When setting up a company, raising sufficient start-up capital is often the first hurdle. For example, the minimum capital in the context of a GmbH founding already amounts to EUR 25,000. For this reason, British limited companies (Ltd.) became popular in the mid-2000s. These only require one euro as initial capital. To counter this trend, the German legislature introduced the new corporate form UG (haftungsbeschränkt) in 2008. Just like the British Ltd., this “Mini GmbH” can already be founded below the capital expense required for a GmbH. The following article contains a compact presentation of essential information about the UG.

1.1. Share capital

The UG was developed as a subform of the GmbH. Therefore, the same legal provisions apply to UG as to the GmbH. The primary source of law is thus the GmbH Act (GmbHG). Therefore, the shareholders, as in the GmbH, are not personally liable for company debts. The company is limited to its own assets, § 13 paragraph 2 GmbHG. However, the general provisions of the GmbHG are partially modified by § 5a GmbHG. These special regulations apply exclusively to UG (haftungsbeschränkt) and are based on the freely selectable share capital of the “Mini-GmbH”. Because the formation of a UG may also be carried out with a share capital of less than EUR 25,000, § 5a paragraph 1 GmbHG. Thus, according to the legal requirements, the minimum capital of EUR 1 can be chosen.

The possibility of choosing such a small minimum capital is of a more theoretical nature, since in trade a much higher capital is usually required. In the event of insolvency, insolvency also threatens newly founded companies. It should be noted here that the raised share capital may of course already be used for paying invoices. However, a distribution of profits is only permitted if the share capital is covered by the financial resources of the company (capital conservation principle, § 30 GmbHG). Although a certain share capital must always be raised, the company can alternatively cover its liquidity needs with external capital (for example loans, shareholder loans).

1.2.

Like the GmbH, the UG (haftungsbeschränkt) is a separate legal entity and corporation. It is therefore largely independent of its shareholders. Society acts through its organs. This includes in particular the shareholders’ meeting and the managing directors. As a corporation, UG (haftungsbeschränkt) is subject to the accounting obligation according to §§ 242 ff., 264 ff. In principle, it is permissible to use UG as the sole personally liable partner (complementary) of a limited partnership (KG). This link creates a UG & Co. KG.

2. The process of establishing UG

The establishment of a UG (limited liability) can be carried out by a single person or a plurality of persons. Not only natural persons, but also other companies are considered as founders. In the founding process, the notarial certification of the social contract (also: "Statutes"), § 2 paragraph 1 GmbHG is mandatory. In this context, a foundation by the legally offered model protocol (see § 2 paragraph 1a GmbHG) is also permitted. This can save notary costs depending on the amount of the share capital. However, this is on the one hand at the expense of the individual design of the social contract. On the other hand, the establishment is opened by model protocol only up to a limit of three shareholders and one managing director.

Due to the small share capital of UG, the company’s creditors must be protected in another way. Therefore, it is required by law that the company carries in its company the addition "UG (haftungsbeschränkt)" or "Entrepreneurgesellschaft (haftungsbeschränkt)". If the company does not use this company addition in legal transactions, a legal liability / organ liability in particular of the managing director comes into consideration. Since the shareholders can determine the share capital as freely as possible in the process of incorporation, it must be paid in full in cash, § 5a (2) sentence 1 GmbHG. Accordingly, contributions in kind (e.g. land, GmbH shares) are not permitted (§ 5a (2) sentence 2 GmbHG). Finally, the company is created upon registration in the commercial register (§ 11 GmbHG).

Due to the low share capital, there are also various peculiarities after the foundation, which the shareholders must consider. The statutory duty to preserve is the most noticeable difference compared to the GmbH. Due to this provision, a quarter of the annual profit must be placed in a statutory reserve, § 5a (3) sentence 1 GmbHG. Thus, this part of the company’s annual profit is not freely available to the company. The use of the reserve is only permitted for very limited purposes (see § 5a (3) sentence 2 GmbHG). This includes in particular the capital increase from company funds (§ 57c GmbHG). The legal purpose of the prescribed formation of reserves is the accumulation of share capital in order to upgrade UG (haftungsbeschränkt) as quickly as possible to a GmbH. However, in practice, no profits are often generated for a long time at the beginning of a company. In such cases, the statutory obligation to set aside reserves is of course initially empty.

3.2. Capital increases

In accordance with the founding regulations (see 2.), the full payment requirement and the prohibition of contributions in kind also apply to subsequent capital increases in a UG (limited liability). These principles are valid as long as the share capital falls below the limit of EUR 25,000. As soon as this value limit is reached by corresponding increases in the share capital, all restrictions of § 5a GmbHG are eliminated. However, the implementation of capital increases is voluntary and thus at the discretion of the shareholders. If the shareholders opt for a capital increase, this can be implemented either by conversion of the statutory reserves (§ 57c GmbHG) or by issuing new shares/increasing existing shares for contributions to the company assets (effective capital increase, § 55 GmbHG). After an increase in the share capital to at least EUR 25,000, the company may operate as a GmbH. Although the change of legal form is also voluntary, but usually recommended.

3.3 Threatening insolvency

In the UG (limited liability), in the event of imminent insolvency of the company, a shareholders’ meeting must be convened immediately (§ 5a (4) GmbHG).

Advantages and disadvantages of UG (limited liability)

The advantage of UG is undoubtedly that it offers the shareholders the possibility of exclusion of liability despite low and flexible capital expenditure. Especially in sectors with low capital requirements, UG can therefore represent a worthwhile alternative to the GmbH. On the other hand, however, there is the lower seriousness in legal transactions and the often hardly available creditworthiness. In many cases, in economic practice, personal partnership guarantees or shareholder loans are necessary to provide the company with the necessary financial resources. Of course, this represents a risk for the private assets of the shareholders and accordingly reduces the actual economic effect of the liability exclusion mediated by UG (haftungsbeschränkt).