UG vs GmbH: a comparison of legal forms

Choosing the appropriate legal form is a crucial step for the success and legal security of your company. Especially for founders in Germany, the question often arises: Should I establish an UG (Entrepreneurial Company with Limited Liability) or a GmbH (Limited Liability Company)?

Both types of companies are capital companies with limited liability and protect your personal assets. However, they differ mainly in the requirements regarding the share capital, formation costs, as well as their external impact and creditworthiness.

To gain a deeper understanding explore this comprehensive guide on the various business structures available in Germany, including UGs and GmbHs.

Summary

1. What is a GmbH?
2. What is an UG?
3. Key differences between UG and GmbH
4. UG vs. GmbH – key criteria in comparison
5. Legal form selection: what fits best?
6. Business account for UG and GmbH
7. Conclusion and recommendations
8. FAQ

What is a GmbH?

The Limited Liability Company (GmbH) is one of the most popular and widely used legal forms for companies in Germany. Legally, it is a corporation with its own legal personality. This means that the GmbH acts as an independent legal entity: it can acquire property, enter into contracts, and sue or be sued in court.

Legal сlassification

The GmbH is governed by the Act on Limited Liability Companies and belongs to the group of capital companies. Its shareholders are generally liable only with their paid-in share capital, not with their personal assets. This provides a limitation of liability, which is particularly attractive for many businesses.

Minimum capital and liability

To establish a GmbH, a minimum share capital of €25,000 is required. At least €12,500 of this amount must be paid in when registering the company in the commercial register. The shareholders’ liability is limited to this capital, thereby restricting personal risk towards creditors.

Advantages of a GmbH

• High reputation and trust: The minimum capital makes the GmbH a solid and trusted legal form among banks, investors, and business partners.
• Clear limitation of liability: Shareholders are liable only up to their investment and are not personally responsible for debts.
• Flexible company structure: A GmbH can be founded by one or several shareholders and offers diverse structuring options in its articles of association.
• Legal and tax clarity: As an independent legal entity, the GmbH is subject to clear statutory and tax regulations, providing certainty.

What is an UG?

The Entrepreneurial Company with Limited Liability (UG), often referred to as the mini-GmbH, is a special form of the Limited Liability Company (GmbH) and belongs to the capital companies with limited liability. The UG was introduced in 2008 primarily to offer founders with low starting capital an easy and cost-effective way to start a business.

Definition and characteristics

The UG is an independent legal entity which, similar to the GmbH, limits the liability of its shareholders. This means the shareholders' liability is restricted to the company's assets, protecting their personal assets. The formation requires notarisation and registration in the commercial register.

Minimum capital 

The significant advantage of the UG is the lower minimum share capital, which can start as low as 1 euro. This low capital requirement makes the UG particularly attractive for startups and small businesses that do not yet have the financial means to meet the full GmbH's minimum share capital of 25,000 euros. However, there is a legal obligation to retain at least 25% of the annual surplus as reserves within the company until the share capital of 25,000 euros is reached.

Why is the UG often called a "mini-GmbH"?

Since the UG is subject to the same legal regulations as the GmbH but differs in the lower minimum capital requirement, it is often called a mini-GmbH. This name highlights the similarities in limited liability and structure but also points to the lower capital requirement, making the UG a popular choice for founders with limited starting capital.

Key differences between UG and GmbH

When choosing between an Entrepreneurial Company with Limited Liability (UG) and a Limited Liability Company (GmbH), several factors play a crucial role. The following outlines the main differences in terms of minimum capital, formation costs, creditworthiness, liability risks, contributions in kind, reserve requirements, and administrative and accounting efforts.

Minimum capital and formation costs

• The GmbH requires a minimum share capital of €25,000, of which at least €12,500 must be paid in at the time of formation.
• The UG can be established with a share capital as low as €1, which significantly reduces formation costs.
• Due to the lower capital requirement, overall formation costs for the UG are lower, partly because of a simplified formation process.

Creditworthiness and image

• With its higher share capital, the GmbH enjoys better creditworthiness and a stronger reputation among banks, business partners, and investors.
• The UG is sometimes seen as less creditworthy, which can affect financing and business relationships.

Liability risks 

Both entities offer limited liability confined to the company's assets.

However, in cases of intentional or grossly negligent conduct, personal liability can be imposed on shareholders, for example, in cases of delayed insolvency filing or tax evasion.

Contributions in kind

• The GmbH allows contributions in kind, such as real estate, machinery, or vehicles as capital.
• The UG does not allow this; the entire share capital must be paid in cash.

Reserve requirements for the UG

The UG is obliged to retain at least 25% of its annual surplus as reserves until the share capital reaches €25,000.

This rule is designed to strengthen the equity base and facilitate the UG's conversion to a GmbH.

Administrative effort and accounting

Both company forms are required to keep double-entry bookkeeping and prepare annual financial statements.

The administrative burden is generally comparable, though the UG may be somewhat easier to handle due to its lower capital requirements.

