GmbH vs. UG

The two most popular legal forms for founders with limited liability compared (Germany).

Share capital:

• GmbH: €25,000 (at least €12,500 to be paid in on formation)
• UG: from €1 (must be paid in full – no contributions in kind!)

Formation costs:

• Notary fees (sample protocol): from ~€300 (same for both)
• Commercial register: ~€150
• Trade registration: €20–60
• Total: from approx. €500–1,000

The decisive difference – profit reserve:

• UG obligation: 25% of annual profit must go into the reserve
• Until €25,000 is reached – then the UG can be converted into a GmbH
• GmbH: profits can be distributed freely

Reputation and banking:

• GmbH: full standing with banks, suppliers, customers
• UG: signals "no money for a proper GmbH" – banks often demand a personal guarantee
• The UG's creditworthiness is considerably worse

Liability:

• Both: liability limited to company assets (that's the point!)
• But: with a UG with €1 share capital, insolvency can be triggered by its own formation costs – then you may be personally liable (piercing the corporate veil)

Recommendation:

• GmbH: if you have the capital or can borrow it
• UG: only as an interim step if €25,000 really isn't possible
• Alternative: small business rule + sole proprietorship (no share capital needed at all)