Responsibilities

Both UG and GmbH limit liability to company assets.
That means shareholders are not personally responsible for company debts — unless acting fraudulently or violating duties.

The managing director (Geschäftsführer) has legal obligations:

• filing annual reports;
• paying taxes on time;
• maintaining accurate accounting records.

Non-compliance can lead to personal liability regardless of company type.

7. Converting UG into GmbH

One advantage of UG is that you can convert it into a GmbH once the company’s retained earnings reach €25,000.
The conversion is done via a notarial act and registry update — a simple process that upgrades your status and reputation.

8. Which One Should You Choose?

Choose UG if you:

• are launching a small project or startup;
• have limited capital to invest;
• want to test the German market first;
• plan to grow and later upgrade to GmbH.

Choose GmbH if you:

• need strong reputation from the start;
• work with corporate or EU partners;
• plan to raise investment or hire employees;
• want to avoid future conversion.

💡 In short:
UG = flexibility and low entry cost.
GmbH = credibility and full corporate strength.

9. Costs and Timelines

Step	UG	GmbH
Company setup	€6,000–8,000 (ready-made)	€8,000–12,000 (ready-made)
Notary fees	included	included
Registry update	2–4 weeks	2–4 weeks
Bank setup	optional	included in most packages

Both can be purchased as ready-made clean companies with bank accounts and VAT numbers — allowing you to start operations immediately.

10. Final Recommendation

If your goal is speed and flexibility, start with a UG.
If you want reputation and long-term stability, go for a GmbH.

Many entrepreneurs begin with UG to save money, then upgrade to GmbH once business grows.
Both forms are fully legal, recognized across Europe, and can be owned 100% by foreign individuals.

📞 Need help choosing?
Our consultants will analyze your business goals and recommend the best company type in Germany — ready-made or custom-registered.