A UG (haftungsbeschränkt) and a GmbH are both German limited liability companies. The practical differences are the share capital rules and how some banks and partners read the two forms. A UG can be formed with very little capital but has to build a legal reserve from its profits, while a GmbH starts with a higher minimum capital. Which one fits depends on your business plan, and a German tax advisor should confirm the details for your situation.
What the two share: limited liability
Both forms are corporations under the same statute, the German Limited Liability Companies Act (GmbHG). In both, the company is a separate legal entity, shareholders are in general not personally liable for company debts, and one or more managing directors (Geschäftsführer) run the business. The UG is not a different company type. It is a variant of the GmbH with its own rules in section 5a of the act, which is why the full name carries the suffix “haftungsbeschränkt”.
That shared base matters for you as a founder abroad: most of the paperwork, from the articles of association to the trade register entry, follows the same path for both. If you are still deciding whether Germany is the right country at all, our overview of Germany UG/GmbH formation explains what we handle.
Share capital and section 5a GmbHG: the UG reserve rule
Share capital is the main line between the two. The GmbH minimum is set in the GmbHG, and you can read the current figure on the statute page for section 5. The UG is the exception to that minimum: section 5a lets the share capital fall below it. The trade-off is a reserve duty. A UG has to set aside part of its annual surplus in a legal reserve until it reaches the point described in the law, and that reserve can only be used for specific purposes such as a capital increase. Read the exact wording on the official page for section 5a GmbHG instead of relying on a summary, including ours.
| Point | UG (haftungsbeschränkt) | GmbH |
|---|---|---|
| Liability | Limited to the company | Limited to the company |
| Share capital | May be below the GmbH minimum (section 5a) | Minimum set in section 5 GmbHG |
| Legal reserve from profits | Required under section 5a | No UG-style reserve rule |
| Name | UG (haftungsbeschränkt) or Unternehmergesellschaft (haftungsbeschränkt) | GmbH |
| Formation path | Notary, then trade register | Notary, then trade register |
Two things follow from the reserve rule. First, cash that you might want to take out as profit stays in the company for a while. Second, a low starting capital leaves little cushion, which can matter when you buy inventory or sign supplier contracts. Neither point makes the UG a bad choice. They are the questions to settle before you pick it.
Notary and trade register steps
In both cases the articles of association are notarized, the managing director is appointed, the capital is paid in, and the company is entered in the commercial register. The company generally exists as a GmbH or UG only once that entry is made. The shared register portal is handelsregister.de, where you can look up existing companies and see how entries are structured.
For foreign founders the practical questions are about logistics: who attends the notary appointment, how identity is verified, and in which language documents are signed. These vary by notary and by your country of residence, so ask the notary directly. The BMWK start-up portal is a neutral place to read the official overview of founding steps in Germany. Our pricing page notes that German registration fees are not part of the package price, so check the current pricing for what each package does and does not include.
How banks and partners tend to see each form
We cannot speak for any bank, marketplace or supplier, and no company form guarantees a bank account. What founders often report is that a company with very low capital prompts more questions from banks, payment providers and trading partners about what is behind it. Others are not bothered at all. If a particular bank or platform matters to your plan, ask them what they look at before you decide, and keep the answer in writing.
Which form for an online seller?
There is no universal answer, but these questions usually decide it:
- How much stock or advertising spend will the company carry in its first year, and who finances it?
- Do you want to take profits out early, or can the company retain them for a while?
- Will a supplier, marketplace or lender look at your equity?
- Do you plan to bring in partners or investors later?
- Do you expect to sell into Germany only, or across the EU?
If you plan to sell packaged goods into Germany, remember that packaging rules apply to the seller regardless of company form. That is a separate topic, covered in our article on German packaging law and LUCID registration.
Moving from a UG to a GmbH
Section 5a describes how a UG can later change into a GmbH once the capital reaches the GmbH minimum, and how the legal reserve can be converted into share capital. Changing the form involves a shareholder resolution, a notarial step and a register entry, so budget time and notary costs for it. Starting as a UG is therefore not a one way door, but it is not free either.
What to ask a German tax advisor
This article is general information, not legal or tax advice. Before you sign, take these questions to a Steuerberater:
- How will the company be taxed in Germany, and which registrations does it need after the register entry?
- How will profit distributions to a shareholder living abroad be treated, in Germany and in your own country?
- How does the UG reserve rule affect my cash planning in year one?
- If I later grow into a GmbH, what does the change cost in tax and fees?
- Do my bookkeeping and filing obligations differ between the two forms?
Frequently asked questions
Can a non-EU citizen open a GmbH or UG?
German company law generally does not require shareholders to be German or EU citizens. The practical points are notary appointments, identification and banking, which differ case by case. Forming a company does not give you a residence permit or work permit, and we do not promise one. Residence questions belong with the competent German authorities.
Is a UG a lesser version of a GmbH?
Legally it is the same family. The UG is a GmbH variant with the section 5a capital and reserve rules. Whether partners see it differently depends on the partner, not on the statute.
Can I switch from UG to GmbH later?
Yes, the law provides for it. The exact conditions are in section 5a, and the change needs a notary and a register entry.
Do you give tax advice?
No. We coordinate formation and related compliance steps, and individual tax questions belong with a licensed advisor in the relevant country.
If you want to talk through a German setup, you can start with the company formation application form. There is no obligation to continue after that.