A UG (haftungsbeschränkt) is a GmbH with less capital: you can start with one euro, but must set aside a quarter of each year's profit until you reach €25,000. A GmbH needs €25,000 of share capital, at least €12,500 paid in at formation. Investors accept both, but most founders who expect to raise soon either start as a GmbH or convert once money comes in.
- UG minimum capital: €1. GmbH minimum share capital: €25,000, of which at least €12,500 must be paid in at formation.
- A UG must allocate 25% of its annual net profit to a reserve until share capital reaches €25,000.
- Both need a notary to form and to transfer shares; both can now be formed online by video notarisation.
- A UG can convert into a GmbH by increasing its capital to €25,000.
- For investors the legal form matters less than the cap table, vesting and IP. A UG signals "early", not "risky".
What is actually different between a UG and a GmbH?
A UG (Unternehmergesellschaft, haftungsbeschränkt) is not a separate type of company. It is a variant of the GmbH, governed by the same GmbH Act, with special rules for low capital. Liability is limited in both. Management, shareholder meetings and notarisation work the same way.
| UG (haftungsbeschränkt) | GmbH | |
|---|---|---|
| Minimum capital | €1 | €25,000 |
| Paid in at formation | Full amount, in cash | At least €12,500 |
| Profit reserve | 25% of annual net profit until capital reaches €25,000 | None required |
| Name | Must include "UG (haftungsbeschränkt)" | "GmbH" |
| Formation | Notarised; online formation possible | Notarised; online formation possible |
| Share transfers and capital increases | Notarised | Notarised |
Does the legal form matter to investors?
Less than founders fear. An angel or seed fund cares about the cap table, founder vesting, who owns the IP and whether the company can absorb their investment cleanly. A UG with clean documents beats a GmbH with a messy shareholder agreement.
Where the UG does show up is in practicalities. Investors usually invest through a capital increase, and many will simply ask you to lift the capital to €25,000 as part of the round, which turns the UG into a GmbH. With very low capital, a UG can also become over-indebted on paper quickly, which German insolvency rules take seriously. That is a reason to raise capital early, not a reason to avoid the UG.
Which should you choose?
- Choose a UG if you are pre-product, bootstrapping and want to start for the cost of the notary. Plan to convert when money arrives.
- Choose a GmbH if you already have €12,500 to put in, expect to sign customers who check your capital, or plan to raise within months.
- Consider a Delaware parent only if US investors or US crowdfunding are the plan. See Delaware flip from Germany and Delaware C-Corp vs GmbH.
How do you convert a UG into a GmbH?
By increasing the share capital to at least €25,000. That is a shareholder resolution, notarised, followed by registration. The company keeps its identity, contracts and tax number; only the name changes from "UG (haftungsbeschränkt)" to "GmbH". Funds from the 25% reserve can be used for the increase. Many founders do it in the same notary appointment as their first financing round, since investors are joining through a capital increase anyway.
What does each cost to run?
Running costs are almost the same: bookkeeping, annual accounts filed with the company register, a tax adviser and the IHK membership fee. Notary and register fees apply to formation and every later change of shares, so they recur at each funding round. We break those down in notary costs for a German financing round.
What should you set up from day one, whichever you choose?
- Founder vesting in the shareholder agreement. German companies use reverse vesting with call options rather than US-style restricted stock. See founder vesting in Germany.
- IP assignment from each founder to the company, in writing.
- A plan for employee equity. Real shares in a GmbH need a notary for each grant, so most startups use virtual shares. See ESOP vs VSOP in Germany.
Frequently asked questions
Can you raise venture capital as a UG?
Yes. Investors invest in UGs, usually through a capital increase that often lifts the capital to €25,000 and converts the UG into a GmbH at the same time.
How much does it cost to form a UG or GmbH?
Mostly notary and register fees, which depend on the statutory fee scale and the documents used. Using the standard sample protocol keeps a UG formation cheap; a custom GmbH with a shareholder agreement costs more.
What is the 25% rule for a UG?
A UG must put 25% of its annual net profit into a statutory reserve until its share capital reaches €25,000. The reserve can later be used to convert into a GmbH.
Is a GmbH better than a UG?
Not legally; both limit liability under the same law. A GmbH has more capital from the start, which can help with customers and lenders. A UG is cheaper to start.
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Join the waitlist →Sources and further reading. §5a GmbHG (UG); §5 GmbHG (share capital); §7 GmbHG (paid-in capital); GmbH Act (full text).
Educational material, not legal, tax or investment advice. Rules and figures change; confirm with qualified counsel or a tax adviser in your jurisdiction before acting. Last updated October 6, 2026.