UG vs. GmbH – key criteria in comparison

Legal form selection: what fits best?

Choosing the right legal form largely depends on individual circumstances, goals, and financial capabilities. Both the Entrepreneurial Company with Limited Liability (UG) and Limited Liability Company (GmbH) offer advantages that can weigh differently depending on the stage and planning of the business.

UG: for founders with limited start-up capital

For founders with limited capital, the UG is often the preferred choice. With a minimum share capital of just one euro, the UG can be founded relatively easily and inexpensively. It allows young entrepreneurs to enter the business world with a limited liability company structure that protects their personal assets. The reserve obligation also ensures steady capital accumulation so that the UG can be converted into a GmbH in the long term.

GmbH: for larger businesses and investors

Companies that require higher creditworthiness, want more trust from banks and business partners, or plan larger investments should establish a GmbH. The €25,000 minimum capital implies more seriousness and makes credit approval and negotiations with investors easier. The GmbH also offers flexible structuring options and is well established in the German business environment.

From UG to GmbH

A unique strength of the UG lies in its potential to convert into a GmbH. Once the UG has accumulated sufficient profits as reserves and reached the share capital of €25,000, the shareholders can convert the UG into a GmbH. This step combines the advantages of both legal forms: the cost-effective entry via the UG and the later benefits of the GmbH in terms of reputation and creditworthiness.

Business account for UG and GmbH

A functional and well-suited business account is essential for companies of all sizes. It forms the basis for proper financial management, facilitates payment transactions, and strengthens trust with business partners and banks. For UG and GmbH, a separate business account is not only recommended but, in many cases, also legally required.

Popular neobank providers

Vivid Money

• Free Start - €0/month: perfect for newly registered companies wanting to test essential banking functions free of charge.
• Basic - from €7/month: for small teams with 15 users.
• Pro - from €19/month: for growing businesses with 30.
• Enterprise/ Enterprise+ - from €79/€249: ideal for larger companies.

Open your Vivid Money business account quickly and easily online – without any personal appointments or paperwork. Detailed information and a direct comparison of the various Vivid Money business accounts can be found here.

Finom

• Smart – €19/month 
• Pro – €119/month 
• Grow – €249/month 

Qonto

For microenterprises:

• Smart – from €19/month
• Premium – from €39/month

For small and medium enterprises (SMEs):

• Essentials – from €49/month
• Business – from €99/month
• Enterprise – from €199/ month

Revolut

• Basic - approx. €12 per month
• Grow - approx. €36 per month
• Scale - approx. €108 per month

Prices and conditions are current as of 23 September 2025 and may change. Please check providers’ websites for the latest details.

Key features:

• a dedicated German IBAN necessary for legal capital deposit and transactions,
• both virtual and physical corporate Visa cards for efficient expense management,
• multi-user access controls tailored for corporate governance,
• options for multiple accounts and sub-accounts to manage diverse projects or stakeholders,
• seamless integration with accounting and payment software to streamline financial oversight,
• instant SEPA transfers and cashback programs in selected plans,
• flexible pricing tiers adapted to the scale and growth stage of these corporate entities.

Criteria for choosing the right business account

When deciding on a business account, founders and entrepreneurs should consider the following aspects:

• Costs and fees: Monthly account charges, transaction costs, and additional services overview.
• User-friendliness: Intuitive operation and digital access via app or web portal.
• Customer support: Availability and quality of service, ideally with personal advice.
• Security: SSL encryption, two-factor authentication, and other security features.
• Integration: Compatibility with accounting software and other financial tools.
• Additional services: Offers like credit cards, multi-user access, or expense management.

Considering these criteria will help you find a business account that optimally fits the needs of your UG or GmbH and makes daily financial management significantly easier.

Conclusion and recommendations

The choice between UG and GmbH mainly depends on your individual needs, financial capabilities, and goals as a founder. While both legal forms limit liability to the company’s assets, they differ in several key aspects that should be carefully considered.

Summary of the main differences:

• The UG allows for a cost-effective entry with a minimum share capital of only 1 euro but is obliged to retain 25% of its annual profit as reserves.
• The GmbH requires a higher minimum capital of 25,000 euros but enjoys better creditworthiness and a higher reputation with banks and business partners.
• The GmbH offers more flexibility in profit distribution and permits contributions in kind, whereas the UG can only be founded with cash contributions.
• Both companies limit private liability, but in case of violations of duties, there is the possibility of piercing the corporate veil.

Recommendation for founders

If you want to start with limited capital or do not yet have significant financial reserves, the UG is an attractive and pragmatic legal form. Once your company has stabilised and capital has sufficiently grown, it is advisable to convert to a GmbH to benefit from its advantages regarding creditworthiness and reputation.

Use of professional advice

Choosing the optimal legal form is an important step that has long-term consequences for your company. Therefore, we recommend seeking professional advice from tax consultants or lawyers early on. This ensures that your choice fits your business idea and situation individually and that you are optimally positioned.