The GmbH (Gesellschaft mit beschränkter Haftung) is Germany's most popular form of limited liability company. The newer and more founder-friendly option is called the Unternehmergesellschaft (UG), sometimes called a mini-GmbH. It requires at least one shareholder to establish GmbH or UG companies. It can be run by one managing director, who acts simultaneously as the sole shareholder. The company is a separate legal entity. Therefore the shareholder has limited legal liability.
Both structures are subject to the same laws and regulations. The UG can be converted into a GmbH once it reaches the minimum capital requirement.
The main difference between the two is the minimum capital requirement/initial contributions:
- For the GmbH, it’s €25,000. At least half should be deposited in the company bank account at the time of formation.
- For a One-man-GmbH (Ein-Mann-GmbH), collateral is needed for the outstanding balance if the nominal capital contribution is not paid in full.
- For the UG, the minimum initial contribution is €1. 25% of the profits should then be appropriated to the statutory reserve until the required capital is generated.
GmbH
Advantages
- Appear more credible and professional, primarily since they can be found in the commercial register.
- More tax advantages in the form of deductions.
- Limited liability for the shareholder.
- Annual accounts (Jahresabschluss) are published publicly, offering increased transparency.
Disadvantages
- Long process to register and incorporate.
- High cost of share capital and registration fees.
- Additional taxes.
- For one-person-Gmbhs, there's a restriction in creating capital in the form of in-kind contributions.
UG
Advantages
- Lower formation costs.
- Same limited liabilities as a GmbH.
Disadvantages
- Using in-kind contributions for the capital is not allowed.
- Same long process to register and incorporate.
- Seen as less professional than a GmbH due to lower capital requirement.
How to Register Your GmbH or UG Business:
- Decide whether you want to set up a GmbH or UG.
- Select your company name. Check with the Commercial Register (Handelsregister) for any name duplicates.
- Select the purpose of the company (Unternehmensgegenstand)
- You can consult the German Chamber of Commerce and Industry to check your company name and objective for free.
- Draft your company’s articles of association. You can find a template here or create your own.
- Prepare a shareholder's list and founding documents needed to open a bank account
- Have your documents notarized. You can find German notaries here.
- Submit documents to the Commercial Register. Wait for an invoice and pay the fee as soon as you receive it.
- Open a business bank account. If incorporating a GmbH, deposit at least half of the minimum capital.
- Register at the Tax Office
- Register at the Trade Office
- Purchase the necessary insurance for your business
- Company insurance
- Corporate liability insurance
- Professional liability insurance
- Business interruption insurance
- Health and disability care insurance (statutory health insurance or private health insurance)
- German Pensions Insurance
- Register with the Transparency Register (Transparenzregister)
- Apply for membership with the Chamber of Industry and Commerce (IHK), Chamber of Trade (HWK), or Chamber of Professions (Berufskammer)
- Membership is required, and usually, the responsible chamber will contact you after registering your business
- Apply for an AüG license.
There is the Labor Leasing Act (AUG) in Germany to consider when you have a limited company. Technically you are leasing yourself to the client as an employee of your company. If you do this in Germany, your limited company must have an AUG license.